TheChek News Flow

UK property site says fourth proposal continues to undervalue business

Rightmove has urged Australia’s REA to make a “best and final” offer after rejecting the latest proposal from the platform majority owned by Rupert Murdoch’s News Corp, which valued it at £6.2bn.

The FTSE 100 UK property group said on Monday it had consulted “the full spectrum of its shareholder base” and held meetings with REA but concluded the cash and shares offer was “unattractive” and continued to “materially undervalue Rightmove”.

The company signalled it was against extending the so-called put-up-or-shut-up deadline imposed by UK takeover rules at 5pm on Monday, giving REA just hours to bring forward a fifth bid or walk away. Rightmove shares fell 3 per cent in early trading in London.

“We respect REA and the success they have achieved in their domestic market. However, we remain confident in the standalone future of Rightmove,” said Andrew Fisher, Rightmove’s chair.

If REA wants to make another bid, it should submit “a best and final proposal” before 5pm, he added. 

The Australian group, which is independently listed but majority owned by News Corp, made a fourth offer for Rightmove on Friday at an implied value of 781p per share, which REA said was a 41 per cent premium to the UK group’s share price prior to the takeover interest becoming public this month.

It has pledged to maintain a secondary listing on the London Stock Exchange if the deal goes through to allow UK investors easy access to the stock.

Rightmove has a dominant share of the UK property listings market but is pushing into new areas such as mortgage services and commercial property in search of further growth.

REA has said its experience could help boost those efforts. Chief executive Owen Wilson told the Financial Times last week that his company was “much further progressed and much more successful” in key add-on business areas.

REA has criticised Rightmove for its lack of engagement over previous offers. Rightmove on Monday said the two companies’ management teams had had “numerous interactions” over many years, “including discussions around strategy and best practice as recently as June”.

The company said “Rightmove has taken every phone call that REA has made since its interest was first made public” and that its level of engagement was “customary and appropriate” for an unsolicited approach.

The two companies’ chairs, Fisher and Hamish McLennan, and their management teams had met over recent days, Rightmove added.

REA did not immediately respond to a request for comment.

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Broad swaths of the market, from utilities to industrials to financials, trounced the powerful tech sector in the third quarter

AI fever has loosened its grip on the stock market.

Gone is the first half of 2024, when investors’ passion for artificial intelligence drove the market skyward even as stubbornly high inflation dashed hopes that the Federal Reserve would begin cutting interest rates.

The third quarter brought a new order to markets. Investors began to look askance at big tech companies’ heavy spending on AI. They took heart in a series of tamer inflation readings that led the Fed to finally lower rates. And many, seeing signs of economic strength, grew confident that the central bank had managed to control price pressures without driving the U.S. into recession.

It was a recipe for the broadening of a rally that many investors worried had grown precariously reliant on a few big tech stocks.

In the third quarter, broad swaths of the market, from utilities to industrials to financials, trounced the powerful technology sector. Value stocks beat growth stocks. Small-capitalization stocks emerged from their torpor to leave their large-cap peers in the dust.

Many investors think the economy looks healthy enough for stocks from a variety of industries to continue to run, potentially contributing to a more sustainable rally.

“It really does appear as though the Fed is pulling off a soft landing,” said Ellen Hazen, chief market strategist and portfolio manager at F.L.Putnam Investment Management. “We do think the broadening of the market beyond the Magnificent Seven is likely to continue.”

F.L.Putnam recently bought shares of industrial company Trane Technologies, believing the stock will do well if the economy avoids recession, Hazen said.

The big tech stocks in the Magnificent Seven went their own ways in the quarter. Nvidia, the chip maker at the heart of the AI boom, pulled back after its torrid advance in the first half, along with shares of Alphabet, Microsoft and Amazon.com. Apple, Meta Platforms and Tesla, meanwhile, are on track to end higher.

Their near-uniform march upward was interrupted as investors questioned the vast amounts of money some companies are committing to their AI pursuits.

In recent months, Alphabet reported slowing growth in advertising sales at Google along with a near-doubling of capital expenditures from a year earlier, while Amazon forecast weaker-than-anticipated sales growth and said it would boost spending to meet demand for AI services. The stocks are down 10% and 2.7% for the quarter, respectively.

“The narrative switched around to, ‘Are they going to make money with all this spending?’” said Jim Polk, head of equity investments at Homestead Advisers. “We believe there’s still a real story there and AI is going to happen, but certainly it got ahead of itself.”

Fatigue among the big tech stocks tends to weigh on the S&P 500, which gives greater influence to companies with large market values. But gains by a wide range of other stocks helped push major indexes higher. The U.S. large-cap benchmark has advanced 5.1% for the quarter, bringing its 2024 gains to 20%. That puts it on pace for its best performance in the first three quarters of a year since 1997, according to Dow Jones Market Data.

It isn’t just stocks. Bond investors enjoyed a rally, too, as the Fed’s rate cuts finally began. The yield on the benchmark 10-year U.S. Treasury note, which falls when prices rise, dropped to 3.751% Friday from 4.342% at the end of June, on pace to snap a two-quarter streak of rising yields.

