Improved outlook rouses investors

Louisa Bojesen
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US housing revival could give boost to sales of associated products

WE’RE off to a flying start. The first full week of trading in 2013 saw US equity funds attract $18.3bn (£11.4bn). This was, according to Thomson Reuters’s Lipper service, the fourth best-performing week for net inflows to equity funds since records began.

For the time being, it looks like investors seem happy with a watered-down US fiscal cliff deal, and want to reposition and put their money to use. Despite the general data suggesting we could be in for sustained economic softness, after four years of caution, investors want to be a part of the recovery.

In the US, the housing market is looking a lot healthier. But you don’t have to invest in property through traditional housing stocks or the building materials industry. According to Alex Gunz, a fund manager at Heptagon Capital, as home-builder confidence reaches a six-year high, Sweden’s Electrolux, the world’s second-largest maker of home appliances (after US-listed Whirlpool), should be a clear beneficiary of a better outlook. Appliance sales are down more than 25 per cent from their peak, down at 1998 levels. Sales of premium household products are also around 10 per cent below their heights.

Gunz says there is good reason to think Electrolux will continue to take cost out of the business. Given that the European recovery remains patchy, the firm will continue to expand into emerging markets, We should see more growth-enhancing mergers and acquisitions, along with cash returns to shareholders in the form of buybacks or dividends.

Another stock Gunz favours is UK-listed Bodycote, the world’s largest provider of thermal processing services. This company treats metal for planes and the car industry so that it becomes more robust and has the ability to last longer. Bodycote’s stock has seen strong recent performance, but Gunz sees further upside potential. The services the group offers are often mission critical, and while there is some cyclicality from its exposure to the car industry, there is long-term demand from both aerospace and energy. Gunz expects Bodycote to post strong results in February, and the group generates a lot of cash. Heptagon Capital’s Helicon fund owns shares in both Electrolux and Bodycote.

We could see more of a pick-up in momentum this week, with 34 Standard & Poor’s 500 companies reporting fourth quarter earnings. Today, we get the US Empire State manufacturing survey, and a first reading of Germany’s annual GDP for 2012. Wednesday sees the Fed’s Beige Book, a US consumer price index inflation announcement, and a Brazilian central bank decision take place. More US housing data, US weekly jobless claims and inflation data from Ireland is out on Thursday. And, on Friday, China’s fourth quarter GDP figures will be in focus, along with preliminary January Michigan consumer sentiment data and UK December retail sales figures.

Louisa Bojesen is anchor on CNBC’s European Closing Bell.