CC&L Financial Group Ltd.

The technology that harnesses wind and solar power is highly noticeable at a glance – it is hard to miss towering wind turbines or gleaming fields of solar panels. But what is not so obvious is how the power gets from those visible generators into the electrical grid that eventually powers your home.

Nexans S.A. (NEX FP) is increasingly emerging as a differentiated way to play the next phase of the energy transition, where the focus shifts from building renewable capacity to connecting it at scale.

While the first wave of the energy transition was defined by rapid growth in wind and solar generation, the current phase is more complex: integrating that capacity into power systems. This is where Nexans sits – at the intersection of renewable buildout and the infrastructure required to make it usable.

Europe’s plan for energy security

In this context, offshore wind is becoming a central driver of demand once again. Following a period of delays linked to cost inflation and project economics, Europe is now moving to re-accelerate deployment. At the January 2026 North Sea Summit, governments committed to developing ~100GW of offshore wind capacity, with a longer-term ambition of 300GW by 2050, alongside coordinated investments in cross-border grid infrastructure.

This renewed momentum is not just about decarbonization, it is increasingly tied to energy security and affordability. European policymakers are prioritizing domestically generated electricity to reduce dependence on imports, while structurally higher and more volatile power prices continue to incentivize investment in renewable capacity.

Nexans ready to support Europe’s wind commitments

For Nexans, offshore wind is particularly attractive. Each project requires significant volumes of high-voltage subsea export cables and increasingly complex interconnection solutions, positioning cable suppliers as critical enablers of deployment. As projects scale and networks become more integrated, demand is shifting toward higher-specification, higher-margin systems areas where Nexans has strong technological capabilities.

At the same time, the company’s strategic repositioning over recent years has sharpened this exposure. By exiting more commoditized cable activities and focusing on electrification and high-voltage segments, Nexans has aligned its portfolio with the fastest-growing and most structurally supported parts of the market.

Buying local – Nexans is Europe-based

This is further reinforced by an evolving policy backdrop in Europe. The EU’s industrial strategy is increasingly incorporating local content requirements and procurement incentives aimed at strengthening domestic manufacturing in key energy technologies. For a Europe-based player like Nexans, this creates a supportive competitive environment, particularly in large-scale infrastructure linked to renewables.

Importantly, supply dynamics remain favourable. High-voltage subsea cable capacity is limited globally, with long lead times and high technical barriers to expansion. As offshore wind deployment accelerates again, this constraint is likely to support pricing and contract discipline across the industry.

Disciplined execution, rising returns

The key focus for investors is increasingly on Nexans’ ability to translate strong structural demand into consistent and higher-quality earnings. As the group continues to prioritize selective project execution and disciplined contract structures, visibility on margins and cash generation is improving. This reflects a more mature operating model, with greater emphasis on value over volume and a clear focus on returns.

In that context, Nexans offers a differentiated exposure to renewables, not through generation itself, but through the critical systems that enable renewable electricity to be delivered, scaled and monetized. As Europe enters a renewed phase of offshore wind expansion and electrification, the company may be well positioned to capture both growth and improving returns.

The Gulf War III mortgage rate shock may be the trigger for the long-term housing cycle to enter its “bust” phase.

The driving variable of the cycle is demand for new and existing homes. This is reflected in turnover and has secondary impacts on new construction and prices. Prices usually lag volume gauges of the cycle.

The UK cycle can be traced back in various indicators to the early 18^th century (at least) – see chart 1. Official statistics on turnover – property transactions – start in 1959. Turnover is closely correlated with the number of approved or actual loans for house purchase, data for which begin in the interwar period. To go back further, it is necessary to rely on completions data, a regional (Middlesex) series on registrations of property deeds and an indirect gauge, imports of timber, for the earliest years.

Chart 1

The dates in the chart are suggested timings of housing cycle lows. Based on these dates, there were 16 complete cycles, measured from low to low, over the 298 years between 1711 and 2009, implying an average cycle length of 18.6 years.

