International markets: two drawdowns and a miss from economists | International equity market commentary 4Q23
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
This report reviews two ~20% drops in international stocks in 2022-2023, driven by Europe's gas price spike and US rate hikes to 5%. Oakmark argues that macro panic made good companies like Fresenius (a dialysis firm hit by fears over GLP-1 weight-loss drugs) and Worldline (a payment firm wrongly associated with a past fraud) far cheaper than their actual business damage. For everyday investors, it's a reminder not to sell in panic during scary headlines, but to look for bargains in solid businesses. Worth reading because it shows how to invest based on company value, not market noise.
Oakmark's fourth-quarter 2023 international equity market commentary notes that despite two drawdowns of approximately 20% triggered by macro events (such as the surge in European natural gas prices due to the Russia-Ukraine conflict and interest rate changes), the absolute and relative performance
Theme and Background
This chapter reviews two drawdowns of approximately 20% in international equity markets during 2022-2023, triggered respectively by a surge in European natural gas prices and a shift in interest rate expectations toward "higher for longer." The report argues that while macro events dominate short-term stock price movements, they are disconnected from corporate fundamentals. Oakmark adheres to a business-value-based investment framework, seeking buying opportunities amid panic.
Core Views
- Macro noise does not alter corporate fundamental value: Both 20% drawdowns were driven by macro panic, yet the cash flows and operational resilience of European companies (e.g., luxury goods, industrials) were underestimated by the market. Panic provided contrarian buying opportunities.
- Market overreacts negatively to individual stocks: Taking Fresenius and Worldline as examples, the magnitude of stock price declines far exceeded the actual fundamental impact. In particular, the threat of GLP-1 drugs to dialysis operations was exaggerated, and Worldline's compliance issues were misjudged as a Wirecard-style scandal.
Key Arguments and Data
- 2022 natural gas crisis: Russia cut 90% of pipeline gas supplies to the EU, causing Dutch natural gas prices to surge more than tenfold from €22.32/MWh in March 2021. The market priced in a panic scenario of "European deindustrialization," but companies quickly adapted by reducing demand and increasing supply, leading to a subsequent sharp drop in gas prices. The Oakmark International Fund rebounded 24% from late September to year-end.
- 2023 interest rate shock: The MSCI Europe Index (USD-denominated) fell 12% from July 31 to October 27. The fund experienced a drawdown due to its overweight position in Europe and holdings of Worldline and Fresenius. At the end of October, the U.S. 10-year Treasury yield hit 5% (the highest since 2007). Subsequently, the market shifted toward a "soft landing" expectation, interest rates fell sharply, and the fund rebounded again.
| Event | Time | Market Decline | Key Catalyst | Oakmark Response |
|---|---|---|---|---|
| Natural Gas Crisis | September 2022 | ~20% | Russia cuts 90% of pipeline gas, prices surge 10x | Bought global European companies (luxury goods, industrials) |
| Interest Rate Shock | July-October 2023 | 12% (MSCI Europe Index) | 10-year U.S. Treasury yield rises to 5% | Held Fresenius and Worldline, viewing declines as excessive |
Companies/Assets Involved
- Fresenius Medical Care / Fresenius SE (Germany): Dialysis service provider. Following strong trial results for GLP-1 drugs (e.g., Novo Nordisk's Ozempic) in treating kidney disease, the market sold off all dialysis-related stocks. The report argues that the actual impact on Fresenius's cash flow is far smaller than the market cap decline, and the company is expected to resume growth through operational turnaround.
- Worldline (France): Payment company. A downward revision of earnings guidance due to its German business led the market to associate it with Wirecard, which collapsed three years ago. After due diligence (including discussions with competitors, management, and independent directors), the report found no evidence of illegal activity, but acknowledges that slower growth has reduced intrinsic value. Still, the stock price decline exceeded the fundamental shock.
- Global European companies (luxury goods, industrials, consumer goods): Viewed as buying targets during the 2022 panic, as they are truly global operators and not affected by a contraction in local European demand.
Investment Implications
- Contrarian positioning during macro panic: When the market panics over macro events such as natural gas or interest rates, investors should focus on corporate fundamental resilience and buy European companies with stable cash flows and global operations.
- Beware of excessive negative pricing in individual stocks: For stocks that plummet due to industry-specific headwinds (e.g., GLP-1 drugs impacting dialysis stocks) or reputational risks (e.g., Worldline being misjudged as Wirecard), independent verification of fundamentals is essential. If the decline far exceeds the actual impact, it may represent a contrarian opportunity.
- Shifts in interest rate expectations are short-term catalysts: After the U.S. 10-year Treasury yield peaked in October 2023, the market quickly pivoted to a "soft landing" trade, and interest-rate-sensitive assets (such as European stocks) rebounded. Investors should focus on signals of interest rate inflection points rather than chasing macro narratives.