In contradiction of all the prophets of doom, the start of the year was one of the best of recent times. Despite a marked economic slowdown in the first quarter of 2019, buying risky assets has more than paid off. Publications of annual results and the first quarterly results contained no indications of a severe global recession. All the equity indices, both in the United States and Europe approached or touched 20% of performance. Therefore, it seemed reasonable to encourage clients achieving such performances to take a bit of profit and give themselves an easier summer, particularly as the resurgence of hostility between the United States and Iraq brought upward pressure to bear on the price of oil. As the popular French proverb says, “in April don’t take off a thread”. Equity investments should be retained, as we wait for value strategies to rally since, despite everything, they are still lagging behind the general upward trend in the indices. Major international investors are still turning away from European equities (the 56th week of outflows in the last 58 weeks).
Surprising statistics also show a continuation of the trend towards repurchasing equities in the United States ($270 billion, or 22% up in comparison to the same quarter last year). Businesses are continuing, therefore, to take advantage of accommodating monetary conditions and the power of their bottom lines to buy back their securities. The stock market euphoria is also attracting stock market flotations (most recently, Pinterest…). It is, then, understandable that the equity markets are taking a break. Indeed, the Anglo-Saxons do like to “sell in May and go away”. However, there are still sectors and companies whose stock market prices have not yet regained the levels they were at before the last quarter of 2018. These are certainly the areas in which we should continue investing throughout 2019, particularly in advance of the imminent period of dividend distributions.
And so in May, it’s not necessarily a matter of adopting the Anglo-Saxon adage, but perhaps more to continue with the next line of the French proverb: “In May, go ahead.”
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in April 26th, 2019.
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