Declining rates have helped boost corners of the stock market that are often thought of as bond proxies because of their hearty dividend payments. The utilities sector is poised to end the quarter as the S&P 500’s top performer with a 18% gain, while the real-estate group is on pace to climb 15%.

The quarter held another intriguing development in government bonds. Two-year U.S. Treasurys had been trading at a higher yield than 10-year notes, a phenomenon known as an inverted yield curve that has been a classic recession signal, since July 2022. Then earlier this month, the inversion disappeared, as the longer-term Treasury’s yield finally climbed back above that of the shorter-term note.

An inverted yield curve sometimes returns to normal just ahead of a recession, as traders bet on aggressive rate cuts from the Fed. But many investors are optimistic that this time, a recession isn’t in the offing. More than half of respondents to Bank of America’s September global fund-manager survey said they didn’t expect a U.S. recession in the next 18 months.

Data recently showed that inflation cooled for a fifth consecutive month in August, hitting a new three-year low. U.S. job growth, meanwhile, rebounded from lower levels that had sparked fears of a slowdown. Consumer sentiment is improving, and households are continuing to spend.

To be sure, not everyone thinks the economic picture is rosy.

The unemployment rate has ticked up this year, and there are signs that lower-income consumers are struggling to pay their bills. Dollar General, the country’s largest dollar-store operator, cited economic strain on its customers, among other factors, as it slashed its sales outlook in late August. Restaurant chains have been rolling out deals and discounts to lure back customers tired of rising menu prices.

Josh Emanuel, chief investment officer at Wilshire, saw an acknowledgment of “some real economic deterioration” in the Fed’s decision in September to cut rates half a percentage point rather than the typical quarter-point.

“You haven’t seen equities really price in enough of that deterioration in growth yet,” he said.

The hedge fund has taken a large position in the healthcare company, which has seen its shares fall 24% this year to date

A major hedge-fund investor will meet top executives of CVS Health on Monday to propose ways the struggling healthcare company can improve its operations, the potential start of an activist stance by the fund, according to people close to the matter.

The slated meeting, between CVS and hedge fund Glenview Capital Management, comes amid signs investors are turning restless with a company that remains among the best-recognized in the healthcare industry but has seen its shares tumble 24% this year to date.

Larry Robbins, founder of healthcare-focused Glenview, has established a large position in CVS, the people said. The giant healthcare company amounts to about $700 million of his $2.5 billion hedge fund, according to a person familiar with the matter. Glenview owns about 1% of CVS’s shares outstanding.

Glenview’s position is a sign of Robbins’s belief in the company’s potential and his confidence he can get executives to pursue a new path, the person said.

A CVS spokesman said the company “maintains a regular dialogue with the investment community as part of our robust shareholder and analyst engagement program. Beyond that, we cannot comment on engagement with specific firms or individuals.”

Robbins is expected to meet with Chief Executive Officer Karen Lynch and others to present ways to energize the company, but not to break up the company, according to the person. In the past, Robbins has suggested ways various healthcare companies can improve their operations and worked with them in a cooperative manner.

Yet he has also been an activist in at least two instances, pushing for board seats while exerting other pressure on executives. Most recently, Glenview pressed Tenet Healthcare to oust four of its board members. The company’s chief executive eventually resigned, amid the pressure.

At least one other hedge fund has also established a significant position in CVS in recent months, seeing value in the company. They, too, may move to pressure the company for change, according to the person.

CVS Health is one of the biggest healthcare companies in the U.S. and a household name, because of its namesake pharmacies. It is the parent of the Aetna insurance business as well as the nation’s largest pharmacy-benefit manager, in addition to its eponymous drugstores.

It has been struggling, cutting its earnings guidance for 2024 several times since late last year. The most recent figure, delivered in August, was down 23% from its original forecast back in December.

The main driver of the recent financial woes is the company’s Medicare business.

Last year, CVS’s Aetna unit placed a big bet on attracting seniors to its Medicare plans, adding hundreds of thousands new enrollees in 2024. The gamble backfired, as its Medicare members racked up more healthcare costs than the company expected and the federal government squeezed payments to private insurers.

CVS has said it is adjusting its approach to the Medicare business for 2025 to bolster its margins and improve its financial performance.

At the same time as the company issued its latest earnings outlook downgrade in August, Lynch promised $2 billion in additional cost cuts and announced that CVS would let go Aetna President Brian Kane, who had been in the job less than a year. She said she would take over Aetna’s management directly, along with CVS Chief Financial Officer Tom Cowhey. Lynch was previously president of Aetna.

CVS is also facing scrutiny of its pharmacy-benefit unit, CVS Caremark, one of three large companies recently sued by the Federal Trade Commission. The FTC has accused the pharmacy-benefit managers of inflating the price of insulin. CVS Caremark and its rivals have said that high prices are the fault of drug manufacturers, and they work to aggressively negotiate discounts for their clients.

