At GAM Investments’ latest Equities Meeting, held on 17 August, our managers discussed strong results from Swiss companies and commented on regulatory shifts in China.
Thomas Funk – Swiss Equities
While we were expecting H1 2021 earnings from Swiss companies to provide evidence of a considerable recovery, businesses exceeded our expectations comfortably with exceptionally strong results. There were notable highlights among select industrial names and medical technology companies, where we saw strong rebounds in top-line growth and earnings. At the SPI Extra Index level, estimates for forward earnings on a one-year timeline are at record highs and we see considerable opportunities for strong value creation ahead. Well-managed growth companies can be found in both defensive and cyclical sectors and we continue to focus on companies which can emerge as winners from the current challenging environment.
Rob Mumford - China Equities
July was a difficult month for China equities as the combination of ongoing tapering, regulatory shifts, geopolitics and China’s new Five-Year Plan initiatives caused significant market weakness and it seems a degree of capitulation from non-China dedicated investors awaiting clarity on these issues. While the pace of both tapering and regulatory shifts have come faster than expected, most of these issues have been well telegraphed and are not new phenomena. Meanwhile, we believe the move to a more neutral stance (July’s surprise announcement of a reserve requirement cut of 50 bps across almost all institutions) is the starting gun for the end of tapering in China. With industry reform a key element of tapering, it is also likely we are at the apex of policy initiatives. China’s ultimate goal is to create a stable, long-term sustainable economic environment. The recent regulatory changes, including the first phase of digital economy regulation and heightened sensitivity around data and network security due to the new cybersecurity law and geopolitical considerations, are not, in our view, a lurch to the left in the model of socialism with Chinese characteristics.
We believe China, both in terms of its economy and capital markets, has become too big to ignore and will increasingly become a core holding for many investors, not a temporary beta fix. The opportunities and attraction of a market which is at the tail end of tapering (in sharp contrast to rest of the world) and at attractive valuations (with undamaged earnings growth potential outside of select situations) should, in our view, make anyone but very short-term investors pay close attention to China equities over the second half of 2021 as the delta on all of the above starts to improve.
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 not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.