After 10 consecutive quarters of gains, the ROBO Global Robotics & Automation Index declined by 4 per cent in 2Q18, the firm reports.
The firm writes that this was primarily due to weakening economic momentum in Europe and Asia, a stronger dollar, and US tariffs that sent manufacturing and industrial automation stocks tumbling, especially in the Far East.
At the same time, healthcare, energy, security, and consumer robotics delivered positive returns. The firm writes that despite the decline, ROBO index members reported the strongest earnings growth since inception (+29 per cent YoY) with many members increasing investments in R&D—a reflection of continued corporate confidence. ROBO is currently in line with its long-term average valuation of 22x P/E, compared to 27x a year ago.
Global equities rose marginally in 2Q18, ROBO Global reports, with the MSCI AC World Index up 2 per cent, recouping 1Q losses. “Weakening economic momentum and a stronger dollar pressured emerging markets, particularly China, as well as Japan and Europe, as interest rates rose and the US slapped tariffs on metals. While economists continued to upgrade US growth forecasts, markets were quick to discount risks of rising short-term rates, a stronger dollar, and fears of a trade war stifling global growth. All eyes are now on the yield curve, which continued to flatten in 2Q.
“Enthusiasm for big technology stocks appears unabated, as reflected in the Nasdaq’s continued outperformance. In fact, big gains in Amazon, Microsoft, Netflix, Facebook, Nvidia, and Alphabet accounted for the entire gain in the S&P500 year-to-date. While we are concerned that a stumble in tech-stocks could raise the risk of market contagion, we remain confident in the growth outlook for robotics, automation, and AI companies. We expect economic growth in major regions to pick up again in coming quarters, as consumer confidence remains elevated and corporate investments continue to accelerate on a combination of tax reform and deregulation.
“Amid this landscape, we were not surprised to see a small decline in the ROBO Global Robotics & Automation Index in 2Q18 to -4 per cent. More than half of the decline was due to foreign currency headwinds. By region, global export powerhouses Japan (-19 per cent) and Taiwan (-16 per cent) were the largest detractors for the ROBO Global Index in 2Q18 as investors continued to trim exposure to industrial companies. Meanwhile, the US (+4 per cent) and Europe (+2 per cent) contributed positively. By sector, energy (+40 per cent), security (+35 per cent), consumer products (+18 per cent), and healthcare (+8 per cent) delivered the strongest returns, while manufacturing-oriented sectors such as actuation (-15 per cent) and industrial automation (-15 per cent) were the largest detractors.”