Head of Equity Strategy
Summary: The European equity market is up 3% this week despite high volatility and maximum uncertainty related to the war in Ukraine and the fallout from unprecedented sanctions against Russia. Putin said earlier today that he sees "positive movement" in the peace talks with Ukraine and the equity market being extremely sentiment driven these days are running higher on this comment. However, there are still many reasons to be cautious on equities and we are not changing our defensive stance. In today's equity update we are also highlighting changes we have made to our semiconductors and crypto theme baskets are reviewing them.
European equities muster first weekly gain since early February
STOXX 600 is up 3% this week as commodity markets have pulled back from their recent gains and today sentiment got another boost as Putin said he sees “positive movement” in the peace talks with Ukraine. The equity market has gone from modelling the future cash flow to become completely sentiment driven and we must reiterate that investors should not at this point read too much into these headlines moving markets. We are still in a maximum uncertainty environment and the outcome of the war in Ukraine is still incredible unpredictable. In addition global equities are still valued 0.8 standard deviations above its average historical valuation and as such considerable downside is still a risk. In addition to valuation risks, the inflationary pressures are not going away anytime soon and that will continue to put pressure on equity sentiment and making the operational environment for companies very difficult.
Theme basket review: Semiconductors see big changes
We are still in the process of reviewing all of baskets and today we are updating two of our theme baskets. The semiconductor basket is seeing the biggest changes with 11 companies being replaced. The semiconductor industry has been challenged this year from rising input costs and bottlenecks in the production. The semiconductor theme has also been caught up in the general rotation out of technology stocks and into themes such as commodity, defence, logistics, and cyber security.
The companies that have been removed either due to sanctions, too low market value, acquisitions, or their business found to be a less good exposure versus the theme:
The companies that have been added are:
The table below shows the new updated table of constituents in the semiconductor basket.
| Name | Mkt Cap (USD mn.) | Sales growth (%) | EBITDA growth (%) | Diff to PT (%) | 5yr return |
| NVIDIA Corp | 566,450 | 61.4 | 96.4 | 48.5 | 825.4 |
| Taiwan Semiconductor Manufacturing Co Ltd | 539,144 | 18.5 | 19.3 | 56.0 | 290.8 |
| Samsung Electronics Co Ltd | 338,487 | 18.1 | 29.5 | 31.9 | 87.5 |
| ASML Holding NV | 249,675 | 33.1 | 59.0 | 37.5 | 402.4 |
| Broadcom Inc | 239,959 | 15.5 | 31.0 | 17.9 | 205.6 |
| Intel Corp | 190,000 | 1.5 | -13.0 | 17.7 | 47.6 |
| Advanced Micro Devices Inc | 173,249 | 68.3 | 141.2 | 42.0 | 665.3 |
| QUALCOMM Inc | 174,358 | 35.0 | 37.2 | 38.0 | 206.8 |
| Texas Instruments Inc | 159,543 | 26.9 | 44.0 | 13.6 | 145.1 |
| Applied Materials Inc | 110,398 | 32.8 | 59.5 | 39.6 | 249.0 |
| Micron Technology Inc | 84,790 | 34.2 | 56.6 | 47.3 | 201.5 |
| Analog Devices Inc | 78,790 | 44.1 | 19.9 | 37.0 | 102.2 |
| Lam Research Corp | 69,341 | 38.5 | 48.9 | 46.0 | 344.6 |
| Tokyo Electron Ltd | 70,986 | 46.4 | 84.3 | 19.7 | 420.9 |
| LONGi Green Energy Technology Co Ltd | 68,766 | 74.8 | NA | 22.0 | 1,258.0 |
| Marvell Technology Inc | 55,319 | 50.3 | 134.3 | 45.8 | 317.5 |
