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Looking Again on the Bright Side of Life: An apparent disconnect between Markets and Economy

• In May, market recovery continued: Global Developed Markets were up 4.8%, Global Small Caps gained 6.0% and Emerging Markets were up 0.8%.
• ARTICO stock selection outperformed in Global Core and Emerging Markets and was slightly behind in Global Small Caps.
• There is an apparent disconnect between Equity Markets and the Economy
• Investors seem to focus on 2021/2022 and beyond, ignoring horrible economic data and bad profit numbers for the current quarter
In addition, investors have also to deal with rising US-Chinese tensions, significant civil unrest in the USA and huge challenges facing Europe (EURO zone stability, Brexit)
After the crisis, markets will wake up in a world with unprecedented fiscal deficits, government debt levels and monetary expansion.
• So: What justifies buoyant equity markets?
• Looking at absolute and relative valuations, the apparent disconnect does follow a certain logic:
Absolute Company Valuations are based on future discounted cash flows; a weak quarter has little impact on such fundamental valuation , while reduced interest rates even improve such valuations
• In relative terms, the unprecedented monetary flood leads to a flight into real assets as holding nominal debt of potentially bankrupt governments looks increasingly threatening
• Nevertheless, expect large swings in the short term
• It is therefore more than ever a good strategy to stay invested in fundamentally good companies

• The companies we invest in have a unique combination of characteristics which cannot be found elsewhere: high growth ratessuperior profitability, higher ESG quality score, a very low carbon footprint and a big valuation discount at the same time.