>>> Up
* Bakkavor Raised to Hold at HSBC; PT 110 pence
* Choice Hotels Raised to Outperform at Baird; PT $134
* Deutsche Boerse Raised to Outperform at Credit Suisse
* Endeavour Mining Raised to Overweight at Morgan Stanley
* FedEx Raised to Buy at Stifel; PT $222
* Intermediate Capital Raised to Buy at Shore Capital
* Saipem Raised to Overweight at Morgan Stanley; PT 1.85 euros
* Vidrala Raised to Hold at Jefferies; PT 95 euros
* Vitesco Raised to Buy at HSBC; PT 74 euros
>>> Down
* Carlsberg Cut to Reduce at AlphaValue/Baader
* Credit Suisse Cut to Sell at AlphaValue/Baader
* Millicom GDRs Cut to Neutral at JPMorgan; PT 200 kronor
* Stadler Rail Cut to Neutral at JPMorgan; PT 34 Swiss francs
>>> Initiation
* Aker Reinstated Buy at DNB Markets; PT 870 kroner
* Dufry AG Reinstated Overweight at JPMorgan; PT 58 Swiss francs
* Rightmove Rated New Hold at Panmure Gordon; PT 523 pence
* Vestas Rated New Buy at DNB Markets; PT 240 kroner
>>> Call
* Deutsche Boerse Raised at CS as More Volatility to Drive Volumes
* Energy Services Now Rated Attractive by MS, Saipem Upgraded
* Goldman Raises US Recession Probability to 35% on Banking Stress
* Vidrala Raised to Hold at Jefferies on Quicker Profit Recovery
European and US equity futures advanced, Asian stocks pared losses and Treasuries fell Thursday after Credit Suisse Group AG said it would borrow money from Switzerland’s central bank and seek to repurchase debt. Contracts for the Euro Stoxx 50 index climbed more than 2% as the news from Credit Suisse provided a measure of calm for jittery investors. It has arranged to borrow as much as 50 billion francs ($54 billion) from a Swiss National Bank liquidity facility and will offer to buy back up to three billion francs of dollar- and euro-denominated debt. The Swiss franc was stronger but off its intraday high in volatile trade after a sharp selloff Wednesday. The euro strengthened slightly ahead of an expected rate increase from the European Central Bank later Thursday, with more investors now positioning for a 25 basis point move after earlier expectations for double that. Asian shares recouped some losses from earlier in the session while a gauge for the region remained down by 1%. Equity benchmarks in Japan, Australia and Hong Kong also fell about 1%, with financial companies among the hardest hit in the three markets. Contracts for the S&P 500 rose about 0.4% after the index fell 0.7% Wednesday. Tech stocks offered a bright spot as traders began to forecast interest rates climbing less than previously anticipated. Nasdaq 100 futures advanced Thursday after the benchmark posted its third day of gains on Wednesday as Netflix Inc., Meta Platforms Inc., Microsoft Corp., and Amazon.com Inc. rallied. Selling in bank stocks dragged the KBW Bank Index, one of the broadest measures of the US banking system, down more than 3% Wednesday. First Republic Bank shares fell more than a fifth after being cut to junk by two credit firms, dragging its decline over the past week to more than 70%. Traders were almost evenly split on whether the Federal Reserve will increase interest rates when it meets next week. Market pricing now suggests the Fed will soon pivot and will cut rates by as much as 1% by the end of the year. The yen strengthened against the greenback while an index of the dollar steadied after a Wednesday rally. oil rose from the lowest close in 15 months after a three-day rout started by the US banking crisis and accelerated by options covering. Copper and aluminum also advanced. Gold traded near a six-week high, on signs that problems in the banking sector may cause the Fed to pause rates hikes. US After Hours ADBE +4.6%, PATH +12.3%, PD +7.1% higher on earnings; PSN -39.1%, PTRA -17.1%, AMRS -8.4%, FIVE -4.2% lower on earnings; CS +9.5%.
