Dear Copiers, Followers and Fellow Investors,
I hope you are doing well and are satisfied with performance in the first quarter of 2023. Despite some macroeconomic headwinds our portfolio has outperformed the broader market. YTD performance is up ~22.5% and we are up ~1% in March. In comparison, the S&P500 is up 0.58% YTD and down 2.61% in March. My portfolio has been aided by strong performance from Aston Martin (LON: AML) and Capita (LON: CPI). Aston Martin stock surged 14% at the beginning of this month following improved guidance on EBITDA and wholesale units for 2023. Capita shares are performing well following a reported increase in adjusted profit and strong outlooks for their book of business. Additionally, the company is still trading at a trailing P/E of 10.56x, which is below IT services industry peer average of 60.5x. This metric suggests that the company still has strong potential for upward movement in share price. I will now highlight some of the macro-economic trends I am keeping an eye on this month.
Silicon Valley Bank in the United States collapsed in the past week, marking the nation’s largest collapse of a financial institution since the insolvency of Washington Mutual in 2008. Many investors and analysts can easily see the parallels between the current macroeconomic climate and the 2008-09 financial crisis. The default of a major financial institution like SVB is reminiscent of Lehman Brothers in 08. Both were triggered partly due to over lending and investment in mortgage-backed securities combined with rising interest rates. I am now waiting patiently for the Federal Reserve rate decision at the March 22nd meeting. Analysts at GS have suggested that they expect the Fed to halt rates hikes in response to the SVB default. If the Federal Reserve hikes rates 25 bps again in March, I wouldn’t be surprised if there were similar defaults in the US financial markets. However, in contrast with 2008, the US government stepped in to provide funds for SVB depositors on Monday. Regulators determined the failure of institutions such as SVB and Signature Bank as systemic risks to the economy. SVB catered predominately to the tech industry, and technology stocks have responded with declines following SVB’s insolvency. Crypto currencies also responded with declines in value following the default. However, many of them have stabilized after the US government stepped in to protect depositors. Banking regulators are using policy in hopes to stop contagion from spreading towards other financial institutions. As an investor, I am remaining optimistic that policy makers will be able to handle this volatile period better than 2008. Regardless, the next several weeks will be key moments for the struggling economy.
In European markets, SVB also sent shockwaves; despite HSBC stepping in to acquire the UK arm of SVB, European banking stocks are continuing to slide. For example, fintech forex platform Wise is down 12%, Commerzbank is down 11.4% and Credit Suisse is down 8.9%. What do the woes of the banking market mean for the broader macroenvironment? The failure of financial institutions sends a ripple effect though out the entire economy. Enough turmoil in the financial sector, has the potential to cripple markets worldwide. For example, Europe’s Stoxx 600 slid 1.35% to a seven-week low at the opening of this week. Investors should remain conservative through turmoil. The US and European markets appear to be entering muddy waters. In my portfolio, I remain convicted regarding my current investments. Additionally, I am emboldened by the potential to continue looking towards emerging markets in China. Yadea Group Holdings (HKG:1585) and Vipshop Holdings (NYSE: VIPS) continue to be two of the highest performing stocks in my portfolio.
I am also closely following several key indicators this week: February CPI, PPI, and the ECB rate policy decision all happen this week. Stay tuned for more following these decisions. Thank you to my copiers and fellow investors who are continuing to weather the storm this month.
Best and Regards