18 September 2020
At GAM Investments’ Weekly Equities Meeting held on 15 September, several of our portfolio managers discussed current market conditions.
Reiko Mito – Japanese Equities
On the political front, Yoshihide Suga is to be elected as Japan’s new prime minister, following the August resignation of Shinzo Abe. Previously, Suga spent close to eight years as Abe’s chief cabinet secretary and is expected to follow the same economic policy as his predecessor and align with the Bank of Japan’s monetary policy. We regard this continuity as positive for the Japanese equity market. Suga is pro deregulation in several areas including the medical and education sectors and is also keen on opening up Japan to foreign blue and white collar workers, another positive for Japan’s domestic stock market.
Joaquim Nogueira – Emerging Market Equities
In Brazil, Paulo Guedes, the minister of economy, is emerging from the Covid-19 crisis with his reputation and influence on policy enhanced following recent resignations of health and education ministers. For investors, we regard this as a welcome scenario. Moreover, Guedes appears to have the full support of President Jair Bolsonaro, who has seen his own popularity rise of late and now seems safe from impeachment. With a background of US dollar weakness, the Brazilian real could see strong appreciation, boosting Brazilian equities.
Chris Morrison – UK Equities
The UK equity market recovery since March has lagged other stock markets in Europe. In part, this can be explained by a lack of tech constituents and an overweighting of banks and oil & gas companies. More recently, Brexit is back in focus, putting pressure on sterling and lowering bond yields. In the small & mid-cap space, we have seen incremental improvements in month-on-month and quarter-on-quarter trading updates; stock prices appear to jump initially before diminishing. We believe a couple of quarters of good news should drive the share price performance of select companies, irrespective of the market backdrop.
Daniel Häuselmann – Swiss Equities
The Swiss market has recovered strongly since March and we have witnessed a rise in valuations during the last couple of months. Most companies have been hit by Covid-19, but the extent to which they have been able to protect margins has been a surprising positive. Forward guidance is lacking, but this is unsurprising as the environment remains uncertain. Overall, we are optimistic as most companies are performing well in a difficult environment.
Christophe Eggmann – Healthcare Equities
Gilead Sciences has agreed to acquire Immunomedics for circa USD 21 billion. While this seems like a significant sum of money for essentially one asset (breast cancer drug Trodelvy), pharma companies are prepared to pay large amounts to build diversified portfolios. Gilead itself is looking to build its oncology portfolio and, in our view, the deal looks reasonable as the asset should move the needle in terms of revenue growth. We do not think there will be a spate of mergers in the healthcare sector following the Gilead / Immunomedics announcement but expect more activity following the US elections.
Roberto Bottoli – Merger Arbitrage
Following a reduced pipeline of deals earlier in the year, we are beginning to see a wider set of merger arbitrage opportunities. The Gilead Sciences / Immunomedics announcement is the latest example. A broader opportunity set means there is less crowding. This, combined with recently volatility in tech stocks, means merger arbitrage spreads are widening.
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. September 2020.