Report by Willis Welby

Willis Welby sees a “second transformation” of Chinese manufacturing as an underappreciated threat to European industrials. China’s first advantage came from cheap labour after joining the WTO; the next could come from widespread deployment of AI and robotics, materially improving factory and supply-chain efficiency while retaining a lower-cost workforce. The risk extends beyond Chinese exports into Europe: more efficient domestic competitors could also displace European companies in China and take share from them elsewhere globally. Willis Welby therefore highlights European manufacturers with significant Asian exposure and relatively demanding valuations, including Sandvik, Alfa Laval, Atlas Copco, Epiroc, Hexagon, EMS-Chemie and DSM-Firmenich. All currently have positive earnings momentum, but their valuations leave them vulnerable if Chinese competitive pressure becomes a more prominent investor concern.

Technical Analysis

Report by Messels

Recycling and Renewable Energy stocks such as Umicore, Vestas Wind and Siemens Gamesa are rallying from medium term support. Selective Seafood and Tobacco stocks remain defensive including SalMar, Mowi and Scandinavian Tobacco. Banks are generally rallying in ranges; favours CaixaBank and Sabadell which have already broken out and extend relative bases.

Industrials have broken uptrends and are now losing relative momentum such as Schneider, Atlas Copco and Alfa Laval. Luxury Goods renew their 4-month price and relative tops including Pandora, LVMH, Dior and Hermes. IT Hardware and Semiconductors renew their 5-month price and relative tops; SeSa, BE Semiconductor, Infineon and Nordic Semiconductor are highlighted.