Companies chugging steadily along

October was a good month for the equity markets, even though inflationary pressure remains high and the central banks are responding with steep rate hikes. One reason the markets nevertheless had a good month is that the interest rate increases now being implemented and those expected in the near term are expected to rapidly chill the economy, which has raised hopes that the central banks will be able to begin lowering rates earlier than previously expected.

Consequently, we are in a reverse situation in which weak figures for the economy are, if anything, strengthening the equity market. In any case, expectations are now settled that we will be experiencing a recession in 2023. October was a particularly weak month for Chinese equities, on the other hand, partly due to political developments as President Xi Jinping tightened his grip on power.

Corporate reports for the third quarter of the year have in most cases, however, been strong compared to expectations. One of the fund’s holdings that never disappoints is Lifco, and that remains true this time. In spite of cost increases, Lifco was able to increase the EBITA margin by 1% to 22%. Net sales increased by a full 20%, half of which was organic growth and half derived from acquisitions and currency tailwinds. Lifco has successfully demonstrated high multi-year growth while lowering the debt to earnings ratio.

Other company reports important to the fund that delivered happy surprises were Skanska, Sandvik and ABB. Ericsson’s report, on the other hand, was a disappointment that was followed by a sharp negative price reaction. We believe the market is overreacting, as the company’s core business still seems to be healthy. It is also comforting that Ericsson is not among the fund’s more important holdings.

October was a relatively quiet month for the fixed income and corporate bond markets. The valuations of many bonds issued by Swedish property companies indicate continued significant impairments of property values. We increased the equity share somewhat during the weak equity market trend in September. We continued on that path in October, at the expense of bonds. In that context, the fund has increased existing holdings including Alfa Laval, Getinge, Sandvik and Volvo.