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Weekly investment update – Shocks rotate and hawks call the tune for bonds

China’s stock markets saw huge volatility last week, with major falls followed by strong rebounds when the authorities weighed in with policy easing….

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China’s stock markets saw huge volatility last week, with major falls followed by strong rebounds when the authorities weighed in with policy easing. In contrast, central banks elsewhere are tightening policy in the face of soaring inflation, which could yet accelerate further.  

Last week saw energy prices vacillate as Brent crude oil rose by 10%, while natural gas prices in Europe fell by a similar amount. Even though prices dipped from their early March peaks, Brent and natural gas are still 25% and 40% higher, respectively,  than before the onset of the conflict in Ukraine.

Chinese stock markets capped their most volatile week in decades, with 14 and 15 March seeing day-on-day declines in Hong Kong’s Hang Seng and China’s A-share indices totalling 11% and 8%, respectively. A rebound followed of more than 16% and 6%, respectively, over the rest of the week after the Chinese authorities weighed in, on 17 March, with assurance of policy easing.

In contrast, many other central banks started tightening policy on the back of rising inflation. This could rise yet further due to upward price pressures from new supply bottlenecks.

The Chinese market rout arose from a host of negative catalysts. Aside from the Russia-Ukraine crisis, investor uncertainty flared over the delisting of Chinese equities in the US, China’s shutting-down of major cities in response to the Omicron Covid surge – with the implications of this hitting domestic growth and global supply chains – and the continuing regulatory crackdown on China’s tech sector.

Despite this raft of negative factors, there was no spill-over of heightened volatility to other major markets (see Exhibit 1).

What prompted China to ease?

China’s financial markets reversed course mid-week when Beijing made a sweeping set of statements about policy moves to stimulate GDP growth, ease its regulatory crackdown and support the battered property market.

It remains to be seen how China’s stringent anti-Covid policy will bear up while other countries are easing restrictions thanks to high vaccination rates. Even Hong Kong is starting to relax some of its stringent measures.

Although Chinese data for January/February beat market expectations (industrial output +7.5% year-on-year, fixed-asset investment +12.1% and retail sales +6.7%), this did not yet reflect the negative impact of the new lockdowns imposed to control the Omicron outbreak.

Meanwhile, the credit impulse in February broke the recovery trend of the previous three months, falling by 7.3%, and the emerging industries purchasing managers’ index (PMI) dropped to 49.5 in March from 53.5 in February.

It is rare for Chinese officials to explicitly avow support for financial markets. Last week’s verbal intervention suggests that slowing growth, together with the weakening market confidence as seen in the sharp falls in stock prices, breached Beijing’s pain threshold. Consequently, the authorities acted to keep the market rout from getting out of control.

Escalating downward pressures on growth are threatening China’s 5.5% GDP target for 2022 – an objective that has particular political significance in this year of leadership change. It suggests more policy easing could be on the cards if Beijing wants to achieve the target and political stability.

Hawkish tilt elsewhere

Elsewhere, central banks remain on a hawkish path, prioritising concerns about rising inflation over the downside risks to growth in the near term.

Eurozone headline inflation came in at 5.9% YoY and core inflation at 2.7% in February, with broad-based price pressures due to rising energy prices, supply constraints and strong demand. January’s 5.1% headline rate was revised up to 5.9%.

The ECB is sticking with its decision to exit its accommodative policy by ending the pandemic emergency purchase programme (PEPP) this month and reducing monthly purchases under its asset purchase programme (APP). The market now expects the first rate rise to come at the end of Q3 2022 or early in Q4.

Meanwhile, the US Federal Reserve was loud and clear about its policy, raising the fed funds rate by 25bp, as expected, and strongly signalling that it will begin to wind down its balance sheet after the May meeting of the Federal Open Market Committee (FOMC).

The Fed’s new ‘dot plot’ indicates that officials now think monetary policy will be about 100bp tighter than they had expected in December. Fed Chair Jerome Powell has noted repeatedly that the central bank could raise rates in steps of more than 25bp if inflation does not align with the FOMC’s expectations.

In response, US Treasury yields have risen sharply, putting Treasuries on course for their worst month since 2016. The yields of the 10-year US Treasury has risen by 48bp so far in March to above 2.3%, the highest since May 2019.

The Treasury yield curve is flattening with the yield on the 2-year note up by 69bp month-to-date, its largest monthly increase since April 2004. Market pricing now anticipates the Fed will raise fed funds to above 2% by December, a major reappraisal after expecting them to end 2022 at near-zero at the start of this year.

