Barron’s Weekend Summary: The political and financial orders, which have been underpinned by markets for decades, are under serious threat
Cover:
-The political and financial orders, which have been underpinned by markets for decades, are under serious threat due to the escalating wars in Europe and the Middle East, and the deteriorating fiscal health of the US and China. This presents an opportunity for investors to capitalize on the seismic changes that could occur after years of relative peace and prosperity. Barron's sought advice from four market watchers who took a virtual global tour of investment hot spots, including the bull market and economic liberalization in Latin America and the Middle East. The experts also noted the presence of well-positioned companies with irresistibly priced shares. The roundtable discussion took place on Zoom and in follow-up conversations. Some of the panelists’ most notable picks – especially in view of the considerable discussion of geopolitical risk as one of the main factors that investor should consider in 2024 - include BYD, Adani Enterprises, Glencore, Petrobras, TotalEnergies, Exxon Mobil, Fomento Economico Mexicano, Richemont, and Wheaton Precious Metals.
Interview:
-No interview this week
Tech Trader:
-The Nasdaq Composite has seen a 36% increase this year, but is still 12% off its record peak. The technology sector is expected to gain further ground in the short run and into 2024, with the rally likely to extend beyond the stock market's largest names. The strengthening dynamic for tech dates back to 2022, when the index fell 33% due to tightened monetary policy and Covid-19-related disruptions. In 2023, the Federal Reserve's decision to end rate increases and ease component shortages led to OpenAI's launch of ChatGPT, triggering investment by tech companies to leverage AI for consumer and enterprise applications. The Magnificent Seven of Apple, Microsoft, Google, Amazon, Nvidia, Meta Platforms, and Tesla have all rallied 107% this year, while the S&P 500 has only gained 3%.
The Trader:
-The November stock market rally has led to the S&P 500 index potentially hitting a record high by the end of the year. The S&P 500 gained 2.2% this week, while the Dow Jones Industrial Average and Nasdaq Composite rose 1.9% and 2.4% respectively. The lift came on Tuesday when October's consumer price index came in lower than expected, solidifying the Federal Reserve's belief in stopping raising interest rates. The CME FedWatch Tool shows a 28% chance of a cut in March.
-Baidu, China's AI-focused company, has gained attention as Alibaba Group Holdings faces challenges. The company's AI business includes cloud computing, driverless taxis, and a ChatGPT competitor called Ernie. Baidu launched a paid tier of Ernie and launched a chatbot for cloud enterprises to develop smart apps. Morningstar analyst Kai Wang has tapped Baidu as one of two key Chinese beneficiaries of this year's tech trend. Baidu reported earnings of 20.40 Chinese yuan ($2.86) a share on revenue of 34.5 billion yuan ($4.8 billion), beating analysts' expectations. Year-over-year, per-share profit and revenue grew 21% and 6%, respectively.
Features:
-Mattel, a toy maker, has been preparing for the upcoming holiday season by focusing on traditional shopping patterns. The company sells Barbies, Hot Wheels, and American Girl dolls in the fourth quarter, which is dominated by gift buying, making up about a third of its annual revenue. The company has been preparing for months to stock inventories, coordinate with retailers, and ensure its end-of-year strategy is executed smoothly. However, the 2022 holiday season was an aberration for the economy as a whole, not just for the toy industry. Mattel CEO Ynon Kreiz sees the return to the traditional shopping pattern as a positive change. According to retail CEOs, industry analysts, and insiders, the 2023 holiday is expected to look similar to the pre-Covid years, with retail sales expected to increase between 3% and 5% compared to last year.
-Black Friday has resumed its traditional pulse this holiday season, with shoppers in Philadelphia suburbs eagerly searching for bargains. The Philadelphia Premium Outlet in Pottstown, Pennsylvania, was filled with cars waiting to be waved in by attendants. Meanwhile, web traffic to retailers in the U.S. rose 6% year over year on Thanksgiving Thursday, and Adobe estimated that consumers spent a record $5.6 billion online on Thanksgiving Day, up 5.5% year over year and nearly double the amount spent online in 2017. Hot purchases included toys and electronics, robot vacuums, tablets, workout gear, and holiday decor. Melissa Minkow, director of retail strategy at CI&T, expects this five-day period to be the peak and highlight of the season.
Europe:
-ASML, a key player in the global chip supply chain, has warned that a far-right party's electoral victory in the Netherlands could pose a risk to the company's staffing and hiring of key skilled workers. The Dutch far-right leader, Geert Wilders, has championed policies against immigration, which could impact the hiring of key skilled workers at Europe's most valuable technology firm. ASML, which is partly reliant on foreign workers, is concerned about the potential disruption if Wilders becomes the next prime minister of the Netherlands.
Emerging Markets:
-Argentina's markets have split on Javier Milei's election as the country's next president, with the country's benchmark bonds rising from 26.5 cents to 28 cents and the peso dropping from 850 to the dollar. Milei's victory speech aimed to "end decadence in Argentina" but faced challenges in his quest to achieve this. The country's desperate state, with inflation at nearly 150% annually and nearly half the population in poverty, has led to a heavily qualified endorsement. Milei's only available remedies will accelerate inflation in the short term, as he will have to cut off subsidies for fuel, electricity, and transportation, impacting consumers further.
Commodities:
-OPEC has been holding oil prices steady for the past two years. However, disunity before its next meeting has caused prices to fall, potentially weakening its influence into 2024. OPEC and its allies, OPEC+, delayed a meeting by four days due to disagreements about future production cuts. Brent crude fell 4.3% to $78.92 per barrel, while West Texas Intermediate fell 4.5% to $74.30 per barrel. OPEC+ has reduced production by about 2 million barrels a day to maintain high prices, with some members reducing production by an additional 1.7 million barrels. Saudi Arabia and Russia have cut 1.3 million barrels combined, resulting in a significant portion of the 101 million barrels consumed worldwide.
Streetwise:
-Jack Hough has noticed that agricultural stocks are down – and unjustifiably so. He uses one particular example to drive his point: CNH Industrial. CNH Industrial Chief Executive Scott Wine believes that the stock's artificially low price is creating a great opportunity for the company. CNH is currently trading at 5.9 times this year's projected earnings, making it second in the market behind Deere and AGCO. Farm-equipment makers are well-positioned for the long-term rise of precision agriculture, which uses sensors, telematics, artificial intelligence, and autonomy to make crop production more accurate and controlled. However, the agricultural economy is currently on the downswing, with the US Dept of Agriculture predicting a 23% drop in farmer incomes this year due to declining crop prices and high costs. Brazil, which overtook the US as the No. 1 corn exporter, is particularly soft on equipment purchases.
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
E: LCHEKROUN@makor-cm.com
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