Good morning,

Markets are trading higher this morning following positive news out of the US and negative news out of Germany. US employers added more staff than forecasted to payrolls last month as the jobless rate fell to a six-year low. On the other hand German factory orders plunged the most since 2009, data today showed, highlighting the need for additional stimulus as Europe slows.

The more negative news comes out of Europe, the greater the pressure on the ECB to move towards a US form of quantitative easing which means the ECB will start buying sovereign debt. This has not happened so far but investors are betting on this form of quantitative easing as economic data from the Eurozone continues to come be subdued.

Before the ECB meeting was held in the beginning of September, European indices started rallying, pricing in positive measures from the ECB to stimulate growth in Europe. From its trough in August till the ECB meeting in the first week of September, the Euro Stoxx 50 rallied over 9%. Markets then started to sell off again after the proposed measures by the ECB were not enough to revive the European Economy. Since the markets peaked in September, they sold off 3.5%. The short term sell off created attractive entry points into the markets. The question many investors ask is whether it is the right time to enter into European equities when the outlook for Europe remains subdued.

It is true that the US economy is performing much better than the Eurozone and that the US Dollar is appreciating at a fast pace against the Euro. However, it is also true that in order to make money you have to buy into attractive valuations. And this is what European corporate are offering at the moment. Remember than many European companies top line does don’t depend only on sales in Europe but across the world particularly the US and China. So if we had to price in a US form of quantitative easing in Europe, continued growth in the US, slower growth in China though not necessarily a threat because the Chinese government has many tools it can use to stimulate its economy, European equities start to look more attractive. Adding to this a weaker Euro and a lower price of crude, European stocks offer attractive value.

An indication of an oversold position is when you see the board of directors come up with buyback programs. The board buys back stock when it thinks that prices are oversold and do not reflect fair value of the company. The directors’ role is to create value for shareholders and a share buyback is one of these methods of doing so. Adidas was one of the companies who started a buyback program. Adidas' executive board approved to return up to €1.5bn in total to Adidas shareholders over the next three years, primarily in the form of share buybacks. This would correspond to c. 12.5% of Adidas' current market capitalization. Adidas also notes in its statement that the buyback will be "predominantly" financed from the Group's free cash flow, sending a confident message in our view regarding the prospects of profitability and cash generation expected going forward. Adidas intends to start the share buyback programme in Q4 2014. The Dividend policy was also confirmed. In its statement, Adidas also reiterated its intention to pay an annual dividend in the range of 20% to 40% of net income, in line with the current policy. Adidas already pays out 37% of net income, i.e. already at the high end of the dividend policy.

Companies will start to report Q314 results this month. We do not expect results to be great however, market moves of what investors price in for the future and not past results. The outlook is what’s most important at this point. There are more catalysts which could shift prices higher at this point in time. Always make sure your portfolio is well diversified and not highly exposed to one individual name.

Good day and happy trading!

Kristian Camenzuli