The Bank of England has lifted its policy rate by 25bp. Despite its downbeat view on growth, the BoE decided to maintain a policy-tightening bias that would leave the door open for another rate rise in May.

The BoE said ‘monetary policy will act to ensure that longer-term inflation expectations are well anchored’. Inflation, as measured by the UK consumer price index (CPI), rose at an annual rate of 6.2% in February, up from 5.5% in January and marking the highest rate since 1992.

The forces driving the BoE’s rate rise appear to differ from those motivating the Fed. In the UK, there looks to be a larger contribution from supply-side, cost-push inflation (which could weaken demand by eroding real income and profits), whereas in the US, demand-pull inflation is stronger.

The Russia-Ukraine conflict could inflict more damage from supply-side, cost-push inflation in the eurozone than in the UK, while the US is relatively insulated from its effects. On that basis, the Fed will likely be the most hawkish in its policy action, with the BoE less so and the ECB the least so.

Their hawkish tilt has spread to the emerging markets, first to Latin America and more recently to Asia. Taiwan’s central bank raised its policy discount rate by 25bp last week. This was twice the size of its more usual 12.5bp increases and marked its first rate increase in 11 years.

Disclaimer

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). 

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Chi Lo. The post Weekly investment update – Shocks rotate and hawks call the tune for bonds appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Spread & Containment

How to Use Dividends to Find the Best Tech Stock

Investors Alley
How to Use Dividends to Find the Best Tech Stock
When we talk about tech stock investing, we hear discussions of all sorts about different…

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Investors Alley
How to Use Dividends to Find the Best Tech Stock

When we talk about tech stock investing, we hear discussions of all sorts about different measures used for picking stocks.

For example, some tech investors use year-over-year revenue growth. Others subscribe to a theory that has been floating around for many years, that the secret to picking tech stocks was looking at the percentage of cash flows spent on research and development.

All too often, tech stock analysis consists of storytelling and searching for ideas that will change the world, something I’ve heard thousands of times during my career. The number of companies that actually did change the world probably totals up to a few dozen over three decades.

Some of those beat the market. Others did not.

I have found a variable that can help tech investors spot promising opportunities to identify technology companies that have higher probabilities of providing market-beating returns: dividends.

Note a stock’s dividend yield: investors who want higher dividends with an overall total return would be smart to look into high-yield tech stocks as part of their income strategy. The key to using dividends to find market-beating tech stocks is to look at the rate of their dividend growth. It doesn’t matter how high the dividend is at any given time. We want to see companies that are consistently growing their dividends.

A tech company that pays a dividend is making a statement. It tells the world: “We are generating enough cash to pay the bills, hire great people, and fund our future growth plans as well as R&D. In fact, we are generating so much cash we have some left over to pay out to our investors.”

Ideally, we want to limit our universe of companies to those who are increasing their payout by at least 20% annually. Growing a dividend at that high a rate says that things are just continuing to get better.

Once we have a universe of tech companies that are growing their payouts at high levels, we want to make sure we only own those that really do have a wonderful business that just keeps getting better. We want to use a financial checklist to make sure our companies are in excellent financial shape and have what it takes to keep growing the business.

I prefer the nine-point checklist developed by Professor Joseph Piotroski when he was at the University of Chicago – known as the “Piotroski F-Score”. This is a list of nine criteria of profitability, leverage, and efficiency. On each criterion, a firm can either get one or zero points – pass or fail.

I limit my universe of tech stocks with paid dividend growth to just two to three with the highest scores on the Piotroski checklist.

Using this simple method for picking tech stock winners has crushed the S&P 500 over the past decade and even edged at the tech-heavy NASDAQ 100.

Texas Instruments (TXN) makes the current list of technology companies with high dividend growth and outstanding fundamentals and prospects. The company makes most of its revenues from semiconductors, but it does still have some revenues from its calculators and other business machines. (I have had one of these, a Texas BAII calculator, within arm’s reach for most of my career.)

Texas Instruments had a solid second quarter and increased its guidance for the third quarter. The company has not suffered the China slowdown problems that have plagued some of their competitors so far. The brightest spot in the recent report was semiconductors being sold to the automobile industry, which were up 20%.

Although we have seen some slowdown in semiconductors due to the supply chain issues created by the pandemic, Texas Instruments has powerful tailwinds from all the developments we see in technology over the next decade.

Every one of the hottest trends in the economy—from renewable energy to artificial intelligence and everything in between—is going to increase demand for semiconductor chips. There are thousands of semiconductors in every electric vehicle, which will be another massive source of demand for the industry.