The two cycle downswings in the first half of the 20^th century were magnified and extended by the World Wars – it is reasonable to assume that the lows would otherwise have occurred several years earlier.

The three completed cycles since WW2 were of similar length – 18, 18 and 17 years respectively. If the current cycle were to conform to the 18.6-year long-term average, another low would be reached in 2027-2028.

Chart 2 shows higher-frequency data on property transactions and mortgage approvals. The peak of the current cycle, in 2021, occurred earlier than in the prior two, as pandemic-related policy stimulus pulled forward demand. Activity corrected sharply in 2022-23 as interest rates rose but staged a partial recovery in 2024-25. This appears to have ended, with mortgage approvals easing to a 23-month low in January.

Chart 2

The new buyer enquiries component of the RICS housing survey is correlated with the annual rate of change of mortgage approvals – chart 3. Buyer demand is likely to weaken in response to the mortgage rate shock, suggesting a further / faster decline in approvals.

Chart 3

The rate of change of approvals, in turn, leads the rate of change of annual house price inflation – chart 4. Falling approvals suggest that annual price momentum – 1.4% in January, according to the ONS index – will slow further, probably turning negative.

Chart 4

Housebuilding stocks are behaving consistently with the onset of the bust phase of the cycle, recently breaking below their 2022 trough to reach the lowest level since 2013 – chart 5.

Chart 5

The Gulf War III energy shock has been compounded by a dramatic repricing of interest rate expectations, partly reflecting hawkish central bank communications, particularly from the ECB and Bank of England.

The central banks fear a repeat of the inflation upsurge around the Russian invasion of Ukraine, their accepted wisdom being that higher energy prices destabilised inflation expectations, resulting in significant “second-round” effects.

The “monetarist” view is that the impact of a shock on price- and wage-setting depends on the prevailing monetary environment. The Russia-Ukraine shock generated large second-round effects because it occurred against a backdrop of strong money growth. Eurozone and UK broad money – as measured by non-financial M3 and M4 – rose by 9.1% and 10.5% annualised respectively in the preceding two years – see chart 1.

Chart 1

The latest two-year growth rates, by contrast, are 3.2% and 3.9%, with little sign of acceleration in shorter-term data. Money to nominal GDP ratios have returned to around end-2019 levels. Unlike in 2022, there is no monetary “excess” to accommodate a sustained inflation rise.

Policy tightening against this backdrop would likely result in much more serious economic weakness than in 2022-23, with attendant risk of a medium-term inflation undershoot.

One caveat to a relaxed view of second-round effects is that political pressure to respond to a new cost-of-living shock could trigger a fiscal / funding crisis, forcing a return to QE that results in another money growth surge. Still, the suspension of central bank independence implied by such a scenario will be more likely if officials compound their 2021-22 policy error by making the opposite mistake now.

In-depth macro analysis has always been a cornerstone of this process, based on an understanding that emerging markets are highly sensitive to macro shocks which can overwhelm ostensibly solid company fundamentals. The outbreak of conflict following US and Israeli strikes to take out the Iranian regime is one such event, and has sparked violent moves in markets. Our macroeconomic analysis and risk controls are crucial in helping to navigate a volatile environment.

The approach to macroeconomic analysis here is disciplined and incremental, and does not involve the type of Hail Mary calls (i.e., speculating on President Trump’s war aims) that get market pundits invitations onto Bloomberg and CNBC. Our approach to forming a top-down view of our markets is to mark the direction of travel, whether it be our monetary indicators or more qualitative factors such as politics and institutional quality. We marshal all of these data points into one number which rates the level of conviction for a country with 1 being the highest level of conviction corresponding with a maximum overweight (key caveat: provided we can find the right stocks that fit our process), and 5 being lowest (meaning no exposure at all). As the data changes, we will tweak that level of conviction, which should be tightly aligned with adjustments made in the portfolio.

This work is designed to help us understand how the investment environment is changing through cycles, structural change and theme-driven liquidity. Through this context, we can get a sense of what types of businesses are likely to be rewarded in a given environment and adjust the portfolio accordingly.

