Barron’s Weekend Summary: Despite the enormity of the ‘green’ transition, investors will need to be picky.
Cover Story:
-Despite the enormity of the ‘green’ transition, investors will need to be picky. Big, obvious winners are few and far between. Green-energy indexes and funds like the Invesco Solar exchange-traded fund (ticker: TAN) have historically traded based on short-term expectations for government policy or raw materials costs, instead of the longer-term opportunity. And some of the companies involved haven’t shown they can persevere through good times and bad.
Interview:
-This week Barron’s interviewed Virginie Maisonneuve. Ms. Maisonneuve’s fascination with China began when she was 5 years old and living in Paris. She loved listening to stories from a book of tales from China and poring over the delicate drawings that adorned its pages. She went on to earn a degree in Mandarin Chinese and become an investor, working and living all over the world. “I always knew that I would get involved with China,” says Maisonneuve, managing director and global chief investment officer for equity at Allianz Global Investors. She began her career in China as a consultant for the French Ministry of Foreign Affairs in Beijing. Since then, she has held portfolio management and chief investment officer positions at companies such as Pimco, Schroders, and State Street Research, and has pioneered investing in areas from China to environmental, social, and governance, or ESG.
Tech Trader:
-Demand for consumer-focused tech products is sagging, with sales weakening for PCs and peripherals, Android smartphones, and videogames. And there are now signs that slowdown is spreading into other places, including the automotive, industrial, and data center markets, where demand was supposed to be more durable. Over the past week, two key chip companies provided grim updates. On Monday, the graphics chip company Nvidia warned that results for its fiscal second quarter ended July 31 would be dramatically below previous expectations, due to an unexpected decline in demand for graphics chips targeted at videogames but also used for cryptocurrency mining.
The Trader:
-Coinbase trades like a side bet on Bitcoin. Lately, though, shares of the crypto brokerage have added meme-stock volatility to the mix, taking cues from the likes of GameStop and AMC Entertainment. Consider the frenetic trading surrounding Coinbase’s earnings report on Aug. 9. Leading up to the report, the stock nearly doubled from lows around $50 in July, reaching $98 this past week. Along the way, the stock plunged 21% on July 26, only to roar back more than 80% in the ensuing days. After a retreat, the stock closed up 7.7%, at $90.49, on Friday.
The volatility arises from several factors. For one, hordes of investors are betting against it. About 18% of Coinbase stock is sold short. Such high short interest makes a stock vulnerable to a “squeeze,” when traders who had sold borrowed shares—aiming to buy them back later at a lower price—must frantically cover their positions, causing a stock to surge.
-Inflation slowed in July, according to Department of Labor data. The consumer price index rose 8.5% in July from a year ago. That was lower than both the 8.7% increase in prices forecast by economists and the 9.1% reading in June. That news sent the S&P 500 index up 2.1% that day and tipped the tech-weighted NASDAQ Composite into a bull market. The S&P closed the week up 3.3%, while the Dow Jones Industrial Average and the NASDAQ gained 2.9% and 3.1%, respectively.
Features:
-The House of Representatives on Friday passed a broad climate, tax and healthcare bill containing significant measures to lower prescription drug prices within the Medicare program, allowing the government to negotiate drug prices for the first time and capping seniors’ out-of-pocket drug costs at $2,000 annually. The Inflation Reduction Act of 2022, passed in a 220-207 vote along party lines, will now move to President Biden for signing into law. Among other provisions, the bill will allow the government to negotiate prices on select medications, cap seniors’ out-of-pocket spending on drugs at $2,000 a year, penalize drug makers that increase their prices by more than the inflation rate within the Medicare program, and cap the out-of-pocket cost of insulin at $35 a month for Medicare beneficiaries.
-Consumer sentiment rebounded in August as inflation showed signs of cooling off, according to preliminary figures from the University of Michigan. The university’s consumer sentiment index rose to 55.1 in August, early figures showed. This is a 7% monthly increase from last month’s 51.5 reading, and above consensus estimates for 52.3. The figure fell by 21% from a year earlier, when the index was at 70.3.
European Trader:
-The Dow Jones US Retail Index is down 19% this year, and it’s a similar story in Europe. The Stoxx Europe Total Market Retail index is down 28.7%. But JD Sports Fashion has a record of thriving in downturns. The British sportswear retailer—which sells footwear and apparel from brands including Nike, New Balance, The North Face, and Under Armour—could buck the latest trend, with the stock estimated to more than double in price. Shares have tumbled 25.6% to GBP 1.34 ($1.61) in the past six months, but Investec analysts see a 123% rise to £3.
Emerging Markets:
-Poland has proved a critical front-line ally in the West’s struggle to bolster Ukraine against Russian aggression.
The nation of 38M has absorbed at least one million refugees from its southeastern neighbor, while providing logistics for an enormous transfer of NATO armaments.
Poland is also at the sharp end of the West’s economic problems. Inflation is galloping at 16% annually, nearly twice the euro-zone rate. The central bank has hiked interest rates from 0.1% to 6.5% over the past 10 months. That spells calamity in a country where some 90% of mortgage borrowers took out variable-rate loans.
Commodities:
-Orange juice prices could get fizzed up over the next few weeks. The market is already suffering from ultra-low inventory levels, which means the risks of bad weather could potentially drive prices up more than 20% to record levels, say experts. “If you were to get a hurricane in Florida’s citrus belt that delivers a powerful punch, it’s likely we would have quite a panic in the marketplace,” says Shawn Hackett, president of Hackett Financial Advisors. “It’s possible we could test all-time highs.” Other experts also see Brazil, the world’s largest orange juice producer, facing weather problems this year, which could have similar impacts on the market.
Streetwise:
-Jack Hough figured that the tax breaks for nuclear power in the new Inflation Reduction Act are for existing plants only, which is just as well. Apart from a quick skim of the Department of Energy’s Nuclear 101 webpage, I don’t know much about fission—or science of any kind, really. Also, my wife uses that hose for her tomatoes. But if clean-energy tax breaks are usually for stuff the government wants companies or individuals to build or buy, why would this one incentivize something that’s already up and running? That, I might be able to answer.