Barron’s Weekend Summary: A regulatory crackdown on China’s best-known companies has been a wake-up call for investors
Cover Story:
-A regulatory crackdown on China’s best-known companies, such as Alibaba Group Holdingand DiDi Global, as well as for-profit education providers such as New Oriental Education & Technology Group, has been a wake-up call for investors, and contributed to a 13% decline this year in the MSCI China index. Beijing’s new emphasis on “common prosperity” to tackle rising inequality, and its efforts to rein in China’s debt-laden property sector and meet carbon-emission targets, have also roiled its economy and stock market, pushing giant property developer China Evergrande Group to the brink of bankruptcy and sparking the country’s worst energy crisis in at least a decade.
Tech Trader:
-‘As supply-chain issues roil the tech sector, no company underscores the issue more than Cisco Systems. The stock fell more than 6% on Thursday after the company reported financial results that were dented by a panoply of component delays. Cisco Stock Slides on Disappointing Outlook. It’s ‘Working Night and Day’ to Resolve Shortages. Cisco's CEO said it had the strongest demand in over a decade, but supply issues constrained what it could build and ship to customers, pressuring gross margins.”
The Trader:
-The valuations of electric car companies from Tesla to Rivian is worrying the traditional manufacturers like Ford and GM. Yet, “maybe there is a way for traditional auto makers to close that valuation gap: Take a page from Liberty Media’s John Malone’s playbook and issue tracking stocks. ‘The way to solve this is for GM and Ford to issue tracking stocks for their next-gen vehicle operations, such as EV, robo-taxi, etc.,’ Scion Asset Management’s Michael Burry told Barron’s in an email exchange. ‘This is an absolute no-brainer.’”
-As natural gas prices have fallen over the course of November, there are still some natural; gas stocks worth considering. One such stock is Coterra Energy, “the product of a merger between two companies focused on natural gas—Cabot Oil & Gas and Cimarex. The new company is more committed than most of its rivals to returning cash to shareholders, and is well-positioned financially to benefit from strong natural gas demand.”
Features:
How to profit from Bitcoin without owning Bitcoin is an interesting question raised by those who worry about the novel risks of cryptocurrencies. One way is to invest in the bitcoin mining operations. “The miners offer an alternative to owning the coin—betting on the network’s high-tech plumbing and potential for tangible profits. Riot Blockchain looks appealing for its growing share of the market and efficiency gains as it expands. Another stock to consider is Core Scientific, a miner that plans to go public through a merger with a special purpose acquisition company, or SPAC, called Power & Digital Infrastructure Acquisition.
Marathon Digital Holdings could also be a winner. The stock sold off this week after disclosing an investigation by the Securities and Exchange Commission related to the prior issuance of restricted shares.
-Day Trading and Options: Stocks like Teslaand Apple have become even more appealing as stock option speculators have returned to making their bets on bets. Many are retail investors holding their positions for less than a day. “This new day-trading frenzy in options is helping lift individual stocks and bolstering the revenue of online brokers like Robinhood….Earlier this month, total equity options volume reached 56.5 million contracts—the second-highest total ever, behind the 59.2 million contracts traded on Jan. 27 at the height of the meme-stock craze involving GameStop, AMC Entertainment Holdings, and others.
Europe:
-A resurgence of coronavirus cases in Europe has sent Austria into a national lockdown, with Germany also on the precipice, shaking investor sentiment and sending stocks lower. “Austrian Chancellor Alexander Schallenberg said Friday that the country would head into a new national lockdown that could last up to 20 days, starting Monday, which would include the closing of all nonessential shops. The country will also institute the first Covid-19 vaccination mandate in Europe, requiring all citizens to be vaccinated by law as of February 2022.”
-Faced with persistent market sentiment that the European Central Bank will have to raise interest rates next year to help counter inflation, ECB President Christine Lagarde insisted Friday that it would “not make sense” to react to the current inflation spike by tightening policy.
Emerging Markets:
-There’s good reason to consider the Chinese bond market these days. Although any consideration should be tempered by caution. “On balance, investors see a moment to buy, carefully. “We are building a contrarian position with a double-B focus,” says Samy Muaddi, portfolio manager for T. Rowe Price’s emerging markets bond strategy. “Tickets are working as we speak.” With potential annual returns around 15% on these instruments, “we’re being paid to take the risk,” he adds.
-Shares in Paytm dropped 27% Thursday in the group’s first day as a publicly traded company, after the fintech startup caught the attention of investors around the world in India’s largest-ever initial public offering. Paytm counts SoftBank (SFTBY), Warren Buffett’s Berkshire Hathaway and Alibaba among its backers, and has positioned itself as India’s answer to companies like China’s Ant Group. Its interests cover a range of finance and technology businesses but its primary focus is mobile payments.
Commodities:
-At the COP26 meeting, the phrase most countries wanted was a deal to “phase out” coal. What they got, after interventions by China and India, was a “phase down” of coal. Investors are less mixed about coal’s future. Shares of U.S. producer Peabody Energy fell 8% on Monday, while Arch Resources stock was off 6.6%. Still, the coal deal is a landmark, and more than 20 countries agreed to stop building or permitting coal plants. But if India and China don’t reduce coal use, it will be tough to limit global warming to 1.5 degrees Celsius. The Climate Action Tracker consortium found that COP26 pledges would produce twice the greenhouse-gas emissions by 2030 needed to meet the goal.
Streetwise:
-This week Jack Hough offers practical advice about inflation. He suggests not worrying about it too much. That is not worrying too much about making inflation-proofing your portfolio. “Don’t get caught flat-footed on inflation this Thanksgiving when family and friends gather to argue politics over dinner. Shop around beforehand for data to fit your side. budget-constrained, but it’s hardly hyper-yamflation.”