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EM vs DM convergence: the battle of the low yielders×576.png2022 has been…



2022 has been a notoriously bad year for government bonds globally, as central banks embarked upon (or continued) interest rate hiking cycles to fight rocketing levels of inflation. This was caused by unprecedented easy monetary policy through a pandemic, persistent supply-side bottle-necks, strong labour markets and the disruption of commodity markets due to Russia’s invasion of Ukraine. However, what is clear is that different central banks are tackling these growth and inflation woes in different ways and at different paces.

A key factor in this hiking cycle is that many emerging market (EM) central banks have been ahead of their developed market (DM) counterparts in starting to hike rates, whereas historically they have lagged behind. This means that it is the likes of the Fed, ECB and BoE that have been in catch-up mode in tackling inflation, rather than the EM policy makers. This also means, however, that central banks like the Fed have had to be more aggressive in their approach in order to compensate for the time they spent treating inflation as ‘transitory.’ The result? After a year of catching up, you can now earn a much better yield for lending to the US, a supposedly ‘risk free’ investment, than to the lower-yielding EM issuers, with the latter struggling to offer enough extra compensation for a riskier credit profile.

One area where the EM vs DM convergence seems particularly to be taking place is in the IG space of the external EMD market. Naturally, hard currency debt is a credit instrument in which return is expected from earning a spread above a developed market benchmark. Looking at the below chart, it is clear that despite the market turmoil of 2022, particularly in EM markets, IG spreads have stayed contained.

Source: JP Morgan Indices, 30 November 2022

Why have IG spreads been resilient?

Composition is important here. In the IG sovereign space, the index largely comprises issuers from Asia and the Middle East, which have generally been better insulated from the global shocks that have driven DM yields relatively higher. Many credits in the Middle East are currently enjoying a positive terms of trade impact from being commodity exporters throughout 2022, meaning that they are sitting on strong balance sheets flushed with petrodollars and have little need to come to market. In IG Asia, we find multiple issuers which simply have not needed to issue much debt in hard currency – economies with more stable currencies and inflation, as well as deeper domestic capital markets, tend to issue more in local rather than hard currency. This keeps supply low and spreads compressed. Let’s look at Indonesia as an example.

Source: Bloomberg, 30 November 2022 

Indonesia is a BBB credit, so a higher yielder within the IG space and a large constituent of the IG market. Looking at a 20 year USD-denominated bond, we can see that outright yields have risen throughout the year in line with the market, but Indonesia credit has pretty solid fundamentals and on a spread basis does not seem to be offering compelling value.

So where is the value?

Most of the weakness in hard currency spreads has been driven by the high yield market, where lower quality/speculative credits issue a greater proportion of their debt in USD in order to attract external financing. Compositionally, this means hard currency EM debt typically has a weaker credit profile and higher default probabilities. Furthermore, USD-denominated EM debt will typically see spreads widen during times of USD strength (a resounding theme of 2022) – this is because their credit quality decreases as their ability to repay their debt deteriorates. Higher yielding EM names and frontier economies issuing external debt have undoubtedly suffered from the brutally bearish market as a whole this year, with a number of issuers having defaulted or tottering on the brink as debt surged and fiscal buffers shrank amid the pandemic and Russia’s invasion of Ukraine.

Source: JP Morgan Indices, 30 November 2022

However, the investor panic that sent spreads to wides rivalling the pandemic or the GFC seems to have eased recently, amid a flurry of IMF deals, bilateral funding commitments and hopes for a less hawkish Fed going into 2023. This easing in risk sentiment has opened up a window of opportunity, as witnessed by November’s rally in spreads, particularly in those names that have sold off more than fundamentals would warrant.

What about local markets?

Again, it feels like the battle is between the lower-yielding Asia issuers and USTs, in which nominal US yields have risen aggressively to offer similar compensation to the Asia index.

Source: Bloomberg, 30 November 2022 

Unlike EM sovereign credit, local EM bonds carry FX risk, are more liquid and are more driven by local inflation and interest rates. Asia in this case looks less attractive as an investment region, firstly due to China – a large constituent of the index, with the PBOC having retained an accommodative stance to monetary policy given plunging domestic demand in light of the country’s zero-Covid policy. We have also seen a weak CNY, driven by declining terms of trade, weak rate differentials (especially vs USD) and geopolitical risk.

South East Asia as a whole has seen relatively moderate inflation vs the rest of the world, driven by a number of factors including: China’s weak growth; geographically being further away from the conflict in Europe (and thus less reliant on its supply chains); many Asian countries managing the pandemic in a way that avoided major supply disruptions; and a rice-based diet reducing the need to import grain. This has afforded central banks room to keep interest rates lower for longer and support economic recovery. Hiking cycles have now commenced in many economies, but the lag vs the Fed has meant yield differentials have narrowed.

