FT : Valuation and bubbles

Valuation and bubbles
Yesterday I wrote that “the historical correlation between very high valuations (and other frothy phenomena) and poor long-term returns is about as solid as any relationship in finance”. It strikes me that it is worth emphasising just how much work “long-term” is doing in that sentence.

Consider the equity risk premium. Robert Shiller of Yale’s version of the ERP, which he calls “excess Cape yield”, is the earnings yield on the S&P 500 (that is, earnings/price, using 10-year average earnings) minus the 10-year bond yield. It is an OK predictor of real excess returns (that is, real stock returns minus real Treasury bond returns) over the subsequent decade:

The trick is not to let that chart make you think that valuations have anything whatsoever to do with shorter return periods. Stock price movements are too volatile, and their relationship to fundamentals too loose, for that to work. Below is the excess cape yield and five-year returns. I’ve zoomed in on just the past 50 years, rather than the 140 in the chart above:

From 1994 to 1996, it is obvious that low valuations (ERP under 2 per cent) sent a terrible signal for subsequent five-year returns (mostly in the teens!). You will also notice, in the first chart, that the ERP also sent a false signal for 10-year returns a few years earlier. But the bad signal was “less wrong” and had a shorter duration for 10-year returns because, starting in 1991, 10-year returns began to include the dotcom crash. Five-year forward returns roared all the way until 1996.

In other words, the predictability of long-term returns using valuation is a function of the fact that financial asset prices do not separate from fundamentals — real cash flows — forever. Their relationship reverts to the mean. The period over which returns are predictable is the period that is highly likely to contain a moment of mean reversion (or, much more likely, a swing from one end of the valuation spectrum to the other). And there is no reason that, as the structure of the markets change, the length of this period might become longer or shorter. Ten is a nice round number, but it’s not magic.

For many readers this will be an obvious point. But it is worth emphasising that when we say “the market is expensive/cheap” we are saying something that has no meaning — none! — over the following few years. But Wall Street people (including, at moments of weakness, this newsletter) talk about valuation as if it is relevant to understanding short- and medium-term market action. It isn’t. We must all stop doing this.

>>> Stoxx 600 Pre-Market Indications

  • AUTO1 (AG1 TH) +6.3%
    • AUTO1 Boosts FY Gross Profit Forecast, Beats Estimates
  • Grifols (OZTA TH) +4.6%
  • Iveco (R3D TH) +3.4%
  • Heineken (HNK1 TH) +3%
    • Heineken Raised to Buy at HSBC; PT 84 euros
  • JDE Peet’s (JDE TH) +2.3%
    • JDE Peet’s 1H Organic Revenue Beats Estimates
  • Siemens Healthineers (SHL TH) +2.1%
    • Siemens Healthineers Narrows FY Adjusted EPS Forecast
  • TotalEnergies (TOTB TH) +1.4%
  • Nexans (NXS TH) +1.4%
    • Nexans Boosts FY Adjusted Ebitda Forecast, Beats Estimates
  • Air Liquide (AIL TH) +1.3%
  • Novo (NOV TH) +1.2%
  • Thales (CSF TH) -1%
  • Bavarian Nordic (BV3 TH) -1%
  • Daimler Truck (DTG TH) -1.3%
  • Fortum (FOT TH) -1.3%
    • Fortum Cut to Sell at Nordea; PT 14.50 euros
  • Kion (KGX TH) -1.9%
    • Kion 2Q Adjusted Ebit Misses Estimates
  • Mercedes (MBG TH) -2%
    • Mercedes Sees Earnings Drop Over Tariffs, China Competition
  • Adidas (ADS TH) -3.1%
    • *ADIDAS 2Q OPER PROFIT EU546M, EST. EU503.1M
  • Amplifon (AXNA TH) -8.5%
    • Amplifon Sees FY Adj. Ebitda Margin 23%, Saw at Least 24% (1)

WWD : Tariffs Hurt Footwear, Apparel Growth, Says Moody’s

Tariffs Hurt Footwear, Apparel Growth, Says Moody’s
Moody's said footwear and apparel will remain pressured due to tariffs, while a Conference Board survey found tariffs are top of mind among consumers.

Unresolved U.S. tariff policy keeps outlook for the global retail and apparel sector at negative, said credit ratings firm Moody’s Ratings.

“U.S. companies in the segment still face higher costs even at current tariff levels, with apparel and footwear, big-box and department stores struggling most,” said credit analysts at Moody’s in a report last week.

The credit analysts also kept their revenue growth projection for the next 12 months in the 0-3 percent range, reflecting weak unit demand offsetting increased pricing to defray higher costs.

“The effect of tariffs will drag materially on earnings through at least the first half of 2026, since companies will have limited ability to raise prices without hurting demand,” the analysts concluded, noting that affordability remains particularly critical for middle- and lower-income consumers. “The costs of implemented tariffs will begin to hurt retailers’ profitability once companies sell through any inventory that they purchased earlier in 2025,” they also said.

While the largest retail and apparel firms can absorb the higher costs from tariffs, even they may face higher near-term costs as they try to restructure supply chains or re-engineer products to use inputs more cost effectively.

