European Opportunities Trust PLC has published a factsheet for August 2023, which includes details of portfolio holdings and past performance statistics. In July, the MSCI Europe index was down 2.5% in sterling, while the company's NAV declined by 1.8%. Gearing was 5.6% at the end of August, and the discount to NAV was 10.5% at month-end.
There are signs of divergence in growth and inflation between the US and European economies. The US economy is stabilizing or improving, while Euro area growth has weakened slightly. Tighter financial and credit conditions in Europe, along with high inflation, have contributed to the more sluggish performance. Inflation in Europe is running at about 5.5%, higher than in the US. Interest rates are also higher in the US.
The German economy is forecasted to contract in 2023, with its export trade and residential construction industries weakening. The Eurozone Composite PMI has fallen to a 33-month low, indicating a likely decline in the Eurozone economy. The slowdown in China's economy is also contributing to the overall slowdown. Analyst estimates for China's GDP growth have been reduced.
In the stock market, the Italian government announced a Bank Tax, which is a negative factor for Italian banks. However, the impact on the company's portfolio is negligible. The green transition stocks, particularly offshore wind companies and suppliers in the electric vehicle value chain, are facing challenges and weaker demand.
Within the company's portfolio, Novo Nordisk was the biggest contributor to performance in August. The company announced excellent results from clinical trials for their anti-obesity drug, Wegovy. SUSE, another investment, received a takeover offer from its majority shareholder, prompting the company to sell its shares. OHB also received a takeover offer, leading to the sale of shares.
Merck KGaA and GTT were good performers in August. The rise in oil prices refocused attention on energy plays, benefiting GTT. Experian was the biggest detractor, with no material news but a drift in share price. Infineon and Dassault Systemes also underperformed, with concerns about China's stance on western chip suppliers and weaker-than-expected sales of electric vehicles. Deutsche Boerse's share price disappointed, despite the company's confidence in the acquisition of SimCorp.
Overall, the company remains optimistic about its portfolio and expects certain companies to prosper despite uneven progress in the market.