A bright future for investors who lift their gaze
The Stockholm exchange climbed further in June as the world continued to open up. Most signals now quite clearly indicate a strong recovery in China, and hopefully Europe and the US will show the same vigour.
We are a little sceptical since consumption will probably be under pressure in the West, partly because many people are still unemployed, and partly because the virus is spreading in some US states and if opening-up is delayed consumption will probably be affected.
But the market is currently choosing to look to the future. Half-year numbers will be published in a few days, and it is obvious they will be very weak. Most important will be that companies indicate that June and order intake were okay. If this is the case, the market may continue to look ahead. Otherwise, a backlash can be expected.
Several companies initially singled out as winners from the virus have traded weakly in June and been left out in the cold, resulting in lower share prices. Essity is one of these, and we increased our holding once again. This stable hygiene company with strong brands and cash flows is now one of our larger holdings. We also bought some AstraZeneca, which fell almost 10 percent as more cyclical shares took up the baton.
“Trends may last longer than you think, but some differences in valuation are insanely large nowadays and, in the long run, this usually has quite serious consequences.”
The first half of the year has been marked by huge volatility on global equity markets, and tech stocks have skyrocketed − Tesla to another planet − while more traditional industry and banking shares have suffered, and stable companies have been quite resistant. Trends may last longer than you think, but some differences in valuation are insanely large nowadays and, in the long run, this usually has quite serious consequences.
We are also approaching a US election and new rounds/threats in the US-China conflict, and the virus has not yet been defeated (although it is going in the right direction).
Against this, it should be stated that our portfolio is full of well-managed companies whose strong balance sheets and good business models suggest a bright future for investors who lift their gaze a couple of years into the future.