February 11, 2024

Notable market news this past week (11-Feb-24)

Here is the Skeptivest roundup of the latest market headlines for the week

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🇩🇪 Industrial Decline in Germany

Domestic Challenges and Political Paralysis: Germany's industrial downturn is further compounded by domestic challenges and political gridlock. Infrastructure deficiencies, an aging workforce, and bureaucratic hurdles hamper the country's economic performance. Political paralysis in Germany exacerbates these issues, limiting the government's ability to enact necessary reforms and invest in key sectors. Chancellor Olaf Scholz's coalition government faces internal strife, hindering its capacity to address structural economic challenges effectively.

Energy Crisis and Economic Consequences: The energy crisis, exacerbated by disruptions from the pandemic, has further strained Germany's industrial sector. The loss of cheap Russian natural gas and high electricity prices have led to significant challenges for energy-intensive industries, such as chemicals. Companies like BASF SE are cutting jobs in response to these challenges. Additionally, Germany's sluggish bureaucracy impedes timely responses to economic challenges, as seen in delays in obtaining permits for renewable energy projects.

Adaptation and Future Prospects: German companies are adapting to the changing economic landscape by diversifying operations and seeking efficiencies. EBM-Papst, for instance, has shifted production to components for heat pumps and data centers and is considering relocating administrative tasks abroad. However, the decline in manufacturing, while gradual, raises concerns about the long-term viability of certain industries and the broader implications for the German economy.

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☕️ Quick fire happenings to note

🌏 Global macro

• Change in Leadership in Chinese Securities Regulation: China's securities regulator, the CSRC, sees a change in leadership as Wu Qing, a banking and regulation veteran known for his tough stance on traders, replaces Yi Huiman as chairman and party chief. Wu's appointment signals potential for more forceful measures by the government to address the ongoing stock market rout, with about $5t of market value wiped out from onshore equities since their peak in 2021.
• China Implements Tighter Trading Restrictions Amid Market Rout: China tightens trading restrictions on domestic institutional investors and some offshore units in efforts to stabilize the stock market, which hit a five-year low recently. Restrictions include imposing caps on brokerages' cross-border total return swaps with clients, limiting a channel used by China-based investors to short Hong Kong stocks. Additionally, some Chinese brokers are instructed not to reduce positions in mainland shares for their offshore units. Quantitative hedge funds face bans on placing sell orders or cutting stock positions in leveraged market-neutral funds, aiming to address perceived amplification of selloffs in small-cap stocks. 
• EU and US Align Efforts Against China’s Mineral Supply Dominance: The European Union and the United States are in discussions to merge key aspects of their strategies aimed at engaging suppliers of critical minerals in resource-rich nations, with the goal of streamlining their collective efforts to counter China's dominance in materials essential for future technologies. Both the EU and the US view this collaboration as vital for reducing dependence on China in the critical minerals supply chain. The initiative involves working with resource-rich nations to develop standards on investment, trade, research, and environmental issues as an alternative to reliance on China. The US has already struck a bilateral deal with Japan and aims to kick-start new mining and processing projects by facilitating partnerships between private companies and developing nations.
• BOJ to Maintain Easy Policy Post-Negative Rate Era: Governor Kazuo Ueda of the Bank of Japan (BOJ) affirmed that financial conditions in Japan will remain accommodative even after the BOJ discontinues its negative interest rate policy, which is currently the last of its kind globally. Deputy Governor Shinichi Uchida also emphasized that any future rate hikes would likely be gradual and cautious. Market participants have interpreted these statements as a signal that Japan may be approaching its first rate hike since 2007. Ueda reiterated that the BOJ will consider ending stimulative measures, including subzero borrowing costs, once stable inflation is in sight. The BOJ is expected to announce the discontinuation of negative rates in March or April, with its next policy decision scheduled for March 19.
  

🏦 Individual stocks/companies

• Jeff Bezos sells $2b of Amazon shares: Jeff Bezos sells 12m shares of Amazon.com Inc., marking his first major stock sale since 2021, netting over $2b and potentially cashing in on a stock surge that has propelled his fortune to $199.5b , amid plans to sell up to 50m shares over the next 12 months.
• Adam Neumann and Investors Explore WeWork Acquisition: WeWork's co-founder, Adam Neumann, along with investors including Third Point's Dan Loeb, are considering a bid to purchase WeWork Inc. out of bankruptcy. Neumann's real estate startup, Flow, has been gathering information since December to formulate a bid and has worked on securing bankruptcy financing for the co-working firm. The bid could encompass the entire company or its assets, although specific financial details have not been disclosed. 
• UBS Restarts Share Buyback Amidst Challenging Outlook: UBS Group AG announces plans to repurchase up to $1b in shares this year, following the legal merger with Credit Suisse scheduled for the second quarter. The decision aims to maintain investor confidence amidst a challenging financial landscape. CEO Sergio Ermotti warns of a tough year ahead in 2024, attributing difficulties to costs associated with the merger and emphasizing the need to prioritize financial resource optimization. Despite challenges, the bank anticipates higher client activity levels and a substantial sequential improvement in reported net profit in the coming quarters. Additionally, UBS outlines its growth strategy, focusing on expanding its presence in the US wealth management market and offering a broader range of global investment services to American clients.
• Aramco Taps Citi, Goldman, and HSBC for Aramco Share Sale: Aramco plans to hire banks including Citigroup Inc., Goldman Sachs Group Inc., and HSBC Holdings Plc for a secondary share sale,  aiming to raise about $20b. The challenge lies in attracting new investors, as previous valuations and low yields deterred many international firms during the IPO, leaving the deal reliant on local investors. Saudi Arabia's decision to halt plans for boosting oil production, announced last month, may raise questions about Aramco's outlook on oil demand but also frees up significant capital for other purposes. 
• Exxon Mobil Exiting Equatorial Guinea After Nearly Three Decades: Exxon Mobil Corp. intends to depart from Equatorial Guinea in the coming months, concluding a nearly thirty-year tenure of oil drilling activities that transformed the small West African nation into a member of OPEC. The company plans to transfer its investments in the country to the government during the second quarter. Over the years, the nation's oil output has declined by more than 80% due to dwindling reserves and decreasing foreign investment. Exxon's decision to withdraw aligns with its long-term strategy, which prioritizes investments in the fastest-growing, lowest-cost opportunities such as those in Guyana and the US Permian Basin.
  

🇸🇬 Singapore related

• Singapore’s household income growth: The median monthly household income in Singapore increased to S$10,869 in 2023, marking a real growth of 2.8%. Despite overall growth, households in the lowest income deciles experienced declines, while government transfers rose to support households amidst economic challenges.
• Singapore to increase pool of public sector psychologists by 40%: Singapore government plans to increase the pool of mental health professionals, train over 130,000 frontline personnel and volunteers, and establish first-stop touchpoints to meet the rising demand for mental health services by 2030.
• Singapore's property tax revenue expected to increase by S$600m due to higher home valuations: Singapore's residential property tax revenue for 2024 is expected to increase by around S$600 million compared to 2023, with two-thirds of the increase attributed to non-owner occupied properties, driven by higher annual property values due to increased market rentals.

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