WEEKLY MARKET COMMENTARY BY H.E.R.O. (28 Sep to 2 Oct 2020)
WEEKLY MARKET COMMENTARY BY H.E.R.O. (28 Sep to 2 Oct 2020)
Nordic and Swiss H.E.R.O. innovators were resilient winners in the Portfolio of dividend-yielding global H.E.R.O. Innovators which rose for the fourth consecutive week during the week ended 2 October 2020, vs MSCI ACWI All World index +1.7%, Australia All Ord -2.6% in its worst weekly performance since late April 2020, Japan Topix -1.5%, demonstrating her resilience in turbulent market conditions and extending her overall absolute positive and relative outperformance against major world indexes since her recent birth on 28 August 2020, during which MSCI ACWI All World index tumbled -3.6%, S&P 500 -4.5%, NASDAQ -5.3%, and Greater China stocks slumped with Hang Seng index -7.7%, CSI 300 index -5.3% and HSCEI -8.8%, and gold physical spot (in USD) -3.3%.
- Nordic and Swiss stocks were key contributors during the week, led by: (1) Nordic Global #1 Technology Leader in Weather, Environmental, and Industrial Measurement (+15.4%); (2) Finland’s #1 Market Leader and Pioneer in Specialized Cloud-Based ERP and Accounting Software Solutions for Construction, Building Services Engineering and Manufacturing Companies (+14.3%); (3) Nordic Global #1 Leader in Sauna & Spa Tech (+10.2%); (4) Swiss Global #1 Technology-Based Leader in Peptide-Based Active Pharmaceutical Ingredients (APIs) for the Pharma, Biotech, Diagnostics and Cosmetics Industries (+7.6%); (5) Canadian Global Cloud SaaS Leader in Endpoint Cybersecurity and Data Risk Management Solutions (+7.4%); (6) Swiss Global Leader in Critical Actuator and Control Valve Technology for HVAC (+6.8%).
- The K-shaped recovery divergence, coupled with the worsening U.S.-China relationship, points towards the new world order in the post-pandemic future that marks the ascent of the quiet Nordic powerhouse region – comprising of Sweden, Denmark, Norway, Finland and Iceland with a combined GDP of over US$1.6 trillion, combined population of around 27.3 million people, and the highest regional GDP per capita in the world at over US$62,000 – where they are a Winter War kind of country: innovation happens when things are tough, not when they’re easy and comfortable.
“POTUS has COVID = Increased odds of new ‘Phase 4’ stimulus” has been the market narrative in its clinging on to vague hope that prevailed over the new layer of uncertainty and deteriorating economic data in waning job gains, rising permanent layoffs, and contracting labor force. Cyclicals, banks and Russell small caps bounced off their Friday lows, while Nasdaq crumbled 2.2%. House Speaker Nancy Pelosi on Friday floated the possibility that Trump’s coronavirus diagnosis could make an agreement more likely. “This kind of changes the dynamic, because here they see the reality of what we have been saying all along: This is a vicious virus,” Pelosi said on MSNBC. Markets latched on to the view that Trump, now unable to hold his large, raucous in-person campaign rallies in front of supporters across the country's swing states, would try to push for a deal to counter the loss of momentum in the economy’s recovery as federal unemployment benefits fade in recent weeks.
Even if Trump were to recover but lost the November 3 elections to Biden, markets are bracing for greater post-election risk after Trump repeatedly refusing last week to commit to a peaceful transition of power if he lost. A prolonged period with the election result in dispute would be negative for markets. A flashback would be after the presidential election of 2000, when a dispute involving Florida votes was ultimately resolved through a Supreme Court ruling. Stocks fell more than 8% in the weeks after the vote, as the race remained unresolved. Also, any federal government response to an upsurge in coronavirus cases this season would be hard to pull off if there was a prolonged battle over the outcome of the election. That leaves investors facing the possibility of months without an operating government. The January VIX futures contract is also pricing in the danger that the post-election political ructions might last into 2021.
Earlier on Wednesday, the Fed has caped 33 Big Bank’s dividends and halted share buybacks for another three months, citing the need to conserve capital during the coronavirus-induced downturn. In another sign of the uncertainty facing the industry and the broader economy, the Fed has required big banks to undergo a second round of stress tests later this year. Results of the tests, designed to ensure banks can continue to lend in a crisis, will be announced by the end of the year. U.S. banks’ loan loss reserves have risen by US$110 billion since the crisis began, and are now equivalent to 2.2% of their loan portfolios, the highest level since after the financial crisis in 2012.
Big Tech cratered after a “NASDAQ whale” was unveiled as buying large blocks of call options in the popular FANG stocks on Thursday before Trump’s COVID diagnosis, paying a premium of US$180 million on a notional value of US$1.7 billion. Similar large call purchases in Big Tech in August by SoftBank, followed by retail investors, has been the supposed catalyst for September's tech-driven gamma sell-off in US stocks that recorded its first monthly decline since March. The biggest question on everyone’s mind is this: While Trump seems to exhibit “mild symptoms” and “shortness of breath” while undergoing treatment at the Walter Reed National Military Medical Center, how would markets react if Trump’s conditions were to worsen to require ICU care and the unthinkable happen with Trump unexpectedly succumbing to COVID?
Notably, after Finland’s #1 Market Leader and Pioneer in Specialized Cloud-Based ERP and Accounting Software Solutions for Construction, Building Services Engineering and Manufacturing Companies reported on Friday a set of resilient third quarter results and revised upwards its previously announced EBITDA target of 35–45% to 40%-47% for the current year with net sales growth for 2020 to be at least +37%, the highly-profitable and cashflow-generative rising dividend-yielding SaaS innovator, with 90% of its revenue recurring, jumped 17.2% in its share price, even as markets choked on Trump’s COVID news. So while the short-term day-to-day price movement can be volatile, what continues to be crystal clear is that the quiet structural growth H.E.R.O. innovators remain the most visible and vibrant pathway in a foggy, volatile, whipsawing, uncertain market to deliver sustained outperformance with their healthy fundamentals results.