| KLA Corp | 49,554 | 34.5 | 70.2 | 39.2 | 290.2 |
| NXP Semiconductors NV | 47,388 | 28.5 | 55.6 | 35.6 | 80.5 |
| Synopsys Inc | 46,058 | 17.9 | 25.0 | 28.3 | 318.8 |
| Cadence Design Systems Inc | 41,451 | 11.4 | 16.5 | 21.4 | 376.0 |
| Infineon Technologies AG | 41,351 | 24.8 | 62.7 | 63.6 | 78.3 |
| Microchip Technology Inc | 38,836 | 21.6 | 34.5 | 37.3 | 103.7 |
| STMicroelectronics NV | 36,283 | 24.9 | 54.2 | 50.3 | 168.7 |
| Will Semiconductor Co Ltd Shanghai | 30,693 | 32.8 | NA | 55.8 | NA |
| GLOBALFOUNDRIES Inc | 31,315 | 35.8 | 79.9 | 29.0 | NA |
| ON Semiconductor Corp | 24,925 | 28.3 | 89.1 | 27.7 | 278.6 |
| Tianjin Zhonghuan Semiconductor Co Ltd | 24,120 | 90.5 | NA | 34.2 | 479.3 |
| Skyworks Solutions Inc | 21,562 | 28.7 | 28.9 | 41.4 | 44.5 |
| Kyocera Corp | 20,175 | 18.6 | 75.2 | 26.3 | 8.0 |
| Unigroup Guoxin Microelectronics Co Ltd | 20,154 | 45.3 | NA | 37.8 | 585.4 |
| Aggregate / median | 3,643,121 | 32.8 | 54.9 | 37.4 | 263.8 |
Theme basket review: Crypto shreds three companies
We have also reviewed our Crypto & Blockchain theme basket and have decided that three companies will be removed. Voyager Digital is being removed because it is at reduce only in our trading systems. Monex Group is removed because we have decided that it does not have enough exposure to the crypto market. Future FinTech Group has too small a market so this company has also been removed.
The table below shows the new updated table of constituents in the crypto & blockchain basket.
| Name | Segment | Market Cap (USD mn.) | Sales growth (%) | Diff to PT (%) | YTD return (%) | 5yr return |
| Coinbase Global Inc | Crypto exchange | 37,963 | 513.7 | 74.9 | -31.5 | NA |
| Signature Bank/New York NY | Bank | 19,355 | 15.2 | 42.3 | -4.2 | 107.3 |
| MicroStrategy Inc | Investment firm | 4,753 | 6.2 | 51.6 | -22.7 | 125.2 |
| Galaxy Digital Holdings Ltd | Crypto services | 4,141 | NA | 146.2 | -28.3 | 542.9 |
| Silvergate Capital Corp | Bank | 4,143 | 77.8 | 45.0 | -11.6 | NA |
| Marathon Digital Holdings Inc | Crypto mining | 2,551 | 3,353.0 | 129.6 | -24.7 | 17.2 |
| Bakkt Holdings Inc | Digital assets platform | 1,408 | NA | 31.6 | -37.5 | NA |
| Riot Blockchain Inc | Crypto mining | 1,925 | 1,497.4 | 168.8 | -26.1 | 438.5 |
| Northern Data AG | Infrastructure * | 1,164 | 62.7 | 357.1 | -40.9 | NA |
| Hut 8 Mining Corp | Crypto mining | 921 | 203.9 | 222.7 | -30.4 | -12.7 |
| Hive Blockchain Technologies Ltd | Crypto mining | 754 | 426.5 | 172.5 | -29.7 | 2,240.0 |
| Bitfarms Ltd/Canada | Crypto mining | 690 | 7.0 | NA | -30.6 | NA |
| Canaan Inc | Infrastructure * | 861 | 1,013.9 | NA | -2.7 | NA |
| Stronghold Digital Mining Inc | Crypto mining | 507 | NA | 212.4 | -18.2 | NA |
| Argo Blockchain PLC | Crypto mining | 396 | 131.5 | 236.1 | -34.0 | NA |
| Coinshares International Ltd | Digital asset management | 541 | NA | NA | -6.3 | NA |
| Bit Digital Inc | Crypto mining | 231 | NA | 321.7 | -45.4 | NA |
| Bitcoin Group SE | Crypto broker | 198 | 163.2 | NA | -11.7 | 387.7 |
| DMG Blockchain Solutions Inc | Investment firm | 85 | 2.7 | NA | -17.7 | 333.3 |
| Digihost Technology Inc | Crypto mining | 70 | NA | NA | -39.9 | NA |
| Taal Distributed Information Technologies Inc | Blockchain platform | 84 | NA | 207.9 | -14.0 | NA |
| Quickbit EU AB | Crypto payment services | 45 | -3.7 | 56.0 | -12.5 | NA |
| Safello Group AB | Crypto broker | 13 | NA | NA | -22.1 | NA |
| Aggregate / median | 82,798 | 131.5 | 157.5 | -24.7 | 333.3 |
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
