Market Commentary November 2023

Is the glass half empty or half full?

There is enough news to worry about financial markets and to see pitch black: War, sovereign debt, inflation, recession. At 27 points on the CNN Fear & Greed Index, Mr. Market's psyche is severely battered, bordering on extreme fear at 25 points.

However, there is much to suggest that share prices will develop positively in the future:
- The fear described above led to a lack of direction and pushed investors into liquidity, in other words to underweight equities.
- The seasonality between November and the end of April speaks in favor of equities.
- The futures market is anticipating lower interest rates, as can be clearly seen in the chart below.

(Bloomberg)

Will the Ukraine/Russia war or the war in the Middle East escalate? Is the next pandemic around the corner? Will there be a currency crisis soon due to the huge mountains of sovereign debt?

- The world is full of risks and humankind tends not to see the wood for the trees.

For long-term investors, to which we also count ourselves, there are three decisive factors for or against an investment in shares:
- Will the monetary policy of the central bank(s) be restrictive or expansive in 6 - 9 months' time (which is roughly the lead time of the equity markets)?
- How will the unemployment figures develop in the next 6 - 9 months?
- Are equities overvalued or undervalued today?

Even if the futures market does not quite reflect our opinion (we expect another interest rate hike in Europe), the probability of falling interest rates in the next 6-9 months is higher than that of rising rates - which is positive for the equity markets.

Unemployment figures are at their lowest level since the introduction of the Euro. We assume that the eurozone is currently in recession. We suspect that the shortage of skilled workers and the pandemic have prompted companies to hold on to their employees for longer than before. The risk that unemployment figures in the eurozone will rise is therefore high - negative for equity markets.

(Bloomberg)

With an estimated P/E ratio of 12.1x, P/B ratio of 1.8x, P/S ratio of 1.2x and a dividend yield of 3.5%, European equities are trading at an undemanding level. In comparison, 10-year government bonds yield a return of 2.7% - positive for equity markets.

The glass is half full.

Holdings

Tops
Even though the shares of the German copper smelter Aurubis AG (+11%) were shaken by the fall at the beginning of September, the company is one of the winners in the sector in the trend towards a more sustainable environment and has started a countermovement. A more sustainable environment will not be possible without copper.

Croissants will always be eaten. This is also the view of equity analysts, especially in the case of the Swiss industrial bakery Aryzta AG. Even if the earnings per share of CHF 0.13 were not breathtaking, the share buyback and the associated improvement in the balance sheet were convincing in retrospect (+7%).

The inclusion of the Swiss internet bank Swissquote Group Holding in the investment universe of Berenberg Privatbankiers, combined with a buy recommendation and a target price of CHF 216 (+30% above the share price at the time), helped the shares to advance by 4% over the month.

Flops
Schäffler AG preference shares suffered from the downgrading of various equity analysts, causing the shares to lose -10% over the month.

The war in the Middle East and falling oil prices also dragged the shares of the Spanish oil company Repsol SA down -11%.

Positive study results for Novo Nordisk's diabetes drug Ozempic in kidney patients put the shares of the German dialysis group Fresenius Medical Care under pressure -23%.

Please do not hesitate to contact us if you have any queries regarding the fund.

Sincerely

Your CIIM Team