Effective date: 30/09/2024Key Highlights of the Month
Markets were awaiting all the new U.S. releases, trying to anticipate the next move of the FED. Slowly, certainty shifted towards 50 basis points and this was the last move of the FED. Moreover, China's stimulus measures sparked renewed optimism about Asia, ignoring the extreme geopolitical tensions in the Middle East and Ukraine.
China thus performed excellently, with 17.6% for the Shanghai Composite and 18.3% for the Hang Seng, leading the emerging markets (+6.7%). The United States had another good month, helped by the FED's cut with a gain of 2.1% for the S&P and 2.8% for the Nasdaq, but with greater diversity in Europe: the United Kingdom lost 1.5%, Italy 0.6% while Spain gained 4.3% and Germany 2.2%. Japan, impacted by political uncertainty and rates, lost 1.3% during a very volatile month.
Commodities were also very volatile: oil lost 8%, but agriculture and metallurgy made gains (sugar 17%, corn 12.4% and wheat 9.6%, silver 8%, copper 9.8% and gold reached a new peak after a rise of 5.2%).
In September, Japanese stocks began to fall sharply due to the slowdown in the American economy, increasing market mistrust before the start of the Fed's rate cut cycle and the yen appreciation cycle. However, after the FOMC and BoJ meetings, Japanese stocks rebounded thanks to the improvement in the outlook for the American economy due to a preventive 50 bp rate cut by the Fed and the easing of concerns about yen appreciation. Subsequently, the end of the month was marked by high volatility in exchange rates and the stock market due to uncertainty about the political situation before the PLD presidential election on September 27 and a cautious sentiment towards the policies of the hardline factions after Ishiba's election to the presidency. As confirmed at a press conference on October 1, the Ishiba administration turned to an accommodative fiscal stance rather than the belligerent one initially feared.
Review of the Main Positions of the Month
Over the month, the fund's performance was behind that of the benchmark index.
We note a neutral sector effect, with good selection in the Consumer Goods and Materials - Chemistry sectors but negative in the Materials - Other and Industrial - Machinery sectors.
The country effect was neutral, with a good contribution in Europe and North America but negative in Japan and Emerging Markets.
We also observed a negative effect of our aggressive factor, with a contribution of around -0.44%, and at the same time note a negative effect of our defensive factor showing a contribution of -1.02%.
The capitalization size effect was negligible.
During the period under review, we were overweight on the quality factor and underweight on the earnings momentum factor.
At the stock level, we find very good contributors to performance such as NetEase Inc (OW, 20.2%), Yum China Holdings, (OW, 32.1%), Oracle (UW, 19.6%), NetEase (ADR). On the contrary, the following values penalized us: Tesla (UW, 21%), ASML (OW, -8%), KLA (OW, -6%), Stellantis (OW, -17%).
Here are the main operations carried out over the period: we bought Linde PLC / Yum! Brands/Trane Technologies and sold Dollarama Inc./Citigroup /Broadcom.
These led to a decrease in the weight of the Quality factor and an increase in the Defensive factor.
Outlook for the Following Month
An unusually large divergence between growth momentum indicators has emerged this quarter. These tensions may suggest that global expansion will slow to a pace below trend over the next two quarters. However, these developments also widen the extreme risks around this baseline. Unless there is a pause, fears of a slowdown in labor demand in developed markets and the decline in global manufacturing surveys keep the risk of a short-term recession high.
The last factor to emerge at the end of the quarter was the significant announcements of stimulus measures by China, leading to a surge in Chinese stocks and more broadly in stocks exposed to China.
This factor is to be monitored as it could cause capital outflows and reallocation from Japan to China.
However, we expect a normalization of operations towards China and after the sales on Japan due to the election of Mr. Ishiba. He confirmed the holding of a general election at the end of October. Welcomed by a rebound of the yen, this result should ensure continuity in Japanese policy and allow the BoJ to maintain room for maneuver. S. Ishiba reaffirmed his commitment to fully emerge Japan from deflation and argued in favor of continuing wage increases and support for consumption.