However, the big differentiator in local markets is real yields. If we return to our Indonesia example, given inflation has been lower in the region, the real yield pick-up vs USTs becomes much more attractive. In line with its peers, the BI (Bank Indonesia) central bank has been relatively late to the hiking cycle (they began in the summer), but have since caught up somewhat and have hiked rates from 3.5% to 5.25%. The currency also looks attractive, trading at cheap valuations but underpinned by strong growth forecasts and a healthy current account position.

Regionally, it seems like the standout in local markets is Latin America, with a large move in both nominal and real yields as they have been more proactive in fighting inflation. US real yields could still catch up somewhat, especially if the Fed holds at a high terminal rate for a while and inflation expectations come back down. But, given EM is full of idiosyncrasies and volatility (especially in high yield), this will remain a battle of the low yielders here. 

Source: Bloomberg, 30 November 2022  *10 year bonds or closest available maturity

In conclusion

In USD EM sovereign markets, much relies on the Fed. A slower pace of hikes could reverse the shunning of dollar-denominated debt as a whole, but clearly HY credit offers a much greater spread pick-up going forward vs IG that is struggling to compete with US Treasuries. In local markets, monetary policy remains divergent, politics and geopolitics dominate headlines, and FX remains volatile. However, looking at valuations, it is clear that local sovereign bonds are offering compelling real yields compared to developed markets, across both IG and HY issuers.

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OraSure Technologies’ CFO Makes Bold Insider Purchase, Reigniting Investor Confidence

Executive Kenneth McGrath’s $500,000 buy read as promising signal about future for diagnostic test developer OraSure Technologies (NASDAQ:OSUR) saw…




Executive Kenneth McGrath’s $500,000 buy read as promising signal about future for diagnostic test developer

OraSure Technologies (NASDAQ:OSUR) saw a stock price re-rate on Thursday, climbing 11% after investors became aware of its CFO Kenneth McGrath buying shares in the diagnostic test developer.  This latest rally in OSUR stock, gives traders and investors hope that the strong momentum from the beginning of 2023 might return.

OSUR shares had mounted an impressive 54% rally for 2023 through to May 10, when the first-quarter results update spooked investors. 

The CFO’s trade was initially spotted on Fintel’s Insider Trading Tracker following the filing with the Securities and Exchange Commission.

Big Holdings Boost

In the Form 4 filing, McGrath, who assumed CFO duties in August 2022, disclosed buying 100,000 shares on May 30 in the approved trading window that was open post results.

McGrath on average paid $4.93 per share, giving the total transaction a value just shy of $500,000 and boosted his total share count ownership to 285,512 shares.

The chart below from the insider trading and analysis report for OSUR shows the share price performance and profit made from company officers in previous transactions:

OraSure Technologies

Prior to joining OraSure, McGrath had an impressive eight-year tenure at Quest Diagnostics (NYSE:DGX), where he rose to the position of VP of Finance before departing. This is the first time that the CFO has bought stock in the company since August 2022. It is also worth noting that the purchase followed strong Q1 financial results, which exceeded Street forecasts.

Revenue Doubles

In its recently published Q1 update, OraSure Technologies told investors that it generated a whopping 129% increase in revenue to $155 million, surpassing analyst expectations of around $123 million. 

Notably, the revenue growth was driven primarily by the success of OraSure’s COVID-19 products, which accounted for $118.4 million in revenue for the quarter and grew 282% over the previous year.

The surge in revenue for this product was largely driven by the federal government’s school testing program, which led to record test volumes. However, it is important to note that demand for InteliSwab is expected to decline in Q2 2023, prompting OraSure to scale down its COVID-19 production operations. As part of its broader strategy to consolidate manufacturing, the company plans to close an overseas production facility.

While the COVID-19 products division has been instrumental in OraSure’s recent success, its core business delivered stable flat sales of $36.6 million during the quarter. 

In terms of net income, OraSure achieved an impressive result of $27.2 million, or $0.37 per share, in Q1, marking a significant improvement compared to the loss of $19.9 million, or a loss of $0.28 per share, in the same period last year. This result exceeded consensus forecasts of $0.16 per share. As of the end of the quarter, the company held $112.4 million in cash and cash equivalents.

Looking ahead to Q2, OraSure has provided revenue guidance in the range of $62 to $67 million, reflecting the lower order activity from the US government with $25 to $30 million expected sales for InteliSwab. The declining Covid related sales have been a core driver of the share price weakness in recent weeks.

While sales are likely to fall in the coming quarters, one positive for the company is its low debt balance during this period of rising cash rates. The chart below from Fintels financial metrics and ratios page for OSUR shows the cash flow performance of the business over the last five years.