Test and re-test

We are big subscribers to the insights of psychologist and writer, Phillip Tetlock, who is an expert on forecasting. His studies found that the best long-term forecasters are those who are able to make probabilistic estimates, calibrate, learn and update beliefs frequently. They make many small corrections to their analysis as fresh data arrives, which leads to better long-run accuracy than rigid “set and forget” predictions. This is the forecasting approach we adopt in both our macro and company analysis, illustrated in our process diagram below.

Through periods of high uncertainty and violent market moves like what we have currently, we lean heavily into this OODA (Observe, Orient, Decide, Act) Loop. This involves a constant testing and re-testing of our macro views and investment hypotheses, and tweaking of the portfolio as conditions change.

Example: lifting oil exposure

Moving from being zero weight in oil companies at the start of 2026 to equal weight (and with more beta to oil than the index) by the end of February is one example of how iterative tweaks in our macro analysis left the portfolio in a better position to weather the events of early March.

Towards the end of last year, one of the most debated topics of discussion in the team was our heavy underweight to the energy sector and, in particular, oil. Our only energy holding at the end of 2025 was uranium miner CGN.

While we remain structurally cautious about oil’s long-term investment prospects, from a portfolio risk perspective we became concerned that having no oil exposure had turned into a crowded consensus trade – especially as weak prices began to squeeze US shale production. This alongside news of a US naval build up in the Persian Gulf, Arabian Sea and Eastern Mediterranean early in the year suggested the portfolio was exposed to risk of a geopolitical shock in the region. Through January and February, we gradually lifted our oil exposure from zero to an equal weight of over 3.5%.

While our macro and risk analysis helped to identify a potential vulnerability, we could not know that conflict was about to break out in early March and drive such a dramatic hike in the price of oil. It was not a case of just adding oil beta to the portfolio. We added Argentinian shale oil producer Vista Energy and Petrochina based on their healthy returns on invested capital sustainable even through weak pricing environments, underpinned by growing production profiles, capital discipline and low lifting costs.

Vista Energy: Production growth and falling lifting costs driving earnings growth

Source: Vista Energy Investor Relations 2026

The lift to oil exposure was timely, helping to preserve relative gains made this year despite sharp drawdowns in other winning positions that had been hit by broad risk-off sentiment.

Where to from here?

We rated the global monetary backdrop as modestly supportive coming into this shock, largely reflecting favourable trends in EM. However, we have been expecting the global stockbuilding cycle to turn down during 2026, giving us a bias to increase defensive positioning at the margin, especially on any signs of monetary weakness.

The energy price spike, unless swiftly reversed, will push up inflation and squeeze real money growth. It is leading to a revision of expectations for central bank policies, which may dampen nominal money growth. Nominal money trends are also at risk from recent tightening in US private credit conditions, which the current shock may exacerbate.

We are cautious and do not expect the negative effects of this shock will be swift to reverse, so our inclination is to add to defensive positioning on any rally, rather than to view current market weakness as a buying opportunity.

The long-standing forecast here has been that the three key global economic cycles – stockbuilding, business investment and housing – would enter downswings by 2026-27.

In the event that the downswings were synchronised, the result would be a major recession, on the scale of 1974-75 or 2008-09.

If the downswings occurred successively, the result would be a long period of rolling weakness including a less severe recession – the early 1990s scenario.

Chart 1 is an exhibit used in 2018, suggesting – based on average cycle timings – a recession bottoming in 2019-20, a slowdown into 2023 and a major recession around 2027. The former two played out.

Chart 1

The housing cycle is already in a downswing, the stockbuilding cycle is at or close to a peak, while the business investment cycle is well-advanced. The Gulf War III energy price shock could be the trigger for synchronised weakness.

There have been six oil price “shocks” since the 1960s, defined here as episodes in which the spot price rose 50% or more above its two-year moving average for at least three months. All were followed by a significant contraction in G7 industrial output and five were associated with a US recession, as determined by the NBER – chart 2.

