In January, the FTSE All-World Index modestly climbed 0.6%. We saw a continuation of the equity returns pattern seen last year, with a large gap between a small number of winners and the rest of the market, and poor performance generally from Chinese equities. It is worth remembering that a small number of stocks tend to drive the overall market performance. This was more pronounced than usual during last year. However, these technology stocks had fallen substantially in 2022. These technology companies have continued to deliver impressive earnings growth and their shares have seen multiple expansion, with Nvidia the notable exception. It is natural, particularly for investors who have resisted technology exposure over the last year, to begin talking of an asset bubble. Irrational exuberance and a fear of missing out have seen the prices of many assets become elevated beyond their intrinsic values. For now, at least, we continue to think there is further upside to intrinsic value for several companies with exposure to AI.

The model portfolio (USD) gained 1.8%.

Both AI chip designers, Nvidia (24.2%) and AMD (13.8%) performed well. Nvidia unveiled three new desktop graphics chips that will increase local, rather than cloud, AI capabilities. While the company’s current multiples look high given the expected growth, they are not outrageously so with consensus revenue forecasts of 60% for 2025 and earnings growth of 69%. Shares of new holding Crowdstrike also performed well gaining 14.6% with consensus growth estimates increasing.

Enphase Energy shares were the worst performing holding, declining 21.2% with consensus earnings estimates declining in advance of results due in early February. Our expectations are that demand is close to trough levels and will recover by 2Q24. Argonaut Gold shares declined 19.2%. The company provided an update on their Q4 gold production that was 14% higher than the previous quarter and 1% below their annual guidance. Meanwhile, the spot gold price declined 13.4% during the month. We continue to expect the output from the Magino mine to impress investors or to attract interest from gold majors looking to enhance their portfolios with a low-cost asset in a stable jurisdiction. Yum China shares also declined by 18.5%. The company endured several broker downgrades that cited increasing macro headwinds, worsening unemployment and fragile consumer confidence. The firm is still expected to grow revenues in the double digits and earnings in the mid-teens, opening almost five new stores every day. We will continue to monitor same-store revenue figures in case of major deterioration.

There was some reprieve for Chinese stocks given news that authorities plan to provide stimulus measures to support the market. There have been many false dawns for beleaguered investors in China. Challenges remain, not least the potential for increased US tariffs that Presidential candidate Donald Trump plans, and the forced selling and general exodus from Chinese exposures. In contrast to many other areas around the world, market multiples of Chinese companies are at lows. The portfolio remains modestly overweight in China.