Active investment commentary & analysis

Focus remains on the prospect of a strong growth resurgence

European equity markets shrugged off the fact that the Eurozone entered a double dip recession in the first quarter of 2021. The focus remained on the prospect of a strong growth resurgence as the region’s economies emerge from their pandemic induced lockdowns. With vaccination programmes picking up speed, all be it at varying degrees of velocity, the prospect of a return to pre-pandemic levels of activity drew ever closer, and to reflect this many equity markets pushed back through the highs last seen in March 2020.

The Q1 reporting season also got underway with, in many instances, companies giving full year guidance which backed this return to growth momentum. Further endorsement, or perhaps a safety net, came from ECB president, Christine Lagarde, who stressed the continued liquidity support her institution was willing and ready to provide giving no hint of any reason why this policy stance should alter in the foreseeable future. This, combined with continued fiscal measures from governments globally, goes a long way to explain the market enthusiasm. Under such a scenario inflationary pressure has the potential to derail the recovery and the EU reported year on year harmonized CPI at 2.10% towards the month end which is the first time this data point has topped 2.00% in two years. Time will tell if this is simply a blip as restocking takes place following the dramatic drop in demand experienced last year or if there is a more sustained trend in place.

The return to global growth will be accompanied by a resurgence in emissions as factories increase their production and consumption returns to pre-pandemic levels and travel is once more on the agenda. With impeccable timing Joe Biden committed in April to cut GHG emissions by 50% prompting a strong rally for renewable energy stocks. Although welcome, his announcement is perhaps not as ambitious as many had hoped for and we will have to wait for the COP 26 meeting in Glasgow later in the year to see if further progress can be made. In the meantime, we continue to favour stocks exposed to this theme including Aker Carbon Capture, Energiekontor and PNE Wind.