Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Weekly Update: Saxo Thematic Investing Performance
Peter Garnry
Chief Investment Strategist
Summary: E-commerce has been the worst performing theme basket over the past year as the pandemic led bubble has burst, but last week the industry experienced a relief rally as the lower than estimated US inflation print triggered lower long-term US interest rates. The rally in e-commerce stocks was the strongest among the smaller caps in the theme basket suggesting that retail investors were driving the price action last week.
E-commerce stocks have a monster week on lower US inflation print and China’s reopening attempt
Last week was historic in many ways when you look at the size of the market moves across different asset classes on the back of a lower than estimated US inflation figures and China’s commitment to ease its Covid policy. The lower US inflation print pushed down long-term interest rates and pricing of the Fed’s terminal rate was also lowered adding fuel to the narrative of ‘peak rates’. As we commented in our equity note Today we celebrate US inflation and tomorrow we think the inflationary pressures in the US services sector are still very high and have been stuck at very high levels for five straight months. In any case, the market has chose to disregard the underlying picture and has gone all-in on the ‘peak rates’ narrative and that China will be successful in easing its Covid policy despite rapidly rising case numbers.
The biggest winner last week based on these events was our e-commerce basket gaining 19.4% during the week easily outpacing cyber security, our second-best performing basket, up only 13.6%. While last week’s performance is spectacular the e-commerce basket is still the worst performing basket over the past year, and when we compare the performance relative to the MSCI World Index (see last chart) it becomes clear that the entire industry went into a bubble state before deflating back to where it came from before the pandemic, in relative terms to the overall equity market. While the Chinese e-commerce stocks had a good week they were not the outlier last week. The real signal was that the upper half of the basket had a median stock price performance of 11.5% while the lower half had a median stock price performance of 25.4% suggesting that relative lower quality companies outperformed. This behaviour suggests that retail investor flow was the dominant marginal price setter last week.
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