July 2017

As usual, corporate interim reports provide us with a good occasion to review cyclical trends as seen from the field.

First we note the strength of world trade: Kuehne & Nagel pointed out the strong growth of maritime and air freight, up 4% and 10% in volume, respectively. For this blue chip company in our investment universe, which unfortunately is rarely discounted and in Buy territory, growth in these two sectors was 9% and 15%, respectively. The same can be said about domestic trade in the United States, which according to Michelin fuelled the rebound in the US truck tire market (+14% in the first half compared to -19% in the same period in 2016).

BASF, our usual barometer for industrial activity, raised its economic forecast for 2017 and is now looking for a 2.5% increase in GDP and world industrial output (up from an initial estimate of 2.3%). In a chemicals market that was expected to grow 3.4%, BASF reported 5% growth in volume and a 20% increase in EBITDA. With overall sales growth of 12%, the group reported stronger performances in Asia (+19%) and Europe (+13%) than in North America (+8%) and Latin America, Africa & the Middle East (+5%). These results were highly anticipated by the financial markets, and as part of our investment discipline, we sold off this position.

Our main indicator for investment is Schneider Electric, which reported organic growth of nearly 3%, including 6% in industry, 4% in construction, 2% in data centres and -4% in infrastructure. The company has taken a more selective approach to its offer in the infrastructure sector, and the division is still struggling to rebound. From a geographic perspective, the most significant growth was in Asia, up 6%, compared to 2% for the rest of the world.

Lastly, for Randstad, we noted an acceleration in billings for temporary employment services, with organic growth of 9.3% in the second quarter (vs. 6.4% in the first quarter), including +11% in Europe (vs. 8%).

These signals confirm the scenario that first began to take shape in the first-quarter reports of a European recovery combined with a rebound in the emerging countries. Yet neither seems to be strong enough yet to reassure the equity markets, which are focused on the end of the expansion of central bank balance sheets and the dollar’s decline against the euro. With reinvested dividends and in euros, the increase in the MSCI World index since the start of the year as fallen back to 1.4% at July 31st (4.6% at April 30th) while the MSCI Europe slipped to 6.3% (from 7.7% at April 30th).

Relative to these indexes, the equity compartments of Rouvier Valeurs and Rouvier Europe managed to limit the decline since the start of the year with gains of 5.8% and 6.8%, respectively, at July 31st. Meanwhile, persistently low volatility continued to strain the cost of hedging, as well as the performance of Rouvier Évolution (2.1%). Rouvier Patrimoine gained 1.7% at July 31st (vs +1.2% at April 30th), a worthy performance compared to the benchmark bond index (-0.3%).

 

Monthly Factsheet