Equity markets began 2020 as a continuation of their remarkable run in 2019, before pricing in the consequences for the Chinese and global economies of the Wuhan coronavirus outbreak to finish the month down slightly, with falls of 0.2% for the S&P 500 in the USA and 1.2% for Europe’s Eurostoxx 600.
Although growth no longer seems to be the main driver of financial markets, which have become primarily sensitive to the liquidity policies of central banks, any significant slowdown in the economy would necessarily result in a deeper market correction. Before the emergence of the latest health scare, economic forecasting bodies had begun to identify small areas of likely improvement, confirming the modest growth which was seen in 2019. Looking beyond these forecasts, it is interesting to listen to the messages coming out of companies. The German companies we met during the investor conference in Frankfurt had a position fairly similar to what we were hearing a year earlier: no improvement in traditional industries, notably with a flat car market (where weak growth in emerging markets is offsetting small contractions in mature markets) and a truck market that has shrunk sharply; consumer spending holding up well; the same sectors seeing growth: construction, energy saving, digitalisation, industry 4.0 and anything relating to boosting company productivity.
The conservative compartments of the SICAV met their targets well in January with losses of just 0.1% and 0.3% respectively for Rouvier Patrimoine and Rouvier Évolution. For the latter, it is worth noting the effective repositioning of its equity element, which closed the month just 0.1% down. With their less defensive positions, Rouvier Valeurs and, to a greater extent, Rouvier Europe saw bigger losses (2.9% and 3.7% respectively) and were hit by corrections in stocks linked to luxury goods, tourism and oil.
For the rest of the year we will need to be prepared for a market that could become much more selective than last year. We will therefore be particularly vigilant on the prospects for earnings growth at companies in our portfolios and on their valuations.