February 2018

Financial markets are concerned that a return of inflation will trigger interest rate rises that will in turn threaten the strong growth trend in the economy. Indeed, the publication of higher than expected wage growth figures in the US at the end of January was enough to push US long rates – which had been as low as 2% last September – up from 2.8% to nearly 3%. This was followed by a widespread increase in volatility, as demonstrated by the 7.8% fall in the Euro Stoxx 50 over the first 9 days of the month.

Expectations of a strong performance of the global economy this year are further strengthened by a number of signals drawn from 2017 company results. BASF is expecting strong growth in industrial demand, and an increase of 3.4% in chemicals industry output to meet this. Packaging suppliers, which are also good barometers of overall economic activity, are also predicting strong growth in demand. In 2017 they increased their orders to Bobst Group in Switzerland, one of the world’s main producers of equipment for this sector, by 17%. Sales of industrial automation solutions at Schneider Electric enjoyed organic growth of 5.9% in 2017, after several patchy years, providing yet another sign of increased business confidence. Provided there is no escalation of protectionism in response to the US government’s new tariffs, global trade should continue to fuel economic growth; Kuehne & Nagel expect freight volumes to grow by 4% to 5% this year, in line with the figure for 2017.

The range of indicators we use to study the economic cycle are sending contradictory signals about the possibility of the economy overheating. US wage growth of 2.9% in January was high, and above expectations, but it is also worth noting that the participation rate in the labour market there remains limited (63%) and has not changed since 2015. For reasons of caution, however, we have retained substantial cash levels in our Valeurs and Patrimoine funds, in order to benefit from renewed volatility by investing on good terms whilst remaining true to our fundamental investment discipline based on the quality of our selected stocks and their valuations.

The various compartments of the Rouvier SICAV performed well in February, compared to MSCI World and Europe indices that fell by 2.1% and 3.9% respectively. Rouvier Europe limited losses to 2.6% and is still 1.2% up for the year to date, compared to a 2.3% fall in its benchmark index. Rouvier Valeurs is still 0.1% up for the year to date, after a 2.9% fall in February. This fall was limited to 2.4% for the hedged Rouvier Évolution version (-0.1% since the beginning of the year). Lastly, Rouvier Patrimoine was also showing a slight gain for the year at the end of February (up 0.1%), relative to a bond index that was in slightly negative territory.



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