Nikkei -1,03% Hang Seng -1,51% CSI -0,56% Shanghai -0,49% Shenzen -0,76%
Eur$ 1,0598 CNH 6,9029 CNY 6,9020 JPY 132,69 GBP 1,2074 CHF 0,9302 RUB 76,1053 TRY 18,9918 WTI$ 68,12 Gold 1913,17 BTC 24,322 ETH 1,646
S&P +0,35% Nasdaq +0,44% EuroStoxx +2,24% FTSE +1,19% Dax +1,75%
Macro :
- EC to Propose Curbs On Imports of Chinese Green Tech: FT
- Goldman Raises US Recession Probability to 35% on Banking Stress
Keep an eye on :
- ADP FP : ADP Feb. Passenger Traffic +47.6%
- ADM LN : Inflation-Destroying UK Auto-Insurer Profitability Set to Endure
- AF FP : AF-KLM Says Fully Repaid French State’s Covid-19 Bank Loan
- AAPL US : Foxconn Wins AirPods Order, Plans $200m India Plant: Reuters
- BATS LN : BAT Holder GQG Urges Moving Primary Listing to New York: FT
- BC IM : Brunello Cucinelli FY Ebitda Beats Estimates
- CSGN SW : Credit Suisse Taps $54 Billion in Central Bank Crisis Aid
- CSGN SW : Credit Suisse to Buy Back $3 Billion of Debt as Bonds Drop
- CSGN SW : Saudi National Bank Says Regulators Ready to Plug Holes: CNBC
- ERICB SS : ISS Advocates No Discharge From Liability for Ericsson Board: DI
- GYC GY : Grand City Properties Suspends 2022 Div. on Market Uncertainty
- GYC GY : Grand City Properties Sees 2023 FFO I EU170M to EU180M
- GLJ GY : Grenke Sees 2024 Net Income About €120M
- INS GY : Instone Real Estate Sees 2023 Adjusted Revenue EU600M to EU700M
- MOR GY : MorphoSys 4Q Revenue Beats Estimates
- OXY US : Berkshire Hathaway Buys 7.9 Million Occidental Shares: Filing
- PHARM NA : Pharming FY Revenue Misses Estimates
- RBI AV : Raiffeisen Weighs Exchanging Cash Piles With Sberbank: FT
- ENR GY : Siemens Energy to Raise €1.3 Billion to Refinance Gamesa Offer
- SAE GY : Shop Apotheke Europe Appoints Olaf Heinrich New CEO
- SNAP US : *SNAP CLIMBS 6% ON REPORT SAYING US IS THREATENING A TIKTOK BAN
- SQN SW : Swissquote 2023 Pretax Profit Forecast Misses Estimates
- TEG GY : TAG Immobilien FY FFO Meets Estimates
- SUSE GY : SUSE 1Q Adjusted Ebitda Beats Estimates
- SYAB GY : Synlab FY Adjusted Ebitda Beats Estimates
- TIT IM : Telecom Italia Said to Seek €360m From EIB to Finance 5G Rollout
- VEON US : Veon 4Q Ebitda $453M Vs. $448M Y/y
- VOS GY : Vossloh FY Dividend per Share Misses Estimates
- VOW GY : VW Shows €25,000 EV to Compete Where Tesla Has Left an Opening
Technology sector set to lose more titans in reclassification
Departures from GICS will raise weighting of Apple and Microsoft in S&P 500 IT sector to nearly 50%
The already denuded technology sector is about to be stripped of yet more companies in the latest shake-up of industry definitions, pushing stock concentration to unprecedented highs.
Back in 2018 erstwhile tech titans Facebook (now Meta), Netflix, Twitter, Snap and Alphabet, the parent company of Google, were reclassified as communication services companies under the widely followed Global Industry Classification Standards (GICS) framework. With Amazon already classed as a consumer discretionary company, this means only one of the infamous five FAANGs — Apple — was actually technically still a tech stock.