U.S. footwear and apparel firms, and department stores, are the most likely to struggle with further tariff hikes due to reciprocal tariffs on many Asian countries, which are key sources of supply. Moody’s also cited Nike and Under Armour as firms impacted by their heavy concentration in technical apparel and footwear that is difficult to move out of Asian manufacturing hubs. In addition, “heavy promotional activity in some of their assortment makes it harder to raise prices,” the report said.

The credit analysts also said they expect Walmart to outperform, as its scale and significant exposure to grocery has relatively low tariff exposure helped by the discounter’s negotiating leverage with vendors coupled with its supply-chain expertise. In contrast, they expect Target’s operating performance will be weak, due in part to the mass discounter’s higher mix of discretionary general merchandise mix.

Separately, the Conference Board‘s Consumer Confidence Index in July rose 2 points to 97.2 from a revised 95.2 in June. The Present Situation Index slipped 1.5 points to 131.5, while the Expectations component rose 4.5 points to 74.4 —although that level is below the threshold of 80, which typically signals a recession ahead for the sixth consecutive month.

One data point to note is that the consumer appraisal of current job availability has weakened for the seventh consecutive month, reaching its lowest level since March 2021, said Stephanie Guichard, senior economist, global indicators at the Conference Board.

“Consumers’ write-in responses showed that tariffs remained top of mind and were mostly associated with concerns that they would lead to higher prices,” Guichard said.

>>> TradeGate Pre-Market Indications

DAX:
  • Siemens Healthineers (SHL TH) +2.4%
    • Siemens Healthineers Narrows FY Adjusted EPS Forecast
  • BASF (BAS TH) +1.4%
    • BASF 2Q Adjusted Ebitda Beats Estimates
  • Mercedes (MBG TH) -2.3%
    • Mercedes Sees Earnings Drop Over Tariffs, China Competition
  • Adidas (ADS TH) -2.9%
    • *ADIDAS 2Q OPER PROFIT EU546M, EST. EU503.1M
MDAX:
  • AUTO1 (AG1 TH) +7.4%
    • AUTO1 Boosts FY Gross Profit Forecast, Beats Estimates
  • Evotec (EVT TH) +4.6%
    • Evotec Plans to Sell Just Business to Sandoz for ~$300M in Cash
  • RENK Group (R3NK TH) +1.2%
  • K+S (SDF TH) +1.1%
  • Thyssenkrupp (TKA TH) -1.4%
  • Kion (KGX TH) -2.3%
    • Kion 2Q Adjusted Ebit Misses Estimates
SDAX:
  • Heidelberger Druck (HDD TH) +8.8%
  • Sixt (SIX2 TH) -1%
  • Grenke (GLJ TH) -1.5%

WWD : Kering Deepens Cost Cuts After Another Dismal Quarter

Kering Deepens Cost Cuts After Another Dismal Quarter
The French luxury group is preparing for the arrival of new CEO Luca de Meo by ramping up store closures, but has no plans to sell ailing brands.

PARIS — Kering is ramping up its cost-cutting efforts as it prepares to welcome new chief executive officer Luca de Meo, who has a reputation as a “cost killer” specialized in turning around ailing companies.

Much of the presentation of the French luxury group’s first-half results on Tuesday focused on its efforts to slash expenditures and curb debt, which include closing stores, selling real estate and reducing headcount.

Kering is battling to stem the ongoing hemorrhage at Gucci, which posted another 25 percent decline in organic sales in the second quarter as consumers wait for new creative director Demna’s debut presentation in September, which will be accompanied by a sprinkling of see-now, buy-now products in stores.

Group net profit plummeted 46 percent in the first half, highlighting the challenges faced by de Meo when he takes the reins on Sept. 15, succeeding François-Henri Pinault, who has held the title since 2005 and navigated the family-controlled conglomerate through multiple transformations. Pinault remains chairman.

“The first half of 2025 has been a period of momentous decisions for Kering,” Pinault said in a statement, referring to de Meo’s appointment and the arrival of new creative directors at Gucci, Balenciaga and Bottega Veneta.

“Though the numbers we are reporting remain well below our potential, we are certain that our comprehensive efforts of the past two years have set healthy foundations for the next stages in Kering’s development,” Pinault added.

Kering said it will close more stores than initially anticipated after another dismal quarter.

Revenues in the three months to June 31 fell 18 percent at reported exchange rates to 3.7 billion euros, representing a decline of 15 percent in comparable terms. This was below the 3.75 billion euros the market was expecting, and marked a slight worsening from the first quarter.

Chief financial officer Armelle Poulou said the group now plans to shutter 80 boutiques in 2025, up from the 50 announced at the start of the year.

There were 41 net closures in the first half, with Gucci and the “other houses” group — mainly Balenciaga and Alexander McQueen — accounting for 18 each. Kering also nixed seven outlets, and plans further store closures in 2026 and 2027.

Most of its luxury brands saw organic sales declines in the second quarter.

Saint Laurent fell 10 percent, and the “other houses” division 16 percent. Bottega Veneta was a moderate bright spot, with a 1 percent rise. The Kering eyewear and corporate division also bucked the trend with a 3 percent increase.

By comparison, comparable sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division were down 9 percent year-over-year in the second quarter, missing consensus estimates.

