March 2017

The equity market upturn that began with the election of Mr Trump continued during the first quarter.

The US S&P 500 index rose by 5.5% following a climb of 7.2% in November/December 2016, while the Eurostoxx 50 index is beginning to catch up with an increase of 6.3% following 11.3% in November/December. At the same time, the low level of volatility indices attests to the markets’ confidence about rising share prices since the start of the year.

At 17.5x expected earnings, the valuation of the US market is nevertheless strained. Investors are focused on the additional earnings growth expected from the measures announced by Mr Trump in terms of deregulation, tax cuts and public spending, and could be disappointed if the implementation of these measures is not as radical and immediate as hoped, as with the disappointment concerning the reform of Obamacare. Lastly, while most US economic indicators remain positive, business investment is struggling to pick up, as demonstrated in particular by the weakness of the heavy vehicles sector as noted by many suppliers.

At a multiple of 14.7x, the European market seems to present a more reasonable valuation. This is based on the expectation of strong earnings growth in 2017 (+18%), but the signs of economic recovery in Europe are being confirmed month after month, while maintaining room for improvement. For example, in February the unemployment figure for the eurozone reached its lowest level since 2009 but is still at a high level of 9.5%. We would also note, without expanding further, that the political context represents the main uncertainty for the European market this year.

In what has been a buoyant market up to now, the equity compartments of the Rouvier SICAV have delivered positive performances since the start of the year: +4.5% for Rouvier Valeurs, +2.3% for its hedged version Rouvier Évolution, and +5.4% for Rouvier Europe. These performances were supported by solid 2016 results published during the first quarter.

However, we would note the poor performance of Gemalto, one of the top positions of these funds, which dented their performance in March. The company issued a profit warning on March 22nd due to a sharp slowdown in its bank cards division in the United States. This is the second such warning in six months, for different reasons: the warning issued in September resulted from management’s desire to maintain investment in a less favourable economic climate, even if this means penalising 2017 operating profit. With the current profit warning, the new management team is getting things back on course. We have therefore lowered our valuation assumptions but believe that the stock’s fundamental value is still much higher than the current share price, in view of the long-term trends, and it therefore presents significant upside potential.

Meanwhile, the Rouvier Patrimoine compartment delivered a first-quarter performance of around 1% while bond markets registered a negative performance. On the eve of a possible rise in volatility relating to the forthcoming elections, its secure positioning has been reinforced, with a reduction in exposure to French corporate bonds in favour of variable-rate international corporate bonds.




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