Macro versus Micro

2022 was a difficult year for the European stocks, which fell against a backdrop of macroeconomic uncertainties linked to the war between Russia and Ukraine, health restrictions in China and monetary tightening by the central banks. Rising costs and tensions on supply chains weighed on company margins.

However, we can see that the macroeconomic figures in H2 2022 contained positive surprises in Europe and China (rise in the CESI (Citi Economic Surprise) indicator, see chart below) and that inflationary tensions appeared to be easing.

What are companies saying at this beginning of 2023?

1/ Inflation remains a subject of concern. However, companies are nuancing their views here:

  • The prices of certain raw materials are falling (steel), along with freight costs (maritime freight down 78% and air freight down 35% in 2022) and energy costs (the TTF gas price has fallen from over 300 euros in August 2022 to around 60 euros in January 2023).
  • In contrast, salaries are rising (4-5% on average and even more depending on the geographical zone).
  • We are consequently paying close attention to company hedging in order to benefit from the fall in energy prices over the short term as well as their ability to lift prices. For example, Elis, a specialist in industrial laundry services, should see its revenues rise by over 10% in 2023, with 8% reflecting a price effect. This should enable it to lift its margins after a slight fall expected in 2022.

2/ The reopening of China is also cited in all discussions. Even if this could create volatility over the short term, with new factory closings and tensions on supply chains, this is good news over the medium term that could benefit stocks linked to the luxury segment (Moncler, Remy Cointreau).

Managers are still speaking of limited visibility, notably concerning consumer behaviour and whether volumes will hold up in the context of continued price increases in 2023. The fall in energy prices and the reopening of China nevertheless remain good news.

Even if the European small and midcaps were hit particularly hard in 2022 (a year in which they underperformed the large caps), current valuation levels are attractive compared to their historical average. We believe that company managements will be able to adapt to this complex environment, which could prove to be more favourable if the spectre of recession recedes.

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