OraSure Technologies

Analyst Opinions

Stephen’s analyst Jacob Johnson thinks that outside of Covid, OSUR continues to execute on several cost and partnership initiatives which he believes appears to be bearing fruit. Johnson pointed out that three partnerships were signed during the quarter.

The analyst thinks that the ex-Covid growth story will be the new focus for investors from now on. The brokerage maintained its ‘equal-weight’ recommendation and $6.50 target price on the stock, matching Fintel’s consensus target price, suggesting OSUR stock could rise a further 29% in the next 12 months. 

The post OraSure Technologies’ CFO Makes Bold Insider Purchase, Reigniting Investor Confidence appeared first on Fintel.

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UC Davis C-STEM trains Redlands teachers on bringing computer science into math

Twenty-five teachers from Redlands Unified School District in southern California recently completed training in integrating computer science into math…



Twenty-five teachers from Redlands Unified School District in southern California recently completed training in integrating computer science into math education through a joint program offered by the University of California, Davis, and UC Riverside Extension. The Joint Computer Science Supplementary Teaching Credential Authorization Program has helped Redlands address gaps in student opportunity and achievement, and teachers’ skills.

Credit: Redlands Unified School District

Twenty-five teachers from Redlands Unified School District in southern California recently completed training in integrating computer science into math education through a joint program offered by the University of California, Davis, and UC Riverside Extension. The Joint Computer Science Supplementary Teaching Credential Authorization Program has helped Redlands address gaps in student opportunity and achievement, and teachers’ skills.

“Improving math instruction for student success is the most challenging task in education. Redlands partnered with UC Davis to make math instruction with computer science a reality for many of our students who have historically disconnected from learning math,” said Ken Wagner, assistant superintendent of Redlands Unified School District. “More students are demonstrating resilience and persistence in their math progression than ever before, which to us, is an immeasurable outcome.”

Redlands is the first school district in the nation that has 25 teachers who have gone through four college-level courses needed to earn their credential. This innovative practice is transforming public K-12 math and computer science education.

“C-STEM training and use of the robotics and programming skills that are taught has been the best professional development training of my 28-year career,” said teacher Roland Hosch. “I am very grateful to be a part of it and my classroom is a more efficient and more effective place to learn because of it.”

Transforming math education

The UC Davis Center for Integrated Computing and STEM Education, or C-STEM, program aims to transform K-12 math, computer science and STEAM (science, technology, engineering, arts and mathematics) education through integrated learning. Students learn to solve math and algebra problems through coding and by programming small, modular robots. The C-STEM Math-ICT curriculumprovides up to 13 years of integrated math and computer science teaching from kindergarten through high school. C-STEM courses have UC A-G status, satisfying admissions requirements for the University of California and California State Universities.  

Redlands USD implemented the C-STEM program in 2018 to narrow the achievement gap in math and address the opportunity gap in computing. The district has expanded from two middle school teachers initially to 35 teachers, including all the district’s middle and high schools as well as six elementary schools, in 2022-23. 

Redlands has seen results with the program. From the 2018-19 school year to 2021-22, average scores on the mathematics diagnostic testing project (MDTP) rose by more than 13% in C-STEM classes compared to peers in traditional math classes in the same schools. (Redlands students can choose either a C-STEM math track, plus a computer science class, or a traditional math class.) 

“C-STEM brings joy into the classroom,” said Deepika Srivastava, STEAM coordinator for the Redlands school district. If you give a student a worksheet of math problems and they get 20 or 30% right, it tells the student “You’re bad at this,” she said. 

“But if they are trying to solve a problem by writing a program, they can get it 20 or 30% right, get some feedback, and improve. When you’re solving a math problem by coding, it’s an iterative process, there’s constant feedback,” she said. “It encourages students to keep trying and develops skills in critical thinking, problem solving and perseverance.” 

Further, she said that the C-STEM math classes have become more diverse, with more representation of girls, Black and Latinx students, and students from lower socioeconomic backgrounds. Perhaps most significantly, surveys of students entering and completing the program show a big swing from “I hate math” to “I enjoy math.” 

Addressing the opportunity gap

“Redlands is a good example of a school district working with C-STEM to address the ‘opportunity gap’ in math education,” said Harry Cheng, director of the C-STEM center and professor in the UC Davis Department of Mechanical and Aerospace Engineering. “Schools are working to get students back on track after the pandemic. The students are doing better, closing the achievement gap and teachers are learning new skills, closing the skills gap.”

Srivastava, who visits all the district classrooms using the C-STEM program, said that the program also has positive effects on student behavior. 

“When a kid fails at math, they get the message that they’re not good at math and then they don’t give 100%. But when they’re building a robot, their entire attitude changes. I truly believe this is where the future is.” 