No Quick Fix

However, Kering said it had no plans to sell underperforming brands, amid reports that LVMH is shopping around Marc Jacobs, after offloading its stakes in Off-White and Stella McCartney last year. Kering is focused instead on redressing ailing labels like McQueen, which is undergoing a restructuring.

“We have a clear strategy for all the brands, and we are working to execute properly the strategy brand by brand,” said Jean-Marc Duplaix, deputy CEO in charge of operations and finance. “But so far, when it comes to the portfolio of brands, we have no plan of disposal.”

Weighed down by trade wars, geopolitical tensions and financial market volatility, the global market for personal luxury goods will likely fall by between 2 and 5 percent this year, according to the latest Luxury Goods Worldwide Market Study from Bain and Altagamma.

Compounding anemic demand in China and volatility in the U.S., Kering was impacted by a “sharp decline” in tourism.

Sales in directly operated stores fell 19 percent in Asia-Pacific and 10 percent in North America, an improvement compared with the first quarter. They were down 29 percent in Japan and 17 percent in Western Europe as strong currencies deterred foreign shoppers.

Poulou said the group has anticipated the trade deal reached on Sunday under which European Union goods entering the U.S. will be subject to a 15 percent tariff.

“We consider that this is manageable through price adjustments,” she said, noting that some brands preemptively raised prices in the second quarter. A second wave of increases could follow in the fall, depending on consumer sentiment.

Francesca Bellettini, Kering’s deputy CEO in charge of brand development, said the outlook in China remains murky, despite signs of resilience in high-end products such as fine jewelry and watches.

“The general economic environment still creates a low consumer confidence. Currently, the rate of saving is very high,” she said.

“High-quality products are the ones that are performing better at the moment. We still remain positive on China,” Bellettini added. “But we don’t know yet when the trend is going to change. It’s very difficult to say.”

While Kering has been trimming costs across the board, it does not see a quick return to profit growth.

Recurring operating profit for the first half was down 39 percent to 969 million euros, above the consensus estimate of 933 million euros. The recurring operating margin fell to 12.8 percent from 17.5 percent in the same period a year ago.

Kering expects the EBIT margin to decline again in the second half, but much less than in the first six months of the year, Poulou said. Given the ongoing weakness in Asia, it has revised downwards its forecast for the gross margin, which is now expected to remain stable in the second half, instead of improving.

Hunting for Cash

Kering cut first-half operational expenditures by 11 percent in reported terms, with a substantial contribution from fixed costs. Poulou foresees a decline in the mid- to high single digits for the full year, namely to preserve advertising and promotions spend to sustain brand visibility and amplify upcoming designer debuts.

Headcount is down 4 percent year-to-date, with Duplaix noting that staffing levels at Gucci are 22 percent below their 2022 peak.

Capital expenditures amounted to 431 million euros in the first half, down 20 percent year-over-year excluding real estate, and were expected to total 1 billion euros for the full year.

Kering said it generated 1.5 billion euros in the first half from the ongoing refinancing of real estate and other assets, with another 1.7 billion euros projected for the second half and beyond.

Under a deal with private equity firm Ardian valued at 837 million euros, Kering agreed to transfer three of its prestigious addresses in Paris to a new joint venture. It has also sold a building in Tokyo’s Omotesando district and The Mall Luxury Outlets, which operates two luxury outlet destinations in Italy.

In a research note earlier this month, Bernstein analyst Luca Solca said de Meo, a turnaround specialist with decades of experience in the automobile industry, must curb Kering‘s elevated debt levels, and perhaps “negotiate a larger ‘equity for Valentino’ deal with Mayhoola.”

Two years ago, Kering bought a 30 percent stake in Valentino for 1.7 billion euros in cash as part of a broader strategic partnership with the Qatari investment fund. The French group has an option to buy 100 percent of Valentino’s capital by 2028, while Mayhoola could become a shareholder in Kering.

According to Bernstein’s tallies, Kering will need up to 3.4 billion euros in cash to pay for the remaining 70 percent.

Duplaix said that while he could not speak on behalf of Mayhoola, he did not believe it would be advantageous for the company to exercise its put option in 2026, given that Valentino’s performance in 2025 will be impacted by efforts to streamline its distribution.

In the event that Mayhoola cashes out early, the price would be “substantially” below 4 billion euros, the executive said in response to an analyst’s question.

He added that de Meo likely will not lay out his vision until next year.

“Luca has already met with several key internal stakeholders in the group, starting with François-Henri, of course, but also Francesca and myself, and he’s preparing for his formal arrival,” Duplaix said.

“We are all looking forward to working with him but of course, it will be up to him to define his road map and to tell you when he will have the occasion to present his ambitions,” he said.

WSJ : Palo Alto Networks Nears Over $20 Billion Deal for Cybersecurity Firm Cybe

Palo Alto Networks Nears Over $20 Billion Deal for Cybersecurity Firm CyberArk
Deal for Israeli firm would be latest in big tech’s cybersecurity consolidation

  • Palo Alto Networks is in talks to acquire CyberArk Software, an Israeli cybersecurity provider.
  • The deal, which could be finalized later this week, could value CyberArk well above its $20 billion market value.
  • Palo Alto wants to be a bigger company to handle a client’s full security needs to fight AI threats.