Chart 2

Spot Brent of $100 per barrel represents a 37% premium to the two-year moving average. Oil would have to be sustained at about $115 for three months for the current spike to qualify as a “shock”.

The oil intensity of GDP has fallen dramatically since the 1970s, suggesting less vulnerability to shocks. This could explain why the most recent shock – in 2022 – did not involve a US recession.

An alternative view is that a recession was avoided because the cyclical backdrop was less unfavourable and there was pent-up demand due to pandemic disruption, reflected in a large monetary overhang. The stockbuilding cycle turned down in 2022 but the housing and business investment cycles were in late upswing and recovery phases respectively.

The prior shocks caused short-term inflation spikes and were associated with upward pressure on interest rates, contributing to a fall in nominal narrow money momentum. G7 real money contracted ahead of maximum economic weakness. Real money data will be key for assessing the extent of current economic damage.

“A good laugh and long sleep are the best cures in a doctor’s book.” – Old Irish proverb

It’s been more than a decade since the CDC declared sleep disorders “a public health epidemic.” Since then, the world has woken up and taken note. The long-term impact of sleep loss on mental health and physical performance has been widely documented in scientific studies. From cardiovascular disease to compromised immunity and burnout, poor sleeping habits quietly add up over time while increasing our mortality risk. Sleep is also important for cognitive health because it gives the brain time to remove toxins that accumulate while we are awake.

The three foundational pillars of human health are sleep, diet and exercise. Diet and exercise have always dominated conversations around health with very little attention paid to sleep and sleeping habits. Now sleep (or the lack of it) has finally caught the attention of society at large and with it we have seen the rise of the sleep economy.

The broader sleep economy encompasses everything from sleeping aids to sleep medication and supplements, bedding and furnishing to sleep tourism. Just the sleeping-aid market is estimated to reach $188 billion according to Statista. The emergence of the sleep economy is best represented by the popularity of products like the Oura ring that tracks heart rates, sleep cycles and recovery metrics. Oura ring has sold over 5.5 million rings and the company behind it, Oura Health, was valued at $11 billion last year.

Beyond just physical products, we are also seeing the rise of sleep tourism, with travelers showing an increased preference for sleep-focused holidays. Hotels understand that their customers now value good quality sleep and offer everything from smart beds and pillow menus to sleep-specific spa treatments and dedicated sleep programs to help reset the circadian rhythm and allow customers to rest.

One of the holdings in our portfolio is Atour Lifestyle Holdings Ltd. (ATAT US), the largest hotel operator in China’s upper-midscale segment. There are several attributes of the business that make it attractive purely as a hotel operator – from its brand strength to its ability to expand in an asset-light manner while maintaining its attractiveness to prospective franchisees.

However, Atour also has a fast-growing retail business that caters directly to emerging sleep economy trends. From deep sleep pillows to mattresses and comforters, Atour is the first hotel chain in China to develop a retail business around the sleep economy. Sleep economy aside, Atour also taps into so called new consumption trends in China where consumers prioritize maintaining a balanced lifestyle and personal fulfillment over conspicuous consumption that was prioritized by their parent’s generation. From that perspective, Atour for us checks two boxes: the rise of the sleep economy and shift in spending toward services like travel and tourism, concerts etc.

Atour is able to create synergies with its hotel business by cross selling its products to its hotel guests. Hotel guests get what is in effect a free trial when they stay at an Atour property and their real-time feedback is used to enhance product R&D. It helps that Atour’s premium positioning has a positive spillover effect on the brand positioning of its sleep products. Being alert to changing societal norms and evolving spending priorities is a key element in identifying themes within our investment process. We sleep well at night knowing that these thematic tailwinds provide a nice boost to Atour’s revenues and profitability on top of good execution with its core hotel business.

A rise in the ISM manufacturing new orders index was expected to be short-lived even before the outbreak of Gulf War III.

The index jumped from 47.4 in December to 57.1 in January, with a small retreat to 55.8 in February. The January reading was the strongest since 2022.

