July 7, 2021
- The US economic recovery stands out from the G7
- AMCs performance update
One Big Takeaway
This week, we have done a deep dive into the performance of AMCs.
For example, we tracked the SPH Global ESG fund against the MSCI World ESG Screened, since inception. As the sector allocation chart shows, this is a highly diversified fund. Historic performance has largely followed a similar pattern since 2020, if not trending somewhat higher. The portfolio has underperformed the benchmark by 196bps in June, its main contributors to growth having been Zalando (+17%) and Roche (+11.5%). The online retailer gained on more visibility on the future growth of GMV stemming from the agreement with Sephora, while Roche benefited from a battery of approvals issued by Japan, the EU and the FDA. The main detractors, on the other hand, were Cigna (8% down) in the absence of corporate news and Inditex (6.3% down)despite better-than-expected results in the first quarter of this year. There was no rebalancing during the period.
A similarly well-diversified fund is Swiss Emerging Equity Basket, which we tracked against SPIMLC Index. Despite a 2% gain in the period since January 2020, the fund marked a 270bps underperformance versus the benchmark – largely as a result of lower relative exposure to healthcare and consumer staples. Underpinning the performance of the healthcare stocks were Lonza and, again, Roche (+13% and +12% respectively), whilst Stadler Rail and insurance companies were the main detractors. Profit-taking was observed in the Kühne+Nagel Group, while increased weighting was given to Lonza, and Rieter joins the portfolio.
Chart of the Week
Volatility rises week-on-week as Asian stocks underperform
Markets have fallen from their recent highs, with investors worried about regional growth prospects, China’s scrutiny of the technology sector and a renewed surge of coronavirus infection cases. Chinese manufacturing PMI in June dropped to a rate of 51.9 from 52.7, pointing to weaker GDP growth in the second quarter. While supply bottlenecks are likely to remain, stocks of finished goods rose, however. On the inflation front, China’s PPI rose modestly, to 9.3% from May’s 9% year-on-year. Hong Kong stocks, in particular, have underperformed, yet Indian equities bucked the trend, continuing to outperform their regional peers.
Vietnam, where the government’s strict ‘Zero-Covid’ approach has hit the services sector –especially tourism, accommodation, and food – postedGDP growth of 6.6% year-on-year in the second quarter, an uptick on Q1’s 4.5%, though slightly below the consensus forecast of 7%. Agriculture (+1.1% QoQ) and industrial production (+2.2% QoQ) look more virus-proof sectors, and the country’s information and communication services also fared much better, while mobility indicators appear to have bottomed.
G7 economic recovery a mixed picture
The UK’s first-quarter GDP was 8.8% below its 4Q19 peak, the largest fall in the G7. Germany lost 4.7% from its peak, and France 5%. Across the G7, household spending was 13.4% below its respective 4Q19 peak, after a 4.6% quarter-on-quarter drop in 1Q21; business investments also dropped by 10.7% and exports by 6.1% QoQ, to 17.3% and 23.8% below 4Q19 peaks, respectively. Real disposable income in this year’s first quarter also fell by 1.4%, reflecting an increase in furloughed staff. Of all the G7 countries, the US appears the most insulated from the shock, having lost 0.9% from its 4Q19 peak. While the impact is fading, its recovery was boosted in recent months by the March stimulus bill as the US economy reopens.
Data to Watch
- 9th July: Christine Lagarde, President of the European Central Bank, will give the markets something to think about as she makes a speech following a special strategy meeting.
- 14th July: The Bank of Canada makes a decision on interest rates.