Market Musings 301125: Ideas for H1 2026

Market Musings 301125: Ideas for H1 2026

Snapshot weekly report:
Small and Midcaps stage a comeback (click on title to read)

Ideas for H1 2026

Top ideas for H1 2026: what has already worked well that can continue to work well

1. Europe mid-/small-caps:
   a) relatively cheap versus history, and versus Europe large-caps
   b) has historically outperformed European large-caps by a wide margin 2000-21: but large-caps have outperformed since 2022;
   c) Lower euro interest rates, modest rebound on domestic economic growth and lower exposure to the euro exchange rate are all
   positive factors for small-caps;
   d) Potential to see higher growth and better improvement in profit margins; greater exposure to services which should benefit from
   Improving consumer sentiment.
   Suggested implementations: EMID, CES1 ETFs

2. Euro Banks:
   a) still relatively attractively valued despite impressive performance over 2025 (+75%);
   b) offering generous dividend yield > 5% and returning cash to shareholders via share buybacks;
   c) Growing loan demand both from households and companies driving earnings growth;
   d) Potential to benefit from further movement towards an EU capital markets union;
   Suggested implementations: BNKE ETF

3. Copper Miners:
   a) underlying copper price (LME) breaking out to new all-time high c. $11,000/ton on strong underlying demand from tech, AI/data centres, electrification including EVs; higher copper prices forecast for 2026
   b) Restricted growth in global supply promises higher profit margins for global copper producers;
   c) Further growth in copper demand from data centre installations and upgrades to electricity infrastructure in view;
   d) copper miner index breaking out to new all-time high above previous 2011 high;
   e) little prospect of new copper mines coming online in near-term - average 17 year lead time from copper discovery to mine production
   Suggested implementations: COPX/COPG ETF

4. Latin America/Brazil:
   a) Deep value emerging market with low P/E, high dividend yield;
   b) Brazilian economy to benefit from political change, lower interest rates;
   c) reflected in stronger Brazilian real currency v USD;Brazilian stocks tend to outperform when USD weakens;
   d) BOVESPA index recently broke out to a new all-time high
   Suggested implementations: IBZL, ALAG ETFs, BRLA investment trust

5. Eastern Europe/Poland:
   a) Cheap stock market with high dividend yield;
   b) buoyant economic growth (3%+) combined with 3% inflation, driving earnings growth;
   c) Low US export dependence, so little affected by tariffs:
   d) hardworking people - only country in Europe where average employee works as many days per year as in the US;
   e) EU fund inflows: continued support from EU structural funds fuel infrastructure and innovation;
   e) Potential catalyst from any eventual Russia-Ukraine ceasefire.
   Suggested implementations: SPOL ETF

6. Global Health care/Biotech:
   a) A key sector to benefit from early adoption of AI to boost innovation and productivity;
   b) beneficiary from ageing populations in the developed world;
   c) burgeoning pipeline of new drugs for Alzheimer's, obesity, cancer coming to market in near future;
   d) modest impact on profit margins from Trump’s attempts to bring down US drug pricing;
   e) attractive valuation versus history for this defensive growth sector
   Suggested implementations: ESIH, BTEK ETFs, PCGH, WWH, IBT investment trusts

Charts:

1.European small-caps have outperformed even US stocks since 1999

2. Eurozone banks continue to outperform the European market, Nasdaq 100

3. Copper price v copper miners (in USD)

4. Latin America on a roll

5. Poland performing very strongly, an under-appreciated emerging market

6. Polar Capital Health care, International Biotechnology trusts rally since late Sept.

Have a good week

Edmund