European stocks declined last month

European equity markets performed terribly in August, as fears over China’s growth became the key topic around the globe. The fall experienced by Chinese equity markets since June was the first wake-up call. A second trigger came when the Bank of China devalued its currency. As a result, European equity markets fell sharply, reaching their lowest point of the month on 24 August.

In addition, European statistics did not turn out to be supporting factors and the end of results season was unable to offer much support.

In the latter part of the month, European equity markets staged somewhat of a recovery, as China tried to calm the markets by introducing other measures to support its economy.

• Sector wise, we made only a few moves. We became a little bit more cyclical by the end of the month, adding Daimler in the Automobiles sector and ASML in the semi-conductor segment, both at very attractive prices. We also bought some mining stocks.
• We slightly reduced the weight of Healthcare Equipment, mainly via Fresenius (after a nice stock market performance).
• We also reduced our exposure to Capital Goods and reinforced exposure to Utilities through National Grid. We upgraded our position to neutral on this last sector.
• Valuations are attractive, most of the companies are beating consensus and we are tactically playing this sector, as it is also under owned.
• In Consumer Discretionary, we used the market downturn to cut our underweight stance on Automobiles. We will reinforce the segment during periods of further weakness.
• Most of the Energy sector is beating consensus estimates and we are starting to see value in the sector. We are positive on Total, which is outperforming.
• We remain negative on the banking sector, as the BCE is accelerating its regulatory process. The Italian banking sector is suffering from margin pressures. We nonetheless remain overweight on the Real Estate segment. We will reduce the segment in the coming weeks as opportunities arise.
• There is little remaining upside in the Health Care sector, but we are still positive on Roche and Safoni.
• We remain long on Consumer Staples and short on Industrials, as the sector is expansive according to our models. Despite a solid results season and reasonable cost management, growth prospects remain dim and valuations are not cheap.
• The coming months could see strong volatility on the equity markets. Depending on market opportunities, we will raise the cyclicity of our portfolios.