H&M and Ericsson are attractive
The Stockholm stock exchange fell back in December, closing 2015 as weak and unsettled as most recent months have felt, writes fund manager Simon Blecher.
In fact, the market has been down more or less since its peak in March. Then, OMX, representing the largest companies, was around 1,700 and has now closed the year at 1,400. The overall picture is obscured by the amazing rise of smaller stocks and by periodic rapid upticks during the autumn.
In December, Fed chief Janet Yellen finally threw the dice and announced a first US rate hike in nine years. It was probably not this that triggered the month’s dip of some 6 percent, but rather the ECB doing too little. Or perhaps this was just an excuse for investor worries that partying by central banks is about to end.
The pessimism is palpable, and weak growth, (continued) falling commodities, weak China figures and general political unrest are ruling the market, and this looks set to continue in the short term.
We made some changes in December. We upped Ericsson, which has lost 30 percent since the spring despite rumours that Cisco wants to bid, and also because the conflict with Apple is over and Ericsson will receive a settlement. Ericsson has a couple of tough quarters behind it, but management is likely to feel pressured to deliver, while the dividend is well over 4 percent and board changes seem highly likely.
We trimmed back Investor following good share performance. Hennes & Mauritz showed very weak sales in December, after the hottest European weather for many years; weather does not normally steer the share price in the long term, and H&M is now trading at historically low and attractive multiples. Net cash and a fine dividend should limit the downside, even though the company’s size means it often takes a hard short-term hit when the market falls.
The stock market is anxious, or one might even say weak, and this will probably persist for a while. But a large number of major companies are now trading at 13-15 times their normalised earnings and at dividends of 4-6 percent, which is attractive for long-term investors.