Weekly Update: Saxo Thematic Investing Performance Weekly Update: Saxo Thematic Investing Performance Weekly Update: Saxo Thematic Investing Performance

Weekly Update: Saxo Thematic Investing Performance

PG
Peter Garnry

Head of Equity Strategy

Summary:  In this week's update to our Saxo Strats core equity themes we zoom in on our bubble stocks basket which declined 10% last week as equity sentiment took another step lower due to increased geopolitical risks, higher interest rates, and a worse than expected US inflation figure. The problem for bubble stocks, which are companies that have excessive equity valuations coupled with negative earnings expectations, is that valuations are still very high and with potentially higher interest rates downside risks remain high. We also highlight China's little giants basket as the part of the market was the only bright spot up 3.5%.


Another negative week for bubble stocks

Last week was another bad week for equities driven by geopolitical escalations around the war in Ukraine, higher long-term US yields, and a worse than expected US September CPI figure on Thursday taking the core inflation to the highest levels for the cycle. The current annualized rate of core inflation is now around 7.2% suggesting upside risks to the current pricing of peak US policy rate at around 5% in May next year. Global equities were down 1.7% last week with most of our theme baskets underperforming. The worst performer was the bubble stocks basket down 10% for the week.

The table below shows the 40 stocks that are part of the bubble stocks basket which aims to provide exposure to companies with negative earnings expectations and high equity valuations defined on the 12-month forward EV/Sales ratio. Despite the basket is down 73% from its peak in 2021 the median 12-month forward EV/Sales ratio is still 7.5x which in a historical context is still a very high ratio. It is also worth noting that while sentiment has changed dramatically and interest rates may move even higher, the vast majority of analysts tracking this part of the market are still extremely bullish on this group of growth stocks with the median price target being 79% above the current price. Another variant of the bubble stocks or disruptive growth segment is the Ark Innovation ETF which last week hit a 5-year low (see chart).

17_PG_1
17_PG_2
Saxo bubble stocks basket
17_PG_3
Ark Innovation ETF | Source: Saxo

China’s ‘little giants’ were only bright spot

As the performance overview table shows, Chinese consumer and technology stocks were also under pressure last week down 7.4%, but at the other end of the spectrum in Chinese equities the China’s little giants basket was up 3.5%. The ‘little giants’ phrase encompasses companies in China that has got the label ‘little giant’ which means that the company has some technology that the government deems to be important for the future of China; these companies typically operates within semiconductors, advanced manufacturing, energy, and critical minerals. This label gives certain benefits as better access to financing and government support. Back in early September, China named more companies ‘little giants’ expanding the list to around 9,000 companies with the goal of 10,000 companies on the list by 2025. Not all of these ‘little giants’ are publicly listed and those that are listed are not necessarily tradable on Saxo’s trading systems. The list below highlights the constituents in our China ‘little giants’ basket which are all available in Saxo’s systems.

17_PG_4
China's little giants basket

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.