Now Visa and Mastercard, two of the five largest remaining technology companies, are about to be reclassified as financials, alongside the likes of PayPal and Fiserv, while Automatic Data Processing and PayChex are among those being shipped off to industrials.
The moves will raise the weighting of Apple and Microsoft, which already account for a combined 44.4 per cent of the S&P 500 Information Technology sector, to almost 50 per cent.
“The changes reinforce our unfavourable view on tech exchange traded funds, which will grow more concentrated. We prefer equal-weighted sector ETFs,” said analysts at BofA Securities.
The impact will vary widely from fund to fund, however. The $158bn Invesco QQQ ETF (QQQ), often thought of as a tech fund, will be unaffected as it invests in the largest non-financial Nasdaq-listed companies irrespective of sector, ranging from PepsiCo to Walgreens Boots Alliance and Marriott International.
The repercussions for the $49bn Vanguard Information Technology ETF (VGT) and the $40.1bn Technology Select Sector SPDR ETF (XLK), the world’s two largest sector ETFs, according to data from Morningstar Direct, will differ, however — in part because some are already as tightly concentrated as US regulations permit.
Under the US Internal Revenue Code, regulated investment companies, which include funds, must ensure that no more than 25 per cent of their assets are invested in a single issuer, or company, at the end of each quarter, and that the sum of the weights of all issuers representing more than 5 per cent of the fund should not exceed 50 per cent.
The S&P 500 Technology Select Sector Index, tracked by XLK, already appears to be fully maxed out by these parameters, with Apple, Microsoft and Nvidia, the third-largest remaining tech company, having a combined weighting of 50.45 per cent, and Apple alone at 23.04 per cent.
This means their weight cannot rise any further post the rejig, which for S&P indices will occur after the close of trading on March 17.
As a result the index, and any fund tracking it such as XLK, will be underweight the big three, vis-à-vis their underlying market capitalisations, and overweight the remaining tech companies, headed by Broadcom, Cisco Systems and Salesforce.
Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, said the changes were “relatively minor from a weighting perspective and the fund will continue to have a very diversified exposure to the technology sector”.
In contrast, VGT tracks small and mid-cap tech stocks, as well as the blue-chip names in the S&P 500, so its exposure to the largest companies is somewhat diluted.
As of January 31, the latest available data, VGT’s combined exposure to Apple, Microsoft and Nvidia was 43.6 per cent, giving it headroom to rise further when MSCI (whose index VGT tracks) implements the GICS changes, which will occur in May.
Thus VGT’s exposures will probably be in line with the underlying market caps, but it will become more concentrated in a handful of stocks.
Vanguard said it was still analysing the likely impact on its funds, but added that “GICS changes will have little impact on investors in broadly diversified equity funds, like Total Stock Market Index or 500 Index”.
The story is different again for the $8.8bn iShares US Technology ETF (IYW), which tracks a version of the Russell 1000 Technology index. FTSE Russell does not follow the GICS framework, instead using its own Industry Classification Benchmark.
As a result, IYW invests in some companies off limits to VGT and XLK, such as Meta, Alphabet and Pinterest. The forthcoming GICS changes will narrow the divide however, as FTSE Russell does not classify Visa and Mastercard as tech stocks (they are instead ranked as America’s two largest industrial companies).
The ripples from the GICS rejig will spread further still. BofA believes it will lead to net selling of the payments giants, with tech funds selling $15bn worth of stock but financials funds buying just $11bn.
With a combined market cap of almost $800bn, Visa and Mastercard are on track to become the second and fourth-largest stocks respectively in the S&P 500 financials sector.
Bartolini supported the transfer of Visa and Mastercard saying they “should probably be in financials, given their relationship to the financial industry itself. That change is really welcomed by investors, as far as the conversations we have had,” he added.
As to the conflation of the FAANGs acronym with technology, Bartolini said: “It’s catchy, it caught on and it can lead to confusion.
“It became mainstream in the financial lexicon and it’s unlikely to go away, even though FAANGs is not representative of technology or innovation or high growth.”