Palo Alto Networks PANW -5.21%decrease; red down pointing triangle is in talks to acquire the Israeli cybersecurity provider CyberArk Software CYBR 13.47%increase; green up pointing triangle in what would mark one of the biggest technology takeovers so far this year, according to people familiar with the matter.

Palo Alto Networks could finalize a deal for CyberArk as soon as later this week, the people said. Assuming a typical deal premium, a deal could value CyberArk well above its roughly $20 billion market value.

Palo Alto Networks has been on an acquisition hunt, vying to build up a bigger company that can handle a client’s full-range of security needs to better fight threats from artificial intelligence. But it has never done a deal as big as CyberArk.

“This is precisely why industry must change the paradigm, shifting away from today’s fragmented security landscape and towards consolidation,” Chief Executive Nikesh Arora said in May.

Shares of CyberArk jumped more than 13% Tuesday following The Wall Street Journal’s report on the pending deal. Palo Alto Networks shares fell 5%, bringing its market value down to just below $130 billion.

Cybersecurity has already produced the biggest deal of 2025, after Google parent Alphabet agreed to acquire cybersecurity startup Wiz, also based in Israel, for $32 billion in March.

CyberArk specializes in identity security, specifically what is known as privileged access management. Its systems help protect businesses from cyber threats by helping them secure sensitive information and who can access it. It counts more than 10,000 customers globally, according to its website.

CyberArk was founded in 1999 by Udi Mokady, who took the company public in 2014 and remains executive chairman. Current CEO Matt Cohen has helped push it toward a common software business strategy as a subscription model.

CyberArk ranks among the biggest public companies in Israel, a region that has also become a cybersecurity powerhouse thanks to government and private investments, and a strong focus on national security. Check Point Software, another cybersecurity company with headquarters in Tel Aviv, has a market value of over $23 billion.

Big tech companies had been sitting on the sidelines for a while, opting not to pursue big takeovers under the Biden administration’s antitrust regime, which took a harder look at big transactions and especially within the technology sector.

More are warming up under the Trump administration, which has expressed a greater willingness to find paths for big deals, especially ones aimed at security for U.S. companies and technology. That’s even as some in the administration, including Vice President JD Vance, have been critics of the big tech industry.

Salesforce in May struck a roughly $8 billion deal for data-management software firm Informatica, which came together after talks between the two fizzled out in 2024.

WSJ : Stronger Than Fentanyl: A Drug You’ve Never Heard of Is Killing Hundreds E

Stronger Than Fentanyl: A Drug You’ve Never Heard of Is Killing Hundreds Every Year
Ultrapotent nitazenes, mostly from China, are easy to smuggle and mix into heroin, recreational drugs and gray-market pharmaceuticals

The use of ultrapotent synthetic opioids called nitazenes are spreading in Europe.
Nitazenes, often from China, are mixed into heroin and other drugs. Even trace amounts can cause fatal overdoses, authorities warn.
The U.S. has seen nitazenes in drug seizures, and the DEA warns Mexican cartels could use their relations with China-based suppliers to obtain nitazenes.

LONDON—Fentanyl fueled the worst drug crisis the West has ever seen. Now, an even more dangerous drug is wreaking havoc faster than authorities can keep up.

The looming danger is an emerging wave of highly potent synthetic opioids called nitazenes, which often pack a far stronger punch than fentanyl. Nitazenes have already killed hundreds of people in Europe and left law enforcement and scientists scrambling to detect them in the drug supply and curb their spread.

The opioids, most of which originate in China, are so strong that even trace amounts can trigger a fatal overdose. They have been found mixed into heroin and recreational drugs, counterfeit painkillers and antianxiety medication. Their enormous risk is only dawning on authorities.

Europe, which has skirted the kind of opioid pandemic plaguing the U.S., is now on the front line as nitazenes push into big heroin and opioid markets such as Britain and the Baltic states. At least 400 people died in the U.K. from overdoses involving nitazenes over 18 months until January of this year, according to the government.

“This is probably the biggest public health crisis for people who use drugs in the U.K. since the AIDS crisis in the 1980s,” said Vicki Markiewicz, executive director for Change Grow Live, a leading treatment provider for drugs and alcohol in the U.K. Particularly worrying, she said, is that most people take nitazenes unwittingly, as contaminants in other drugs.

The U.K.’s National Crime Agency has warned that partly due to nitazenes, “there has never been a more dangerous time to take drugs.”

In the U.S., where fentanyl dominated the opioid market, nitazenes had as of last year been found in at least 4,300 drug seizures since 2019, usually in fentanyl mixtures, and have led to dozens of deaths. But reporting on the drugs is sparse and relies on self-reporting. Many overdose toxicology tests don’t include nitazenes. The Drug Enforcement Administration has warned that Mexican cartels could use their existing relations with China-based suppliers to obtain nitazenes and funnel them into America.

The most common street nitazenes are roughly 50 to 250 times as potent as heroin, or up to five times the strength of fentanyl. They are likely much more prevalent than official statistics suggest, due to limited testing. Authorities say official death tolls are almost certainly undercounts.

On an early summer morning in 2023, police arrived at Anne Jacques’s door in north Wales. Her 23-year-old son had died in his sleep in his student apartment in London, they told her.

