Echoes After Davos
Exciting few days, and I spent some time this week watching the echoes after Davos. No big surprises there.
Markets calmed down as the Greenland situation faded from the headlines. What initially felt dramatic, with headlines dropping the U.S. would militarily secure the territory of a NATO ally, got absorbed quite quickly. New rumors are already circulating around a potential U.S. military intervention in Iran.
Circling back to Davos, one thing stood out to me: Ursula von der Leyen’s speech. It was a remarkably clear articulation of what Europe needs to do if it wants to remain economically relevant.
One statement in particular caught my attention:
“We are now building the Savings and Investment Union. We need a large-scale, deep and liquid capital market that attracts a wide range of investors…”
This leads me to the next point.
Deutsche Boerse and Market Infrastructure
I own Deutsche Boerse AG, which is arguably one of the most integrated market infrastructure businesses in Europe. It is operating across trading, clearing, settlement, custody, data, and financial software through platforms such as Xetra, Eurex, and Clearstream and has now reached a deal to acquire Allfunds.
Initially, I was skeptical whether such a transaction would pass European regulators. But hearing this speech, and seeing the political momentum behind capital market integration makes me more open to the idea that this deal could actually go through.
If completed, it would further cement Deutsche Börse as a central backbone of Europe’s financial system.
Why Allfunds?
Here is a short quote from the website giving an overview of the business activities:
“Allfunds (AMS: ALLFG) is one of the leading global WealthTech companies with a service offering tailored for Fund Houses and Distributors that ranges from dealing and execution services, to data analytics, reporting and portfolio tools, ESG advisory and custom software solutions.”
Since going public Allfunds nearly halved its share price, the performance was not great at all. But, Allfunds combined with Clearstream and a growing software and data business for asset managers would meaningfully deepen integration across the whole value chain for Deutsche Boerse. In the short term, the acquisition may pressure the share price. Long term, it strengthens the strategic positioning.
Bonds and “Abnormal Markets”
The Bank of Japan reiterated this week that it would intervene if markets “react abnormally.” Looking at long-end yields globally, I struggle with that statement.
Long-term yields are rising not only in Japan, but also across Europe and the United States. It is not abnormal. It is rational.
Investors are demanding a higher premium in a world of:
structurally higher government spending,
persistent fiscal deficits,
rearmament
Sometimes I feel like if markets react to anything that politicians do it is immediately labeled as dysfunctional. I would genuinely enjoy a long conversation with the more enthusiastic proponents of Modern Monetary Theory about where the limits are supposed to be…
A Note on Nestlé
An interesting read this week came from Magellan Investment Partners on Nestlé, another portfolio holding.
You can read it here.
Nestlé currently trades at roughly a four-turn discount to its 10-year average forward P/E. Investor sentiment has turned negative due to a sequence of developments largely outside management’s control: cost-of-living pressures, commodity inflation, post-pandemic consumption normalization, and a recent leadership change.
Last year, I initiated a first position in Nestlé. It was an impulsive valuation-driven decision. Companies like Nestlé rarely become materially cheaper unless investors start questioning growth, pricing power, or consumer resilience.
I do not know how long these headwinds will persist. They are certainly there. What I do know is that Nestlé has the scale, balance sheet strength, and operational depth to adapt. Over a 20-year horizon, I am quite confident the company can deliver satisfactory returns as part of a defensive portfolio serving basic human needs.
It has the backbone and scale to do what is required.
This is no financial advice. Please do your own research. I can be wrong.
Enjoy the upcoming week!