Markets stave off geopolitics and imminent US rate rise

By Andrew Dalrymple, fund manager at Quaero Capital, Global Equities Fund

The terrorist attack in Paris, further escalation of hostilities in the Middle East and even the widely anticipated rise in US interest rates have failed to have much of a sustained negative impact on global equity markets in recent weeks.

Investors seemed to ride out short term bouts of volatility, focused more on the performance of individual stocks than the global geopolitical backdrop.
The latest US data suggested an imminent interest rate rise, but it has been so much discussed that we doubt it will have a disastrous impact when it finally occurs, especially if accompanied by a conciliatory statement from the US Federal Reserve about future expectations.

The third quarter reporting season in America ended with results that generally met expectations, with two exceptions in the shape of action camera maker GoPro, and commercial real estate agent Marcus and Millichap.

Both disappointed badly, and the shares fell heavily. We have now sold Marcus and Millichap, and are considering the future of GoPro, whose products nonetheless remain the undisputed industry leader.

More positively, Activision Blizzard, Acadia Healthcare, and Home Depot all rose very strongly following their encouraging reports. However, our weighting in America is quite heavily exposed to the travel industry, and the Paris attack negatively affected Priceline, Expedia and Royal Caribbean Cruises.

Our holdings in Europe contributed very strongly to the fund’s 2.8% gain over the period, in comparison with 4.1% in the MSCI World (net) EUR index. Patrizia Immobilien saw some profit taking following its meteoric 92.1% rise so far this year.

An encouraging management statement from Irish building materials specialist Kingspan sent the shares 14% higher, while office equipment specialist Grenkeleasing also guided optimistically, and the shares rose by almost 9%. Finally, in this catalogue of good news, pleasing figures from Grand City Properties pushed the stock up by around 6%.

Asia was also helpful, with the exception of flash sales specialist VIP Shop, which lost 17% over the month. This came about after the company announced some sales figures which failed to meet very lofty analysts’ expectations, just ahead of their results, which, a few days later, turned out to be extremely good!

Conversely, both travel agent Ctrip (+17%), and asset manager, Noah Holdings (+7%) rose strongly following their announced figures, while longstanding stalwart Tencent gained 5%.

Our three Indian holdings were largely unchanged over the month, although India bulls caused something of a stir by acquiring a UK bank as a means of shortcutting the registration process to become a deposit taker in India. This was a disappointing development, and caused a sharp sell-off in the share, from which, fortunately, it has mostly recovered.

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