Her son, Alex Harpum, was a rising opera singer and healthy. Police found Xanax tablets in his room, and evidence on his phone that he had bought pills illegally, which Jacques said he occasionally did to sleep while on medication for his attention-deficit hyperactivity disorder.

Yet, the coroner established the cause of death as unexplained cardiac arrest, known as sudden adult death syndrome. Jacques, not satisfied with the explanation, researched drug contaminants and requested the coroner test for nitazenes. Seven months after her son’s death, police confirmed that his tablets had been contaminated with the potent opioid.

“I basically had to investigate my own son’s death,” Jacques said. “You feel like your child has been murdered.”

Harpum wasn’t alone. While most known overdoses affect heroin users, nitazenes have also been found in party drugs like cocaine, ketamine and ecstasy, in illegal nasal sprays and vapes, and detected in benzodiazepines like Xanax and Valium. In May, two young Londoners died after taking what authorities believe was oxycodone laced with nitazenes upon returning home from a nightclub.

Dealers aren’t trying to kill customers, but the globalized drug trade leads gangs to traffic a wider variety of increasingly potent substances, partly because smuggling gets easier as the volumes involved shrink.

U.K. National Crime Agency Deputy Director Charles Yates said dealers are driven mainly by greed. “They buy potent nitazenes cheaply and mix them with bulking agents such as caffeine and paracetamol to strengthen the product being sold and make significant profits,” he said.

Nitazenes are also ravaging West Africa as a prevalent ingredient in kush, a synthetic drug that has killed thousands of people and led Sierra Leone and Liberia to declare national emergencies.

“It’s an international concern. They have been detected on every continent,” said Adam Holland, an expert on synthetic opioids at the University of Bristol. “You can produce them with different chemicals that are relatively easy to get a hold of, and you can do it in an underground laboratory. And because they’re so potent, you need less for the same size of market so they’re easier to smuggle.”

Chinese suppliers sell nitazenes openly on online marketplaces sometimes using photos of young women as their profile picture. They list phone numbers, social-media handles and business addresses linked to China or Hong Kong. The drugs are sometimes labeled as research chemicals but also often explicitly as nitazenes.

The Wall Street Journal found nearly 100 profiles on the Pakistan-based web marketplace TradeKey selling different types of nitazenes, including etonitazenes, estimated to have 15 times the potency of fentanyl. Four suppliers told a Journal reporter they could send any quantity to Europe, including the U.K., and promised they could evade customs.

A spokesperson for TradeKey said the company has a “zero-tolerance policy toward the listing or sale of any controlled substances, including synthetic opioids such as nitazenes.” It said it had added various types of nitazenes to its banned products registry and blocked hundreds of accounts seen to violate its compliance rules. On “rare occasions,” a prohibited product may pass initial approvals and get listed, but the company worked to routinely clean the site, it said.

“We take this issue very seriously and are fully committed to ensuring our platform is not misused in any way. We also cooperate with regulatory and law enforcement bodies as needed,” the spokesperson said.

Nitazenes were never approved for medical use in Europe. Developed in the 1950s, they were found in trials to cause fatal breathing problems. They were detected sporadically over the years: in a lab in Germany in 1987; in 1998 in Moscow, where they were linked to a dozen deaths; and in 2003 in Utah, where a chemist manufactured them apparently for personal use.

Nitazenes appeared in drug seizures in Europe and the U.S. beginning in 2019, and began spreading quickly in Europe in 2023, their high potency leaving a trail of fatal overdoses even among seasoned drug users. In Scotland, whose population of 5.5 million has the highest overdose death rate per capita in Europe, nitazenes have been involved in 150 to 200 drug-related deaths in the past two years alone, said Austin Smith, head of policy with the Scottish Drug Forum charity.

“Imagine mixing salt in sand on a beach, it’s impossible to do that evenly,” he said.

Europe’s medical practices have protected it from fentanyl, which first took off in the U.S. in the 1990s due to private prescriptions and aggressive marketing. However, Europe is vulnerable to opioids in ways that echo the American experience. The second big boost in fentanyl usage in the U.S. came in the 2010s, when drug cartels began adulterating the heroin supply with fentanyl.

So far, nitazenes appear to be supplied by individual brokers and sellers, but Europe is rife with international drug gangs that could turn to nitazenes.

“Synthetic opioids in the U.S. have not been driven by demand, they have been driven wholesale by supply,” said Vanda Felbab-Brown, senior fellow and expert on the global opioid trade with the Brookings Institution, a think tank. “If large criminal groups such as Albanian mafia groups, Turkish criminal groups or Italian or Mexican groups get into supplying nitazenes to Europe on a large scale, we can anticipate a massive public healthcare catastrophe.”

They may be prompted to do so. Since the Afghan Taliban most recently banned in 2022 the cultivation of poppies, which supplied about 90% of the world’s heroin, experts have warned that a heroin shortage could lead gangs to cut the drug with other, more dangerous substances. Nitazenes are at the top of the list.

“If the heroin supply is interrupted, that will have a knock-on effect on drug use within Europe, and on things users can turn to in the absence of heroin, such as synthetic opioids and synthetic crystal meth,” said Andrew Cunningham, expert on drug markets with the European Union Drugs Agency.