The ISM rise, along with a parallel increase in global manufacturing PMI new orders, boosted hopes of a sustained industrial upswing with an associated earnings-driven broadening of equity market gains.

The interpretation here, by contrast, has been that the ISM / PMI rises reflect the global stockbuilding cycle moving into a peak. The cycle was expected to begin a downswing by mid-2026 into a H1 2027 low.

The ISM customer inventories index supports this interpretation. The jump in new orders has been accompanied by a sharp fall in customer inventories to below 40. Previous declines to sub-40 occurred around peaks in new orders – see chart 1.

Chart 1

This seems, on first consideration, perverse. The customer inventories index is a gauge of whether stock levels are too high or low. Falling / low readings might be expected to signal future restocking, resulting in a rise in new orders.

The explanation for the opposite relationship is that, by the time they report lower inventories, customers are already placing restocking orders, i.e. the additional demand is reflected in current not future new orders. The next phase of the cycle involves customers reducing demand as inventories return to a comfortable level. This phase marks the new orders peak.

An imminent ISM new orders reversal is also implied by a recent decline in six-month growth of real currency in circulation, which has led the orders index by an average eight months historically and peaked most recently in August – chart 2.

Chart 2

The suggested explanation for this relationship is that currency demand is influenced by retail spending plans, with such spending driving orders placed by retailers / wholesalers. The currency slowdown may indicate that spending prospects were deteriorating before the energy price shock.

Lindsay Holtz and Moira Turnbull-Fox were featured in Benefits and Pensions Monitor article titled “Why micro-communities matter for women’s careers.” They spoke about our Women’s Collective and the importance of creating spaces for women across CC&L Financial Group and its affiliates to connect and support one another.

“There’s lots of external networking events that people can identify, but we identified a gap that was right here at home. It was easy for us to grab that and drive it in the direction that we wanted it to go in,” Lindsay said.

The article coincided with International Women’s Day – a global reminder of the progress made, the work still ahead and the importance of creating environments where women can lead, thrive and be heard. It’s a moment to celebrate achievements, advance equity and reaffirm our commitment to supporting women across our workplaces and communities.

Read the full article

A recent pick-up in commercial bank loan growth is unlikely to be a positive signal for economic prospects.

Commercial banks’ loans and leases are estimated to have risen at a 9% plus annualised rate in the three months to February, up from 5.9% in the prior three months, based on weekly data through mid-month – see chart 1.

Chart 1

Unlike money measures, bank loans are a coincident or lagging indicator of economic activity. Commercial and industrial (C&I) loans and consumer installment credit are components of the US Conference Board lagging economic index.

The recent acceleration has been driven by two categories: C&I loans, which account for 21% of total loans and leases; and “all other”, accounting for 23%, which includes loans to non-bank financial institutions.

Growth of the latter category rose strongly over 2024-25 as banks contributed funding to a boom in private credit. Worries about credit quality and illiquidity have ended this boom, with market indicators signalling rising stress – chart 2. The recent further strength in “all other” loan growth may reflect private lenders drawing down bank credit lines as other sources of funding dry up.

Chart 2

Reduced availability of private credit probably partly explains the pick-up in demand for C&I bank loans. However, such demand is also influenced by the stockbuilding cycle – chart 3. Stronger growth suggests that stockbuilding has rebounded in early 2026, supporting concurrent economic activity but with payback likely later in the year.

Chart 3

To the extent that bank loan acceleration reflects a “reintermediation” of credit demand due to a bust in private credit, it is likely to cause banks to tighten lending standards, with negative monetary and economic implications. Such tightening may be confirmed in the April Fed senior loan officer opinion survey released in early May – chart 4.

Chart 4

Japan is a country that remains steeped in tradition and ritual, even as it embraces and leads advanced technologies such as factory automation, semiconductor production equipment and high-speed trains. Staid practices such as invoicing expenses via fax machines, saving data on floppy disks and even signing documents with physical ink stamps continued unabated until the pandemic forced a wholesale rethink.

