Taking stock: Where to from here?

Share on facebook
Share on twitter
Share on linkedin

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Benjamin Graham, 1940

European stock markets appear to lack direction at the moment. Following the steep sell-off in Q1 as the coronavirus crisis gripped global financial markets, we saw an impressive recovery in Q2. Since May, however, European markets have traded sideways, as illustrated below by the Euro Stoxx 600 index. The index ended May at 350 and, although it hasn’t traded below that level, it has been range bound ever since, oscillating in a narrow 7.5% band between 350 and a high of 376.7, seen in mid-July.

Source: Stoxx as at 14 September 2020.

This sideways movement has coincided with the usual summer lull in investment activity but we are now at the point at which the market’s next move may soon become apparent. To move forward positively from here, European stocks probably need to see a continuation of the improvement in economic momentum, or perhaps a breakthrough in the race for a coronavirus vaccine. On the other hand, if the second wave of infections continues to gather pace as we head towards winter, then a move lower is perhaps more likely.

The situation is finely-poised in the near-term therefore, which acts as a timely reminder about the importance of taking a longer-term view where equity investing is concerned. In this regard, Russ recently spoke in a debate about the outlook for European Equities, at which all three speakers spoke positively about the improving political landscape in the region. This follows the historic agreement on the pandemic recovery fund reached in August, which raises the prospect of fiscal transfers between EU nations for the first time. This agreement has the potential to remove on of the key fragilities of the Eurozone. Here’s what Russ had to say on the subject.

“There are reasons for optimism, though, aside from the more attractive valuations that can be found in Europe. If we see more joined-up thinking on fiscal policy, which looks more likely now than ever before, Europe has the potential to prosper coming out of this pandemic. You could argue that the political backdrop is more supportive now than it has been in many years. Ultimately, the potential for good returns always exists in parts of the market that are under-researched and under-owned. That is Europe through and through.” 

This week’s highlights

French technology business, Soitec, also performed well following a positive initiation note from JP Morgan, which explored the company’s growth prospects as fifth generation mobile networks (5G) are rolled out around the world. All appears broadly in line with our investment thesis – we view Soitec as the best play on 5G in Europe. The shares are now back above their pre-crisis highs and the team will keep a close eye on it in the near-term. But, echoing the short-term vs long-term sentiment above, we still see significant growth potential on a three-to-five year view.

Swedish cash management business, Loomis, performed well last week after announcing details of a new product launch. Loomis Pay is an end-to-end payment system, designed to make life much more straightforward for it small-to-mid-sized merchant customers. The new product will require some investment over the next three years but Loomis forecasts that it could deliver more than SEK 3bn in additional annual revenues within five years, at an attractive margin. Clearly, there is execution risk in a product launch like this, but if successful, it has the potential to augment group profits by about a quarter.

Rightmove, the UK’s largest online property portal, is a core holding in the RWC UK Focus Fund. The team had a call with management last week to follow-up on the interim results released in August. Despite the economic uncertainty, the business is trading well and looks likely to have its best year ever. Activity in the UK housing market is at record levels and, even as lockdown restrictions are being reintroduced, the property market looks likely to remain open. At c. 30x next year’s earnings, the valuation looks rather attractive when compared to most other website businesses, particularly when one considers Rightmove’s attractive financial characteristics, strong brand and pivotal role in the UK’s housing market.

Unless otherwise stated, all opinions within this document are those of the RWC European and UK Investment Team, as at 23 September 2020.

The term “RWC” may include any one or more RWC branded entities including RWC Partners Limited and RWC Asset Management LLP, each of which is authorised and regulated by the UK Financial Conduct Authority and, in the case of RWC Asset Management LLP, the US Securities and Exchange Commission; RWC Asset Advisors (US) LLC, which is registered with the US Securities and Exchange Commission; and RWC Singapore (Pte) Limited, which is licensed as a Licensed Fund Management Company by the Monetary Authority of Singapore.

RWC may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this document. RWC seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.

This document is directed only at professional, institutional, wholesale or qualified investors. The services provided by RWC are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.

This document has been prepared for general information purposes only and has not been delivered for registration in any jurisdiction nor has its content been reviewed or approved by any regulatory authority in any jurisdiction. The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by RWC; or (iv) an offer to enter into any other transaction whatsoever (each a “Transaction”). No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party.

RWC uses information from third party vendors, such as statistical and other data, that it believes to be reliable. However, the accuracy of this data, which may be used to calculate results or otherwise compile data that finds its way over time into RWC research data stored on its systems, is not guaranteed. If such information is not accurate, some of the conclusions reached or statements made may be adversely affected. RWC bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction. Any opinion expressed herein, which may be subjective in nature, may not be shared by all directors, officers, employees, or representatives of RWC and may be subject to change without notice. RWC is not liable for any decisions made or actions or inactions taken by you or others based on the contents of this document and neither RWC nor any of its directors, officers, employees, or representatives (including affiliates) accepts any liability whatsoever for any errors and/or omissions or for any direct, indirect, special, incidental, or consequential loss, damages, or expenses of any kind howsoever arising from the use of, or reliance on, any information contained herein.

