YOUR QUIVER | December 9, 2022
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Some Like It Hot
The PPI for Nov increased by 0.3% for a 3rd mo, up 7.4% y/y, above consensus levels. The print signals to investors that the Fed still will have hawkish data to back rate increases. Cue Hot Hot Hot by Buster Poindexter.
Retail Retreat
Vanda Research estimates that retail investors lost $350bn this year, with their ave portfolio down -30% YTD2022 versus the S&P at -17%. The group tended to own more high-fliers that crashed and bought dips in the bear market. Case in point, they estimate that the ave self-directed portfolio held 10% in $TSLA. JPM believes their hit was more like -38%. Throw in crypto and meme stocks (shout out to you, $BBBY, $GME, $AMC), and some portfolios are singin’ the blues even louder.
A Relative Game
In Asia, the HK Heng Seng rose another 2%, with tech on top. China’s Shenzen and Shanghai Composite increased +0.6% and +0.3%, respectively, given moderate inflation data. China’s consumer price index rose +1.6% in Nov, while PPI fell 1.3%. Nikkei closed up +1.2%. Korea’s KOSPI increased by +0.8%. In Europe, the FTSE 100 was flat, and the pan-Euro Stoxx600 was up +0.6%. Materials and Industrials were up, and Energy was down.
Staying Local
BBG reporting that investors continue to shift US-listed China tech to HK listings, due to fear of potential delisting here because of audit requirements that go into effect by 2024. They estimate that 81% of JD’s shares are in HK, up from 44% at the end of 2021. BABA’s rose by 11%. Trading activity mirrors this trend, with % ave trade volumes in HK for $BABA and $JD are 28% and 46% of totals this month, the highest level ever.
Kill the Messenger
China responded to the protests by relaxing restrictions. North South Capital estimates that deaths may range from 1.3-2.1mm from this change, an estimate based on HK’s omicron experience. Mainland China investors must be understanding this, as they’ve sold about $436mm of HK stocks this week alone as of Fri morn, post the strong Nov/Dec rally.
Dollar Disregard
With all the attention on rates/inflation globally, we want to bring attention back to the USD, which we view as still critical for 2023. The bounce back in EM this past month coincided with the USD weakening (see $UUP chart below) and potential China reopening news. The USD tends to remain strong during Deflationary periods (slower GDP growth and inflation), so we are cautious about assuming that the recent trend will continue. Outside of Deflationary environments, the USD is often a safe haven position when markets decline.
Hope Is Alive
North South Capital reports that investors are expecting rates to be cut in 2H23, setting up for disappointing if the Fed hikes by 50bps next week and 2x 25bps in early 2023-and then maintains its course for a few quarters. We were at a meeting yesterday where someone from a large bank confidently proclaimed that we’re at the highest rate level right now, and rates are only going down from here. I reminded him about the Fed meeting next week and sticky inflation readings…and got not much data or rationale in response. So, that’s one data point supporting NoSo’s report.
Blocked and Tackled
That’s how the $ATVI/$MSFT deal is feeling right now, after the FTC sought to block the $69bn deal for anticompetitive reasons.
Tit for Tat
Russia may cut oil production in response to the G-7 px cap on its crude. Russia will not sell any to countries that are enforcing the restrictions.
No Fart Tax
Countries are coming up with ways to cut methane emissions using taxes, limits, regulation, gov buy-outs. Farmer protests are going global, up 30% y/y according to BBG. My favorite slogan came out of New Zealand farmer signs with ”No Fart Tax” while they played Twister Sister’s We’re Not Gonna Take It. Also, consumers facing inflation are concerned about food scarcity and their pocketbooks. Ag generates over 30% of global greenhouse gas emissions (from manure/urine, deforestation, fertilizers/pesticides hurting land), so governments are working to manage ag to solve global warming. Of course there is a lot of progress for ag tech (vertical farming, more efficient land use and fertilizer, push towards veggies planted versus animal proteins, etc.), so eventually there will be more solutions being used, but for now the situation is complex and heated.
Rental Rage
UK rental prices increased by 2x wage increases this year. Zoopla estimates the cost of a new rental agreement increased by 12% y/y in Oct. Rent ~35% of ave earnings, the highest since 2009, or over 48% in London. I never thought San Francisco would look so attractive on a relative basis.
Kirkland Dip
I guess not enough shoppers at $COST this quarter. They missed on earnings and talked about a soft environment. Last week they reported rev, so today’s focus was on margins.