The tiny nation of Estonia has firsthand experience of what that is like. When the Taliban first banned poppy cultivation in 2000, fentanyl flooded the Estonian drug market as a replacement for heroin. Drug-related deaths grew fourfold in two years, and put the Baltic country in a fentanyl grip that it was unable to shake. For a decade, from 2007 to 2017, Estonia had the highest per capita overdose death rate in Europe. And Estonia is already feeling the influx of nitazenes, which since 2023 have been involved in nearly half of all drug-induced deaths in the tiny Baltic nation.


When a batch of drugs contaminated with nitazenes hits the streets, it often results in a cluster of overdoses. Late last year, about 80 people overdosed and needed medical treatment in Dublin over a weekend. In March of this year, at least 31 users overdosed over a few days in Camden, north London.

One of them, Tina Harris, 41, who has been using heroin since her early teens, said she bought a £5 bag of what she thought was fentanyl from a drug dealer in Camden.

“He told me, ‘be careful because it’s strong.’ I thought he was just chatting sh—,” she said. After smoking the drug, she passed out, and survived only because a friend administered shots of naloxone, an antidote that users carry for emergencies, until the ambulance arrived.

Harris woke up in the hospital, rattling from withdrawal. Since then, she has twice saved the life of friends who mistakenly took nitazenes, by providing naloxone and CPR. She has become increasingly worried about the drug supply in London, but said her addiction is impossible to kick.

“It’s a devil’s trap,” she said.

FT : Revolut weighs buying US bank to get licence

Revolut weighs buying US bank to get licence
Acquisition would be faster route for fintech to start lending in US than applying for permit of its own

Revolut is weighing buying a US lender in a bid to get an American banking licence rapidly, as the UK’s biggest fintech continues its wait to clinch a similar accreditation in its home country.

The fintech was considering acquiring a nationally chartered bank in a move that would allow it to lend in the US, two people familiar with the matter told the Financial Times.  

The people said an acquisition would allow Revolut to expand in the US more quickly than if it were to apply for a banking charter by itself, and that it would potentially target a cheap bank that already holds a national licence.

Revolut is one of several European fintechs hoping to expand into the US market. The large American market provides access to fresh customers and potentially significant deposits at a time when many British fintechs are winning customers at a slower rate than before.

Revolut has made no firm decision on buying a US bank, and was also considering applying for a banking licence in its own right rather than acquiring one through a takeover, said another person familiar with the matter.

The deregulatory agenda of US President Donald Trump had created a perception that the Office of the Comptroller of the Currency, the regulator, would speed up the process for awarding bank charters, the person added.

Revolut, which has 60mn customers globally, is discussing a $1bn deal that would include raising funds and give it a valuation of about $65bn, the FT reported this month. Part of that funding would help finance its global expansion.

Revolut had also considered similar plans to buy a Middle Eastern bank as part of its global ambitions, said another person familiar with the matter. 

The fintech, founded in 2015, snapped up Argentine bank Cetelem from BNP Paribas last month.

Revolut declined to comment.

The fintech already has licences in Lithuania, allowing it to trade as a bank across the EU, and Mexico. It has always hoped that becoming a fully operational bank in the UK would make it easier to get licences approved by regulators in other countries.

But it is yet to gain authorisation to operate as a fully fledged bank in the UK.

After a three-year process, its application for a UK banking licence was approved last year, with restrictions imposed until it met conditions set by regulators. But, 12 months later, Revolut still faces restrictions on lending in the UK.

The licence approval triggered a “mobilisation” stage during which time Revolut’s banking division has been allowed to accept deposits of only £50,000 while the company builds out its IT infrastructure, risk controls, compliance functions and other systems.

The Bank of England’s Prudential Regulation Authority has said the mobilisation phase for a newly licensed bank “cannot continue indefinitely and should take no longer than 12 months”, a threshold passed by Revolut last week. Despite this, the PRA said “there may be some circumstances that are beyond a new bank’s control”, which meant that it was in the mobilisation stage for longer.

Chancellor Rachel Reeves tried to set up a meeting between the Treasury, the PRA and Revolut to discuss the licence before the idea was rebuffed by BoE governor Andrew Bailey amid concerns that the bank’s regulation should be independent, the FT reported this week.

One of the people familiar with the matter said there was no “deadline” to become fully authorised and that the company did not expect its approval to be revoked. Revolut is much larger than most newly licensed banks, meaning its authorisation would inevitably take longer, the person added.

FT : Stockpicking hedge funds make comeback in market turbulence

Stockpicking hedge funds make comeback in market turbulence
Equity long-short funds attract investor inflows for first time in a decade on strong returns so far in 2025

Stockpicking hedge funds have made a comeback during this year’s market turbulence, with sizeable gains helping the sector attract fresh cash from investors after nearly a decade of outflows.

So-called equity long-short funds, which try to buy stocks they think will do well and bet against companies they think will underperform, took in $10bn from investors in the first half of the year, according to data from Hedge Fund Research. This follows more than $120bn in withdrawals since 2016.

The inflows came as some of the industry’s biggest names — including Chris Hohn’s TCI and John Armitage’s Egerton — earned double-digit returns in the six months to June, according to people familiar with the figures, and asset allocators sought alternatives to broad index-level exposure amid some big market swings.