Aetna’s problems reflect broader issues across the insurance industry with Medicare Advantage, the private-plan version of the federal program for the elderly and disabled. Competitors have also reported higher-than-expected medical costs and challenges with new federal rules that limit some revenue-bolstering billing practices.

The official purchasing managers index signaled shrinking activity for a fifth straight month in September

China’s latest batch of manufacturing and services activity data didn’t give much to cheer about, backing the case for stronger policy action to tackle deepening economic challenges.

The official purchasing managers index signaled shrinking activity for a fifth straight month in September, pointing to continued fatigue in the world’s second-largest economy, data released Monday by the National Bureau of Statistics showed.

While September’s headline reading rose to 49.8 from August’s 49.1, beating expectations in a Wall Street Journal poll of analysts, it stayed under the 50-mark separating activity expansion from contraction.

China’s nonmanufacturing PMI, which covers service and construction activity, edged down to 50.0 in September from 50.3 in August.

The subindex that tracks service activity fell back to contractionary territory at 49.9 in September from 50.2 in August, underscoring tepid consumer demand, while the construction subindex rose to 50.7 from 50.6.

Private gauges of China’s manufacturing and services activity released Monday slipped in September, also suggesting weakness in the economy.

The Caixin manufacturing PMI fell to 49.3 in September from 50.4 in August, according to data released by Caixin Media Co. and S&P Global. That was the lowest reading since July 2023.

“Market conditions in the manufacturing sector worsened in September, marked by a limited expansion in supply and a significant contraction in demand,” said Wang Zhe, senior economist at Caixin Insight Group.

The Caixin services PMI fell to 50.3 in September from 51.6 in August, as “market optimism weakened significantly,” said Wang. “Businesses expressed concerns about economic uncertainties in the near future.”

Monday’s data comes shortly after Chinese policymakers orchestrated a “shock and awe” display of stimulus that underscored a growing sense of urgency to lift the economy.

Last week, China’s central bank announced a flurry of monetary and property easing actions. The policy blitz was followed by a surprise meeting of China’s top leaders on Thursday pledging even more support for the economy. The extraordinary coordinated package of policy moves has sparked hopes that authorities are readying the kind of aggressive fiscal expansion and bold property rescue economists view as key to a meaningful growth revival.

“We believe the persistent growth weakness has hit policymakers’ pain threshold, and the policy put has been triggered,” economists at Goldman Sachs said in a recent note.

While China’s shift from drip-feeding economic support to “bazooka-style” stimulus has been welcomed, doubts remain over whether a rebound will soon materialize. Concerns about policy implementation lags remain, given the muted, fleeting effects of previous rounds of policy efforts.

“Given widespread debt deflation pressures…and depressed sentiment among households, private businesses, and local government officials, the odds are that it will take more than what has been announced to create a cyclical recovery,” analysts at BCA said in a note.

Considering the central role that the property sector plays in China’s economic malaise, analysts say destocking housing inventories remains key.

Without bold policy to address this issue, a prolonged and grinding recovery is in the cards, Duncan Wrigley, an economist at Pantheon Macroeconomics, said in a note.

With the current policy approach favoring investment that could exacerbate supply-demand imbalances, economists say Beijing should move to provide better social welfare benefits to boost consumption and break the debt-deflation loop.

“What is missing is any sign of a bold reform plan to channel more state resources to the social security net,” Wrigley said.

Such efforts would require more fiscal firepower.

While it remains unclear how much Beijing is willing to spend, many economists now expect a sizable budget revision by the end of the year.

As the final quarter of the year approaches, expectations are high that Beijing might finally pull the fiscal trigger as it strives to meet an annual growth target of around 5% that looks increasingly challenging.

“Given that confidence issues have become so entrenched among households and corporates, forceful fiscal expansion is indispensable to jump-start the credit engine and uphold aggregate demand,” economists at Citi said in a note.

NIO Holding, also known as NIO China, secured an investment of US$1.9 billion, from its parent and a group of investors

NIO’s NIO 12.80%increase; green up pointing triangle shares in Singapore and Hong Kong surged early Monday after a unit of the Chinese electric-vehicle maker secured a capital injection.

NIO Holding, also known as NIO China, secured an investment of 13.3 billion yuan, equivalent to US$1.9 billion, from its parent and a group of investors.

Shares of NIO were last up 17% in Hong Kong trading at 56.80 Hong Kong dollars, equivalent to US$7.31, while the Singapore-listed shares were 17% higher at US$7.25.

NIO plans to invest 10 billion yuan in NIO China, while a group of investors comprising Hefei Jianheng New Energy Automobile Investment Fund Partnership, Anhui Provincial Emerging Industry Investment and CS Capital agreed to invest 3.3 billion yuan for newly issued shares, according to a filing on Sunday.

Following the transactions, NIO’s stake in NIO China will fall to 88.3% from 92.1%, the company said.

The cash injections will be made in two installments and will be completed by end of this year, NIO said.

The EV maker added that it has the right to invest an additional 20 billion yuan to subscribe for more shares in NIO China by the end of 2025, based on the same pricing and terms.