The UC Davis Center for Integrated Computing and STEM Education is a comprehensive program that includes the annual RoboPlay competition in which students compete with other schools to solve challenges with coding and robotics. In addition to K-12 curricula and professional development for teachers, the center also supports schools and districts to organize their afterschool and summer programs, including robotics camps, robotics-math camps, the Girls In Robotics Leadership (GIRL/GIRL+) camps, and Ujima GIRL Project for African American middle and high school girls. 

“Ever since the pandemic, we have been challenged to find new ways to engage our students,” said teacher Noah Rosen. “The investment that Redlands Unified has made in my continued training in C-STEM has provided me with a whole new treasure chest of tools that I can use to elevate the effectiveness of my classroom instruction through computer science.”

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COVID-19 Testing Resumes In Beijing, Shandong, As Reinfection Cases Surge

COVID-19 Testing Resumes In Beijing, Shandong, As Reinfection Cases Surge

Authored by Alex Wu via The Epoch Times,

China has resumed COVID-19…



COVID-19 Testing Resumes In Beijing, Shandong, As Reinfection Cases Surge

Authored by Alex Wu via The Epoch Times,

China has resumed COVID-19 PCR testing in Beijing and Shandong Province amid rising re-infections, while the regime’s top health advisers have warned of a new wave of mass infections.

Since May 29, mainland netizens have posted on Chinese social media platforms that PCR test kiosks in Beijing are quietly back in business.

Mainland media “City Interactive,” a subsidiary of Zhejiang “City Express,” reported on May 30 that one of the PCR testing booths that netizens posted about was in Beijing’s Xicheng District, where the central government and the Beijing municipal government are located.

The staff of that testing kiosk said that the PCR test there has never stopped, reported “City Interactive”, without being clear how long it had been open.

“We have been doing nucleic acid testing in Xicheng District, but I’m not sure about other districts in Beijing,” a staff member said.

The staff member said the laboratory she works for is mainly responsible for nucleic acid testing within Xicheng District. Currently, there are more than ten testing points outdoors, and one person is on duty for each booth from 9:00 am to 5:00 pm.

Residents get swabbed during mass COVID-19 testing in the Chaoyang District in Beijing on June 14, 2022. (Andy Wong/AP Photo)

A testing kiosk in Chaoyang District, Beijing’s central business district, has been operating since March, reported “City Interactive.” The testing booth staff said it is in the health center near Jinsong Middle Street.

Ms. Wang, a Beijing resident, told The Epoch Times on May 28 that some people have taken the PRC test while others have chosen not to.

She said many people around her, including her child, have already re-infected twice.

“This time, the symptoms seem to include a high fever and then sore throat, very painful,” she said.

“Most people are just resting at home now. Seeing a doctor is very expensive, and now many medicines are paid for by ourselves.”

Gao Yu, a former senior media person in Beijing, confirmed what Wang said. She told The Epoch Times that the relatives around her have been re-infected two or three times, and most are just resting it off at home.

Shandong Resumes Testing

PCR testing booths in Qingdao City, Shandong Province, have also reopened.

A “Peninsula Metropolis Daily” report included a screenshot of an online notice posted by the Laoshan District Health Bureau in Qingdao, which announced that from May 29, the district will conduct COVID-19 PCR testing for “all people who are willing.”

It also listed the working hours of the testing sites, from 7:00 am to 4:00 pm, seven days a week.

Another mainland Chinese media, “Xinmin Evening News,” reported on May 31 that the staff in the district bureau confirmed that the testing has resumed and is for free.

Next Wave

Zhong Nanshan, China’s top respiratory disease specialist, predicted on May 22 that a new wave of COVID-19 infections in China will likely peak in late June when weekly cases could reach 65 million. Then, one Omicron-infected patient will be able to infect more than 30 people,  Zhong said, adding that the infection is difficult to prevent.

A security personnel in a protective suit keeps watch as medical workers attend to patients at the fever department of Tongji Hospital, a major facility for COVID-19 patients in Wuhan, Hubei Province, China, Jan. 1, 2023. (Staff/Reuters)

Chinese citizens across the country have said on social media that infections have been swelling since March.

Zhong also said there had been a small peak in infections at the end of April and early May.

Most COVID-19 infections in mainland China are currently caused by the XBB series mutant strains of Omicron. Among the locally transmitted cases, the percentage of XBB series variants increased to 83.6 percent in early May from 0.2 percent in February.

Zhang Wenhong, China’s top virologist and director of China’s National Center for Infectious Diseases, also warned in late April at a conference that COVID-19 infections would reoccur after six months when immunity gained from prior infections has worn out.

Tyler Durden Fri, 06/02/2023 - 11:20

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