“The stock picker’s market is back,” said Zlata Gleason, partner and head of client advisory at Indus Capital. “If you look at the volatility underneath, it’s like a rollercoaster. And that’s where stockpickers can really benefit.”


Long-short hedge funds had suffered nine straight years of redemptions as they failed to deliver on their promise of superior protection for investors during downturns — particularly the vicious equity sell-off in 2022 — despite demanding high fees. One of the oldest and best known sectors of the industry, they have in recent years been overshadowed by giant “multi-manager” funds, which spread clients’ money over a variety of strategies.

But 2025’s market volatility, with stocks tumbling following US President Donald Trump’s “liberation day” tariff salvo in April before rebounding, has proved a more fertile environment for stock pickers. The long-short strategy has been among the best performers in the hedge fund industry so far this year, returning 3.5 per cent in June and 9.2 per cent in the first half of the year, according to data from PivotalPath.

“Liberation day was a bit of a wake-up call for people,” said Charles Lemonides, the founder of hedge fund ValueWorks. “The volatility around that moment caught their attention . . . You don’t want to have just naked exposure to markets that swing that violently.”

London-based hedge funds including TCI, Egerton and Kintbury Capital earned returns of 20 per cent or more. Equity strategies in Europe have been the best performing of any region this year, according to data from PivotalPath.

In the US, Lee Ainslie’s Maverick and Daniel Sundheim’s D1 Capital Partners — both among the many offshoots of Julian Robertson’s famous hedge fund Tiger Management — gained 14 per cent and more than 20 per cent respectively.

Mala Gaonkar’s SurgoCap Partners, a tech-focused hedge fund started by the sector’s most prominent female founder, is up 17 per cent this year after rising 33 per cent last year. The firm is managing $5bn after launching with $1.8bn in investor capital in 2023.

Some stockpickers say they are belatedly reaping the benefits of relatively high interest rates. Many managers in the sector blamed low borrowing costs and central bank asset purchases in the decade following the 2008-09 financial crisis for driving markets higher in lockstep, making it tough to find stocks to bet against.

Now, investors were applying greater scrutiny to company earnings, said one London-based hedge fund manager.

“The market is incredibly unkind to companies that miss numbers, that is a great environment for stockpickers,” the manager said.


A broadening of equity market returns — which for many years have been dominated by big US technology stocks — has also helped. On Wall Street this year, the equal-weighted version of the S&P 500 has kept pace with the main index, which is weighted by market value.

Many European indices have outshone the S&P 500 for the first time in years in the turmoil unleashed by Trump’s trade war, and defence stocks such as Rheinmetall in Germany and BAE in the UK have rallied strongly as investors return to previously unloved sectors.

“The world’s largest three or four companies are no longer dominating index returns,” said a second hedge fund executive in London. “So it’s a bit more of a stockpicker’s market.”

In recent years it had been nearly impossible to raise money for a long-short equity hedge fund outside the top 10 per cent of performers, said one top banker. Yet that had changed since the start of the year, as market volatility had driven investors back to stockpickers, the banker added.

Still, the head of one prominent European family office warned against getting too excited about a lasting revival in inflows for long-short hedge funds, saying performance had been “erratic” over the past few years.

FT : How Novo Nordisk lost its lead in the weight loss race

How Novo Nordisk lost its lead in the weight loss race
Drugmaker struggled to adapt to very high demand and a market where celebrities are more influential than doctors

Until a year ago, Danish drugmaker Novo Nordisk was riding high. It had been first to market with an injectable diabetes treatment and the name Ozempic quickly became shorthand for new class of blockbuster weight loss drugs.

But competition started to catch up, a new drug trial disappointed, shares and growth fell and its chief executive departed in May. Then yesterday a major profit warning knocked more than €60bn off its value. The company also announced that senior executive Maziar Mike Doustdar would become the new CEO.

Some in the industry think Novo’s core problem is quite simple: US rival Eli Lilly came up with a better product. Trials found more weight loss from Lilly’s Mounjaro and Zepbound than Ozempic and another Novo drug Wegovy, and anecdotally doctors report fewer side effects.

“You can’t magically change the product profile,” said Gareth Powell, a healthcare fund manager at Polar Capital, an investor in both groups. 

Ultimately, many shareholders and analysts now see this as Lilly’s market to lose. Tim Opler, a managing director in Stifel’s global healthcare group, said Lilly had worked at “double speed” to commercialise their drugs. “Lilly just outgunned Novo,” he said.

Doustdar argued on Tuesday that there were still big opportunities for Novo in the weight loss market, and that the company had the pipeline of drugs to capitalise on them.

“This is a market with more than 1bn patients and a huge unmet need,” he said. “I think we are very well positioned with our manufacturing capabilities, with our science, with our commercial activities and with brand recognition.”

The turmoil at Novo comes after some huge successes for the company — at its peak last June, its shares were up almost 300 per cent in three years as demand for weight loss drugs soared. 

But ahead of Tuesday’s profit warning, there had been worrying signs from US prescription data.

Novo was the first to win US regulatory approval for its new diabetes and weight loss treatments: Ozempic was approved for diabetes in 2017 and Wegovy for obesity in 2021. 

But having had the lead in market share since then, prescription data from July showed Ozempic slipping below 50 per cent for the first time.

