8 May 2017, Sweden | News
There were high expectations ahead of this year's first reporting period, mainly in the cyclical sectors. The stock market began the year with strength, driven by positive macro statistics and communication from several companies that first-quarter performance had been very robust. The combination of high expectations and high valuations meant a substantial risk of disappointment.
Right now, with much of the reporting period behind us, we can observe that it has been one of the strongest in a very long time. This is attributable primarily to cyclical companies, which reported positive organic growth, convincing order intake, improved margins and positive outlooks. There were particularly good reports from companies like Metso, Sandvik, SSAB and Volvo. The excellent reports have lifted the Stockholm stock exchange to new highs, as relatively high valuations have been overshadowed by corporate earnings growth and upward revisions of analysts' profit forecasts.
What were the big disappointments from the reports? Without a doubt, most retailers are still having a tough time, including companies like Hennes & Mauritz, XXL and Tokmanni. Many are blaming the weaker quarter on a mild Nordic winter, leading to weaker sales and thus high stock levels. This is part of the explanation, but consumers have undoubtedly been more cautious. In addition to this, the sector is wrestling with the structural changes brought about by rapidly growing e-commerce.
Recent macro statistics have come in slightly weaker than expected. One example is that US GDP growth in the first quarter of the year only rose by an annualised 0.7 percent. Recent Chinese data has also come in slightly weaker, largely due to recently falling worldwide interest rates.
Geopolitics has been the big worry recently, with US involvement in the Syrian civil war, a tougher tone between the US and North Korea after the country's missile tests, uncertainty surrounding the French elections, and the risk of tightening monetary policy. However, concern about the last of these has softened due to weaker macro statistics, the difficulties for President Trump to implement his expansionary economic policy, and a reduced risk of higher inflation leading to less pressure on the US central bank to raise interest rates.
In our opinion, global equities are currently realistically valued. That said, if there were to be any dramatic deterioration in growth outlooks, the market will not be saved by valuation since there is certainly downside from today's levels.
Important information
Investments in fund units are associated with risk. Past performance is no guarantee of future returns. The money invested in a fund can increase and decrease in value and it is not certain that you will get back the full amount invested. No consideration is given to inflation. The Catella Balanserad, Catella Credit Opportunity and Catella Hedgefond funds are special funds under the Swedish Alternative Investment Fund Managers Act (SFS 2013:561) (AIFM). Catella Sverige Aktiv Hållbarhet and Catella Småbolagsfond may use derivatives, and the value of the funds may vary significantly over time. The value of Catella Sverige Index may vary significantly over time. Catella Avkastningsfond may use derivatives and may have a larger proportion of the fund invested in bonds and other debt instruments issued by individual national and local authorities and within the EEA than other investment funds, in accordance with Chapter 5, Article 8 of the Swedish Investment Funds Act (SFS 2004:46). Catella Nordic Long Short Equity and Catella Nordic Corporate Bond Flex may use derivatives and may have a greater proportion of the funds invested in bonds and other debt instruments issued by individual national and local authorities and within the EEA than other investment funds. For more details, complete prospectuses, key investor information, and annual and half-yearly reports, please refer to our website at catella.se/fonder or phone +46 8 614 25 00.