Texas Instruments has a yield of 2.5% right now, and has been growing that payout by 20.5% annually.

Another semiconductor company, Broadcom (AVGO) has the fastest-growing payout on our list right now. The company makes chips for smartphones, networking, broadband, and wireless connectivity. Broadcom’s recent purchase of Symantec’s Enterprise Business also puts it in the cybersecurity business.

Broadcom’s shares currently yield 2.97% and the payment has risen by an average of 49% annually for the past five years.

Most investors will never think of using dividends as part of the stock selection process. Rigorous testing shows that dividend growth is actually an important part of identifying companies with the potential to be huge winners.

My favorite way to invest in those companies isn’t to buy their stock, though. Instead, I like to use a special, little-known investment that lets me invest in these companies for up to 18% less than what others pay…

While collecting twice or more the dividend yield!

All without any more risk. I’m tracking 5 opportunities like that right now, and I lay them all out right here.

Only 3% of investors even know these funds exist

But using them, I can beat the market 2-to-1 while collecting 2-10X MORE yield from regular dividend stocks.

I learned this trick while I was rubbing elbows with some of the biggest fund managers in US history.

They too are buying these little known funds, cashing in huge discounts and collecting income while they do it.

Click here to learn the secret yourself.

 

How to Use Dividends to Find the Best Tech Stock
Tim Melvin

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Government

Where Carnival, Norwegian, Royal Caribbean Sit on Covid Vaccines

Do You still need to be vaccinated to go on a Royal Caribbean, Carnival, or Norwegian Cruise?

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Do You still need to be vaccinated to go on a Royal Caribbean, Carnival, or Norwegian Cruise?

Cruise line covid-19 vaccination and testing rules, which were imposed by the Centers for Disease Control and Prevention at the beginning of the pandemic, have been stricter than most. After the pandemic started in early 2020, the CDC signed a No Sail Order on March 14, 2020, which was finally lifted after nearly eight months on Oct. 30, 2020.

After the No Sail Order was lifted, the CDC enacted extremely restrictive rules and regulations to help keep passengers safe with the covid pandemic still raging throughout the world. The rules and regulations were set forth to begin to return cruise lines to operational status.

The cruise lines first had to be staffed accordingly and set up with the ability to test, treat and quarantine for covid medical emergencies. Testing for crew and passengers before embarkment and before dis-embarkment was required. The testing at pre-embarkment was a measure to protect those boarding, while the post-trip testing was for determining if an infection started on the cruise line itself. Being able to track the virus was very important in the prevention of spreading the virus and protecting patrons.

Image source: Shutterstock

Vaccination Still Not a Free Pass to Board

Once the vaccination was developed and approved, it became part of the CDC guidelines for cruise line adult passengers to have their vaccination before boarding. Even with a vaccination, guests still needed to test before they boarded the cruise lines. As the vaccine was approved for younger age groups, those age groups were then also required to have the vaccine to travel. Passengers were required to be fully vaccinated unless they are exempt by some status.

Before boarding, cruise line passengers who tested positive, as well as their travel companions, were not allowed to board, depending on the cruise line and how long the cruise may be. Some passengers were allowed to board and then isolate, others would have to reschedule their trip. Trip insurance is a good buy these days.

Cruise Lines Letting Loose on Vaccine Policies

Carnival Cruise Line  (CCL) - Get Carnival Corporation Report has now removed pre-cruise testing for vaccinated guests and also welcomes unvaccinated guests to travel. Fully vaccinated guests traveling less than 16 nights with the cruise line will no longer be subjected to testing, but still must provide proof of their vaccination status. Unvaccinated travelers will only need to provide a negative covid test result to board the ships. All rules and regulations are still subject to the destination country’s guidelines.

According to the Healthy Sail Center for Royal Caribbean  (RCL) - Get Royal Caribbean Group Report, the cruise line has updated its covid vaccination protocol. The cruise line will now allow passengers regardless of vaccination status to board in some ports if the travelers meet the testing requirements. Testing requirements vary by cruise departure and destination. Check the cruise lines port departure for updated information on requirements.

There is, however, a major exception, at least for now, which is obvious when you look at the specific wording shared by the cruise line:

"Starting with September 5 departures, all travelers regardless of vaccination status can cruise on the following itineraries, as long as they meet any testing requirements to board.

  • Cruises from Los Angeles, California.
  • Cruises from Galveston, Texas.
  • Cruises from New Orleans, Louisiana.
  • Cruises from a European homeport.