Historical context: System integrators

Japanese companies’ approach towards IT infrastructure differs fundamentally from their American and European counterparts. In the 1960s, the Japanese government was concerned about IT competitiveness against American behemoths, IBM and Intel. Therefore, the government funded the development of IT national champion NTT, as well as three other IT groups, Fujitsu and Hitachi, NEC and Toshiba, as well as Mitsubishi Electric and Oki. It also awarded these groups public projects over the decades since. By the 1980s, the private sector saw the spinoff of consulting subsidiaries, specializing in the IT needs of service sectors such as e-commerce and finance. These consultants became known as System Integrators (SIs).

Competitive advantage: Talent monopsony

SIs coordinate software vendors, hyperscalers, subcontractors and non-tech companies’ IT departments to meet their clients’ IT needs. SIs’ customer stickiness is strong because clients desire customization but can’t secure the top IT talent because of customers’ comparatively low salaries. Local companies’ IT workers are generalists who don’t know how to effectively procure hardware, manage software or even develop an IT strategy. Gartner found that 67% of such companies blamed “talent scarcity” as a major obstacle to IT upgrades (vs. 38% globally). With growing IT labour shortages and few students pursuing tech degrees, SIs’ core role between the key parties is what leads to higher margins, enabling companies to hire top SI talent.

Industry outlook: Long growth runway

IDC estimated that Japan’s $180 billion in annual general IT spend would grow at 6.4% CAGR into 2029E. Mordor Intelligence estimated that cloud spending would grow significantly faster than general at 17% CAGR into 2031E. According to Gartner, in 2021 31% of Japanese companies stored data on the cloud, with cloud comprising only 4.3% of total IT spend (vs. 14.4% North America, 9.7% Europe, 6.4% China). As of 2023, according to the Information Technology Promotion Agency, large Japanese firms with more than 1,000 employees had already drawn even with large American firms with ~63% of them noting that they had dedicated digital transformation (DX) departments (vs. ~64% for large American firms). In contrast, smaller Japanese firms with fewer than 1,000 employees were lagging behind with just ~12-41% reporting dedicated DX departments (vs. ~39–66% for smaller American firms). Smaller capitalization SIs serve small customers.

Gen-AI: More opportunity than threat

While software-as-a-service (SaaS) company stocks have sold off across America, Europe and Japan year to date, we expect strong demand for cybersecurity and infrastructure to continue, benefiting SIs. This is because declining software development costs amid AI-led coding and fiercer price competition against AI agents reduce overall software package costs. While lower prices hurt SaaS supplier margins, they boost customers demand.

SIs are crucial to the integration of software packages with hardware and networks, all safeguarded by cybersecurity. Japanese companies’ core IT systems were built by the SIs themselves in complex layers based on evolving business needs and characteristics. This makes it hard to standardize processes, a necessary precursor to an AI-first automated approach. Rather, our SIs will even benefit from rising demand for limited IT system standardization as companies seek to deploy agentic AI. Admittedly, agentic AI has the potential to replace end-user applications in enterprise resource planning, but we believe that SIs will retain their crucial role in maintaining infrastructure by offering cybersecurity.

DX favours smaller SIs

Mentioned above, DX refers to the implementation of digitalization through efforts such as transitioning data to the cloud to avoid reliance on onsite physical data storage and, more recently, rolling out gen-AI models to boost productivity. The term captures the shift in approach from treating IT as peripheral toward recognizing its centrality. As IT competitiveness and DX continue in Japan, the next leg of growth should be led by DX service providers that focus on smaller firms.

Simplex Holdings

Simplex Holdings Inc. (4373 JP) was founded in 1997. In 2001, it began offering banks with solutions like IT consulting, systems development, and operations and maintenance. Over the decades, it expanded into FX brokerages, equity, futures, options platforms, insurers and crypto. In 2013, it conducted a $211 million buyout with Carlyle. Carlyle later sold its equity stake upon Simplex’s September 2021 relisting on the Tokyo Stock Exchange. We feel that Simplex is well positioned to benefit from this trend.

* all dollar amounts referenced in this article are in USD.