The Covid19 emergency – we know – has overwhelmed economic indicators and stock indices. From January to today, Piazza Affari has left about a quarter of its capitalization on the ground and the same is true for the main European price lists (not for the USA, where losses average 5 to 10%). But not all sectors and titles are equal. Against a 15.7% drop in the MSCI Europe Total Return pan-European equity index (which also includes dividend yields in the performance), there are above average and others below average sectors. And titles such as the Italian Recordati (+ 14%) or the German Sartorius (+ 61.9%) in the pharmaceutical sector, the French Iliad (+ 32.4%) in telecommunications or the Finnish Neste (+ 17.7%) in renewable energies that have achieved performances worthy of the boom years in a few months. Let’s see what are the trends of the main sectors and how the scenarios will change over the next few months.
Defensive against cyclical
As expected, the “defensive” sectors – for example pharmaceutical, food and utilities – are the ones that have held up better during the crisis due to the pandemic emergency, explains Fabiola Banfi, investment manager of Valori Asset Management, an independent management company of the savings with offices in Milan, Luxembourg and London. However, it must be borne in mind that within the individual sectors, both those who have done better and those who have suffered the greatest losses due to the recession and the very strong economic slowdown taking place – for example, energy, telecom and banks – there are situations very differentiated. (See Table)
The green trend …
Beyond the sector performance, however, there are transversal trends that can have a decisive impact on the performance of individual stocks. For example, we note that the “green” trend and the eco-sustainability common to very different sectors. The most impacted sectors are those of energy and utilities, Banfi points out. Utilities, as we have seen, are one of the sectors that have limited losses. But among the companies that belong to this category, a title such as the Danish company Orsted, specialized in public utility services with a focus on renewable energy, has recorded an increase of over 8% since the beginning of the year. On the other hand, more traditional companies such as the British Centrica suffered a -55% slump. The issue of environmental sustainability operates in an even more powerful way in the universe of energy companies, the most affected by all because it is affected by both the recession and the collapse in the price of crude oil, closely linked to the slowdown in economic activity. In this context, the major oil companies, for example Royal Dutch Shell (-42.28%) or Eni (-37.9%) are experiencing frightening collapses. But the Finnish green company Neste, an oil refining company with a focus on sustainable products, recorded a brilliant increase of + 17.7%.
… and the hi-tech record
Another trend transversal to all sectors is that of the use of IT technologies. In general, the companies best equipped in the digital management of production processes or able to offer technologically advanced products and services or on IT platforms enjoy an enormous advantage compared to traditional competitors , underlines Banfi. It is therefore not surprising that the giants of European e-commerce, from Zalando (28%) to the British Ocado Group (+ 53.6%) specialized in the home delivery of consumer goods, record double-digit performances. But even in sectors where technologies play a key role, such as telecom, there are more hi-tech companies than others. It is no coincidence that the French Iliad, which offers advanced connection products at discount rates, recorded a performance of + 32%. Against an average slip of operators in the sector that exceeds -20%.
And then there is the sector rotation
Difficult to predict where the stock markets will go in the coming months. From today until the autumn it is very probable that the stock markets will not have a precise direction, neither upward nor downward. There will be a lot of uncertainty and a lot of volatility in what in jargon is called a “lateral” market, Fabiola Banfi predicts. In fact, the interventions of the central banks, which are flooding the liquidity market and of the governments, which have widened the strings of public spending, play in favor of a recovery of the lists. The recovery funds of the Next Generation EU project, just launched by the European Commission, go in this direction. On the other hand, there are US-China political and commercial tensions, which are starting to get worse and which constitute a further brake on international trade, notes Banfi. But even in an uncertain, volatile market without a precise direction of travel, we observe an interesting phenomenon, that of “sector rotation”. In practice, investors in these last few days are showing a growing propensity to abandon the “defensive” sectors to move – precisely rotate – towards the cyclical sectors most penalized by the sales waves of these months. Hence the signs of recovery of banks, insurance companies, some cyclical consumption and energy.