Notice that Florida, a major port for the cruise line, is not currently on the list.

In the U.S. aside from Florida, any guest with a valid negative covid test within the last three days will be able to board. These guests will also not be required to take a second test at the boarding terminal. Fully vaccinated guests do not need to provide proof of a negative covid test for shorter cruises. See the cruise line website for all updated information as it is subject to change.

Beginning Sept. 3, Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report is dropping its covid vaccine requirements for all its cruises. The cruise line stated that it is continuing to follow requirements for all destination countries, so guests traveling will want to check on destination vaccine and testing requirements. All guests 12 and older regardless of vaccination need to show proof of a negative test within 72 hours. Check NCL online for further instructions prior to travel.

The CDC has taken the stance that travelers are now well informed enough to make their own decisions when it comes to traveling on cruise lines. The travelers are taking their own assumed risk for their health and well-being. Cruise lines are now welcoming this new freedom for their passengers. 

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Government

Here’s Where Carnival, Norwegian, Royal Caribbean Stand on Covid Vax Rules

The three major cruise line have all made big changes to their vaccine policies and some passengers may be very happy (while some won’t.)

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The three major cruise line have all made big changes to their vaccine policies and some passengers may be very happy (while some won't.)

Cruise line covid-19 vaccination and testing rules, which were imposed by the Centers for Disease Control and Prevention at the beginning of the pandemic, have been stricter than most. After the pandemic started in early 2020, the CDC signed a No Sail Order on March 14, 2020, which was finally lifted after nearly eight months on Oct. 30, 2020.

After the No Sail Order was lifted, the CDC enacted extremely restrictive rules and regulations to help keep passengers safe with the covid pandemic still raging throughout the world. The rules and regulations were set forth to begin to return cruise lines to operational status.

The cruise lines first had to be staffed accordingly and set up with the ability to test, treat and quarantine for covid medical emergencies. Testing for crew and passengers before embarkment and before dis-embarkment was required. The testing at pre-embarkment was a measure to protect those boarding, while the post-trip testing was for determining if an infection started on the cruise line itself. Being able to track the virus was very important in the prevention of spreading the virus and protecting patrons.

Image source: Shutterstock

Vaccination Still Not a Free Pass to Board

Once the vaccination was developed and approved, it became part of the CDC guidelines for cruise line adult passengers to have their vaccination before boarding. Even with a vaccination, guests still needed to test before they boarded the cruise lines. As the vaccine was approved for younger age groups, those age groups were then also required to have the vaccine to travel. Passengers were required to be fully vaccinated unless they are exempt by some status.

Before boarding, cruise line passengers who tested positive, as well as their travel companions, were not allowed to board, depending on the cruise line and how long the cruise may be. Some passengers were allowed to board and then isolate, others would have to reschedule their trip. Trip insurance is a good buy these days.

Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images

Cruise Lines Letting Loose on Vaccine Policies

Carnival Cruise Line  (CCL) - Get Carnival Corporation Report has now removed pre-cruise testing for vaccinated guests and also welcomes unvaccinated guests to travel. Fully vaccinated guests traveling less than 16 nights with the cruise line will no longer be subjected to testing, but still must provide proof of their vaccination status. Unvaccinated travelers will only need to provide a negative covid test result to board the ships. All rules and regulations are still subject to the destination country’s guidelines.

According to the Healthy Sail Center for Royal Caribbean  (RCL) - Get Royal Caribbean Group Report, the cruise line has updated its covid vaccination protocol. The cruise line will now allow passengers regardless of vaccination status to board if the travelers meet the testing requirements. Testing requirements vary by cruise departure and destination. Check the cruise lines port departure for updated information on requirements.

In the U.S., any guest with a valid negative covid test within the last three days will be able to board. These guests will also not be required to take a second test at the boarding terminal. Fully vaccinated guests do not need to provide proof of a negative covid tests for shorter cruises. See the cruise line website for all updated information as it is subject to change.

Beginning Sept. 3, Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report is dropping its covid vaccine requirements for all its cruises. The cruise line stated that it is continuing to follow requirements for all destination countries, so guests travelling will want to check on destination vaccine and testing requirements. All guests 12 and older regardless of vaccination need to show proof of a negative test within 72 hours. Check NCL online for further instructions prior to travel.

The CDC has taken the stance that travelers are now well informed enough to make their own decisions when it comes to travelling on cruise lines. The travelers are taking their own assumed risk for their health and well-being. Cruise lines are now welcoming this new freedom for their passengers. 

Read More

Continue Reading

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