According to research firm Iqvia, prescriptions for Lilly’s Mounjaro were at more 622,000 a week, compared with 607,000 for Ozempic, while Zepbound had already overtaken Wegovy. 

Emily Field, an analyst at Barclays, said Novo’s share price decline over the past year had been like a “slow moving car crash”, as it lost ground to Lilly, both in sales of current obesity drugs and in drugs under development. Novo’s shares are now down 60 per cent in the past year, compared with a 6 per cent fall for Lilly.


Some say that previous CEO Lars Fruergaard Jørgensen has been unfairly blamed for not keeping the share price at what one person close to Novo called “ridiculous heights”.

“They’ve been an incredibly successful company. The previous CEO did amazing things. For all the criticism that the stock price has fallen, it had gone up a lot,” Powell said.

He added that the sheer number of obese and overweight people was a positive. “The market is still tiny in terms of penetration. So you know, still in theory, it is a huge . . . opportunity.”

For others, Novo made mis-steps before it had even launched the drugs, failing to prepare for demand. Then it did not change tack quickly enough in the US when it became clear people were happy to bypass insurance and pay for weight loss drugs themselves.

Novo initially struggled to meet much higher than expected demand. Evan Seigerman, an analyst at BMO Capital Markets said it based its sales forecasts partly on its earlier drug, Saxenda, which is not as effective for weight loss. 

But the person close to the company said that although with hindsight it was a huge market, “it would have been crazy to anticipate” the early surge in demand, and Novo had to be wary of producing a surplus that would go beyond its expiry date and be unsellable.

They added that Novo had since boosted production by acquiring factories from contract manufacturer Catalent. 

However, some analysts believe this early miscalculation has had a longer-lasting effect.

When doctors and patients had trouble getting hold of Novo’s drugs, they switched to Lilly or to replicas that were widely available at the time, and did not switch back. Lilly also had some early supply problems but they were resolved more quickly. 

At the same time, Novo launched in other markets while still trying to increase supply in the US. Seigerman said multi-country launch tended to be the company’s “MO”. “They will supply and provide supply to their markets, even though that may be less profitable,” he said.  

Then there was the question of marketing. Novo seemed to struggle at first to make the transition from a business largely focused on selling insulin products — using research to convince clinicians — to the highly consumer and celebrity centric market for weight loss drugs.

“It was completely unknown territory,” another person close to the company said. 

Field said people were “very sceptical” about Novo’s commercial strategy, compared with Lilly’s “much more aggressive” approach. “People think Novo was too complacent in its launch strategy, betting on the strength of the drug’s profile rather than being more proactive to get it in patient hands.” 

Lilly recognised the different market dynamic more quickly, and launched LillyDirect at the start of 2024 to sell drugs directly to patients at cheaper prices. Novo did not follow suit until March this year, when it started a similar service called NovoCare. The Danish group has also signed an exclusive deal with US pharmacy benefit manager CVS Caremark, which recently made Wegovy its preferred obesity drug.

US-based Lilly may have made different decisions because of a “cultural advantage”, said Seigerman. “Lilly had the understanding to read the room . . . when it comes to the nuances of the United States and the evolving healthcare market,” he said.

Investors are already looking ahead to the next generation of obesity treatments, where they believe Lilly also has an upper hand. 

Novo shares fell sharply in December on disappointing results for its new injectable weight loss drug CagriSema. Analysts complained that the company had been overconfident in guiding on 25 per cent average weight loss, without warning that patients could control their own dose. Results showed that trial participants lost an average of 23 per cent of their body weight. For Wegovy the average is 16 per cent and for Lilly’s Mounjaro, it is 21 per cent.

Powell said while investors had been critical of the miss on target weight loss, CagriSema could still have a “surprisingly good launch” if doctors see it as effective.

Nevertheless, he added that Novo needed to accelerate the development of its pipeline, or make acquisitions. The company has done many early stage deals, but most of the weight loss drugs it has acquired are unlikely to come to market before the end of the decade. 

He said it would need to move even faster if Lilly’s obesity pill orforglipron, which could be launched next year, had a good side effect profile.

“If that looks OK, I think it has the potential for a very fast launch. It could eat into the injectables market, which will be obviously an additional pressure point for Novo,” he said. 

Novo has submitted an oral version of semaglutide, the active ingredient in Ozempic and Wegovy, to regulators. But Field worries that although it is a pill, patients will have to be careful about taking it: it cannot be taken with food, drink or other medicines. Novo does not think this will be a big problem, according to a person close to the company. 

Field added that Novo had made a “really big bet” on CagriSema, while Lilly had spread its bets more widely. “Lilly was spraying at the wall, figuring out what could hit.”  

While Lilly is Novo’s major threat for now, both companies face competition as other drugmakers such as Roche, Amgen and AstraZeneca develop rival drugs.

One person close to Novo said there was a recognition that the company needs to become more consumer focused and “enthusiasm” about finding the right strategy. “They are talking about, how do we turn this big ship around.”

This week’s profit warning and the market response reinforce the urgency of the task facing Doustdar. Asked hours after his appointment about the ailing share price, he gave a blunt response.

“My message is I don’t like it: I don’t like it as an employee, I don’t like it as a CEO elect — and I certainly don’t like it as a shareholder myself,” he said. “But setbacks don’t define companies. Our response does.”