In the beginning of the week, equity markets fell due to rising geopolitical tensions and rising interest rates. Markets recovered again in the second part of the week and closed at the same level as last week.
North Korea signalled that its leader, Kim Jong-un, might pull out of next month’s summit with President Donald Trump if the US insists on denuclearization of North Korea. Interest-rate sensitive sectors such as telecom and utilities were clear underperformers, now that the US 10 year bond yield rose to 3.1%, continuing its rise from 2.1% in September 2017. The sectors’ high dividends become less attractive when bond yields rise.
At the beginning of the week, President Trump gave its long-awaited speech on the American Patients First plan. He is determined to fight high medicine prices and to reduce out-of-pocket costs for American people. As the US is the most important market for pharmaceuticals, investors were concerned that Trump would unfold plans to cap medicine prices. Fortunately, he chose not to interfere. Instead, one of his measures is to make plans to have foreign countries pay more for medicines for which research was done in the US. As countries outside the US now pay far less, this would be positive for the pharma sector. Although the chance of Trump succeeding is very low, the health-care sector performed above average last week, outperforming the MSCI world by approximately 0,5%.
On a company level, there was much focus on the Tencent results, reporting on Wednesday. The Chinese social media and gaming giant reported strong numbers on both revenue as well as margins, beating even the most optimistic expectations. In the past months, the stock was under pressure from fears that increasing investments would dampen its margins. The company reported a 47% revenue increase, a 61% profit increase and rising margins from 39 to 42% compared to a year ago. That is despite a 200% increase in capital expenditures. This removed a lot of uncertainty among investors. The stock rose 5% on the figures.