Information contained in this document should not be viewed as indicative of future results. Past performance of any Transaction is not indicative of future results. The value of investments can go down as well as up. Certain assumptions and forward looking statements may have been made either for modelling purposes, to simplify the presentation and/or calculation of any projections or estimates contained herein and RWC does not represent that that any such assumptions or statements will reflect actual future events or that all assumptions have been considered or stated. Forward-looking statements are inherently uncertain, and changing factors such as those affecting the markets generally, or those affecting particular industries or issuers, may cause results to differ from those discussed. Accordingly, there can be no assurance that estimated returns or projections will be realised or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this document may be aggregated data of Transactions executed by RWC that has been compiled so as not to identify the underlying Transactions of any particular customer.

The information transmitted is intended only for the person or entity to which it has been given and may contain confidential and/or privileged material. In accepting receipt of the information transmitted you agree that you and/or your affiliates, partners, directors, officers and employees, as applicable, will keep all information strictly confidential. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information is prohibited. The information contained herein is confidential and is intended for the exclusive use of the intended recipient(s) to which this document has been provided. Any distribution or reproduction of this document is not authorised and is prohibited without the express written consent of RWC or any of its affiliates.

Changes in rates of exchange may cause the value of such investments to fluctuate. An investor may not be able to get back the amount invested and the loss on realisation may be very high and could result in a substantial or complete loss of the investment. In addition, an investor who realises their investment in a RWC-managed fund after a short period may not realise the amount originally invested as a result of charges made on the issue and/or redemption of such investment. The value of such interests for the purposes of purchases may differ from their value for the purpose of redemptions. No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in a RWC-managed fund. Current tax levels and reliefs may change. Depending on individual circumstances, this may affect investment returns. Nothing in this document constitutes advice on the merits of buying or selling a particular investment. This document expresses no views as to the suitability or appropriateness of the fund or any other investments described herein to the individual circumstances of any recipient.

AIFMD and Distribution in the European Economic Area (“EEA”)

The Alternative Fund Managers Directive (Directive 2011/61/EU) (“AIFMD”) is a regulatory regime which came into full effect in the EEA on 22 July 2014. RWC Asset Management LLP is an Alternative Investment Fund Manager (an “AIFM”) to certain funds managed by it (each an “AIF”). The AIFM is required to make available to investors certain prescribed information prior to their investment in an AIF. The majority of the prescribed information is contained in the latest Offering Document of the AIF. The remainder of the prescribed information is contained in the relevant AIF’s annual report and accounts. All of the information is provided in accordance with the AIFMD.

In relation to each member state of the EEA (each a “Member State”), this document may only be distributed and shares in a RWC fund (“Shares”) may only be offered and placed to the extent that (a) the relevant RWC fund is permitted to be marketed to professional investors in accordance with the AIFMD (as implemented into the local law/regulation of the relevant Member State); or (b) this document may otherwise be lawfully distributed and the Shares may lawfully offered or placed in that Member State (including at the initiative of the investor).

Information Required for Distribution of Foreign Collective Investment Schemes to Qualified Investors in Switzerland

The representative and paying agent of the RWC-managed funds in Switzerland (the “Representative in Switzerland”) is Société Générale, Paris, Zurich Branch, Talacker 50,

P.O. Box 5070, CH-8021 Zurich. In respect of the units of the RWC-managed funds distributed in Switzerland, the place of performance and jurisdiction is at the registered office of the Representative in Switzerland.

Explore more

Taking stock: Tech-tonic shifts

Dealing with a large and diverse investment universe, such as the one that Europe’s collective equity markets represents…

Taking stock: You’re due an upgrade

We have seen a number of positive profit warnings across the portfolio in recent weeks, which in aggregate, have had a beneficial impact on performance…

Taking stock: Catching falling knives

There is a regularly used phrase in financial markets, which becomes particularly popular in times of market stress: “Don’t catch falling knives”…


Please confirm your investor type



By clicking Submit, you agree that you have read and accepted the terms and conditions detailed in the DISCLAIMER

This website uses cookies. A cookie is a small data file placed on your computer which captures information about your choices which allows us to improve your experience of the website, for example, by remembering your country of residence. By continuing to access this website, you agree to be bound by our Cookie Policy. You can accept and/or block at any time by changing your browser settings.


Where are you located?



Rest of world

By clicking Submit, you agree that you have read and accepted the terms and conditions detailed in the DISCLAIMER


What type of investor are you?



By clicking Submit, you agree that you have read and accepted the terms and conditions detailed in the DISCLAIMER