- Negative sentiment, US partner loss could send Novo Nordisk lower
- ECB policy changes could lead to revaluation of major insurers
- Long JPMorgan Chase position tied to rate hike expectations
Novo Nordisk HQ, Denmark: The high-profile pharma firm may see its shares head lower on increasingly negative news sentiment and the loss of a US partner. Photo: Novo Nordisk
By Peter Garnry
We try to be dynamic and seize opportunities whenever they arise. As such, we have added several new positions to our equities portfolio of late.
The most controversial change in our portfolio is our new short position in Novo Nordisk (NOVOb:xcse) because some clients missed the fact that we had reversed our position from long when the news hit that the company had lost one of its partners in the US.
In addition, we felt that the news sentiment is getting increasingly negative and that Novo Nordisk shares could easily overshoot to trade at a discount to its diabetes peer group but also large pharmaceuticals in general. Our target is 250 as we believe long-term buying interest will arise at these levels.
The long-term outlook for insulin drugs is still strong as China will drive growth over the coming decades.
Novo Nordisk weekly price chart over the past five years:
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Source: Saxo Bank
Other recent positions are long Aegon (AGN:xams) and Generali (GASI:xmil) as we are betting on the European Central Bank ending its current trajectory on monetary policy; we believe it may begin to look at how to steepen the yield curve a bit while maintaining an overall accommodative monetary policy.
This could lead to a repricing of insurance companies in Europe, which are one of the highest-yielding assets in the developed equity market.
We have also added a long position in Seadrill (SDRL:xosl) as a small exposure should the oil price find equilibrium above $50/barrel in Brent post- the recent Opec deal. In addition, we have added a long position in Ralph Lauren (RL:xnys) betting on better-than-expected earnings.
Lastly, we have gone long Teva Pharmaceuticals (TEVA:xnys) and Nets (NETS:xcse).
We have tried long interest rate plays before with a long position in Bank of America, but recent declines triggered our stop. Today we will try again with a long position in JPMorgan Chase with a wider stop and longer horizon (higher target price), betting on rising rates in the US as we roll into in 2017. We will explain the trade in greater detail in a separate email soon.
Following a 5.6% drawdown the portfolio has come back over the past four trading sessions driven by gains in our long positions in Betsson, Deutsche Bank, Glencore and short position in Novo Nordisk.
While we have been limiting our drawdowns to less than 6% across four different pullbacks in the equity market since late June, it will be difficult at times to limit at these levels given the leverage under which we are operating the portfolio.
We will, however, try and be dynamic and hedge downside exposure quickly if events unfold.
— Edited by Michael McKenna
Peter Garnry is head of equity strategy at Saxo Bank