In stock market jargon there is an adage that January sets the tone for the whole year. Statistics show that there is some basis for this. One of the themes of this month is that in this first month, value beats growth and especially the technology indices.
Let’s look at the sectoral performance since the beginning of the year.
|Index||Asset||R sem||R 2022|
|MSCI World/Biotechnology NR USD||Biotechnology sector||-2,0||-3,5|
|MSCI World/Consumer Disc NR USD||Cyclical Consumption Sector||0,8||-1,7|
|MSCI World/Consumer Staples NR USD||Non Cyclical Consumption Sector||-1,6||-0,1|
|MSCI World/Energy NR USD||Energy Sector||2,2||8,8|
|MSCI World/Financials NR USD||Financial Sector||0,9||4,4|
|MSCI World/Healthcare NR USD||Healthcare Sector||-1,2||-4,4|
|MSCI World/Information Tech NR USD||Technology Sector||-0,9||-4,9|
|MSCI World/Materials NR USD||Materials Sector||-1,4||0,0|
|MSCI World/Comm Services NR USD||Comm services Sector||-1,6||-2,4|
|MSCI World/Utilities NR USD||Public Services Sector||-1,7||-1,6|
|S&P Global Agribusiness Equity NR USD||Agricultural Sector||-0,8||1,4|
|S&P Global Clean Energy TR USD||Ecology Sector||1,0||-7,2|
|S&P Global Infrastructure NR USD||Infrastructure Sector||-0,5||0,3|
|S&P Global Natural Resources||Natural Resources Sector||1,1||3,2|
|NYSE Arca Gold Miners TR USD||Gold Mines Sectors||0,7||– 6,0|
Source: Morningstar Direct 04/02/2022 in Euros
The reasons may be various, from rising interest rates penalising future discounted cash flows to the lack of investment during the past decade in assets that have been irreplaceable until now, even if the future holds a different vision. From lifts, oil, the industrial sector, food, etc.
In a market that in general index ratios looks expensive mainly if rates rise or inflation stays higher and for longer, there are still some opportunities that have not shown their full potential or have not normalised, mainly in Europe where valuations are more reasonable.
The reasons for investing in value-style European equities are as follows:
- Savings accumulated in the pandemic era where spending was reduced.
- Replenishment of inventories in a calmer health and economic outlook.
- Investments in capital goods to make the economy more competitive.
- European Commission recovery plan.
- Negative real interest rates.
But not all is rosy. In particular, although January has been a good month for some sectors, I would continue to look at banking, energy, commodities and construction material stocks. These are companies that have strengthened their financial structure, reducing costs and therefore improving their operating leverage, with a certain capacity to pass on costs.
Particularly in the banking sector, we are all aware of the reduction in costs, the increase in commissions charged, the increase in credit due to the coming recovery and the rise in interest rates, as well as the traditional support of the economic authorities for the sector, which is considered a fundamental part of the economy.
On the other hand, the rise in the price of energy has not yet been fully reflected in the rise in company prices.
The reopening of the leisure and tourism sector will promote the growth of these sectors. But it depends mainly on the evolution of the pandemic.
Relative valuations are still cheap between value and growth.
Source: Guide to the Markets, JP Morgan AM, at 31/12/2021.
Personally, in view of the uncertainties of the second round of inflationary effects, the funds that reflect this investment thesis, together with some alternative management funds, will form part of my portfolio this year, which has not started off very well.