Responsible Investor is a weekly newsletter and an Apple/Spotify podcast for those who are interested in investing responsibly. Go to responsibleinvestor.dk for more information and to read our disclaimer. This week’s newsletter is titled “What are the risks of a China-dependent portfolio?”, and was written on August 12th, 2023.

Weekly summary in a paragraph

The US stock market indices were mixed this week, with all major indices finishing lower except the Dow sustained by the energy, financial and industrial sectors. The European stock market managed to stay afloat with no significant economic data to move the needle. The 2-10y spread was flat and is still inverted at -73 basis points. In economic data CPI and PPI data ended up being a non-event as the reports were substantially in line with expectations, while labour market data showed some signs of weakness. In corporate news, 34 S&P500 companies reported Q2 earnings with Disney missing estimates though finishing higher on future subscription prices hike, and Novo Nordisk crushing expectations. Despite 95% of the S&P500 companies having now reported Q2 earnings, there are still some notable ones due to be published next week such as John Deere, Home Depot, Target and Applied Materials.

Asset classes weekly performance

This week the Dow finished +0.6% higher (+6.4% year to date) while the S&P500 lost -0.3% (+16.3% year to date), the Nasdaq depreciated -1.9% (+30.4% year to date) and the Russell 2000 was -1.7% weaker (+9.3% year to date). Gold finished -1.2% lower (+1.0% year to date) while Silver slid -2.1% (-8.3% year to date). Crude Oil appreciated +1.3% (+8.9% year to date). The 10-y US treasury yield gained +2.2% (+9.9% year to date). The European stock market was flat at +0.1% (+17.1% year to date). The Euro lost -0.46% against the US Dollar (+2.3% year to date).

Weekly pitch

There is generally more focus on the CPI compared to the PPI reports. This unbalance is unjustified and especially so considering the reports published last week. The PPI report actually came in hotter than expected which suggests two arguments: first, inflation is still not under control and is likely to stay at these levels for longer than expected; second, the sharp drop in China’s exports may be a reflection of the deglobalisation narrative which explains sustained inflation levels. Further uncertainty comes from the growing geopolitical tension between the US and China, particularly as the odds of an invasion of Taiwan are rising. The markets do not like uncertainty and therefore Responsible Investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges as well as a diversified portfolio with some exposure to the European stock market.

Weekly Portfolio Update

Here are this week’s movements: we have taken full profits on our Microsoft (+5.5%) long position. We have also initiated long positions on a Brazil ETF as well as a short position on Array Technologies. Cash, US treasury bills, precious metals and hedges amount to 45% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Novo Nordisk +15.9% (Pharma)

ProShares UltraPro Short Russell 2000+5.3% (3x inverse Russell 2000 ETF)

ProShares UltraPro Short QQQ +5.1% (3x inverse Nasdaq ETF)

Denbury Resources +4.0% (Integrated Oil)

Disney +3.2% (Entertainment)

Portfolio Asset Allocation

US stocks long positions 46.5% (reduced)

EU stocks long positions 8.5% (unchanged)

US stocks short position 3.5% (increased)

Hedges 8.0% (unchanged)

Silver & Gold 2% (unchanged)

US Treasury bills 2% (unchanged)

Cash 29.5% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +8.3% (excl. dividends) vs the S&P500 gain of +6.1%, which corresponds to a 2.2% market beat.

Invest responsibly!!!