>>> TradeGate Pre-Market Indications

DAX:
  • Porsche SE (PAH3 TH) +1.8%
  • Deutsche Bank (DBK TH) +1.7%
    • Deutsche Bank Raised to Overweight at JPMorgan; PT 15 euros
  • Delivery Hero (DHER TH) +1.7%
    • Delivery Hero Thwarted Again in Attempt to Buy a Saudi Rival
  • Zalando (ZAL TH) +1.7%
  • Airbus (AIR TH) +1.6%
  • Infineon (IFX TH) +0.7%
    • German Holdings Round-Up: Merck KGaA, Infineon, Sartorius
MDAX:
  • Wacker Chemie (WCH TH) +2.4%
  • Hannover Re (HNR1 TH) +1.9%
  • Fuchs Petrolub (FPE3 TH) +1.9%
  • TAG Immobilien (TEG TH) +1.6%
  • Duerr (DUE TH) +1.5%
SDAX:
  • Stratec (SBS TH) +3.7%
  • Global Fashion Group (GFG TH) +2.8%
  • SMA Solar (S92 TH) +2.7%
  • BayWa (BYW6 TH) +2.2%
  • Takkt (TTK TH) +2.1%
  • Westwing (WEW TH) -1.1%

>>> What to look at today - 6th of December 2021

Stocks and futures showed a degree of stabilization in Asia Monday with investors weighing the regulatory outlook for Chinese technology companies and bets on monetary policy easing. Treasuries pared some of Friday’s rally.
U.S. and European futures pushed higher while Japan’s benchmark had a modest decline. And index of Chinese tech stocks traded in Hong Kong retreated for a third day. Mainland China shares fluctuated and government bonds rallied amid bets the central bank will soon ease monetary policy to aid growth. Chinese Premier Li Keqiang signaled an upcoming cut in the amount of cash banks must keep in reserve -- and the Securities Daily reported the cut could come as soon as this month.
China’s securities watchdog on Sunday tried to play down fears over Chinese companies’ withdrawal from American exchanges. Didi Global Inc.’s plan to switch its listing to Hong Kong from New York sent the nation’s shares in the U.S. tumbling and sparked fears others might follow.
Treasury yields rose, trimming Friday’s plunge that sent the 10-year yield closer to 1.30%. The dollar edged higher. Attention turns to U.S. consumer prices which are expected to show the largest annual advance in decades, keeping pressure on the Federal Reserve to deliver swifter policy tightening.
While markets are jittery about omicron, South Africa reported that the variant is not fueling a surge in hospitalizations, and U.S. medical adviser Anthony Fauci said there didn’t seem to be “a great degree of severity to omicron,” while cautioning it’s too early to be certain. Moderna Inc.’s president said there’s a “real risk” that existing vaccines will be less effective against omicron. 
Elsewhere, gold held an advance and oil rose after Saudi Arabia boosted the prices of its crude. Cryptocurrencies got swept up in the risk-off wave, with Bitcoin plunging on Saturday and currently sitting below $50,000.

Nikkei -0.36% Hang Seng -1.82% CSI -0.09% Shanghai -0.40% Shenzen -1.13%

Eur$ 1.1281 CNH 6.3725 CNY 6.3716 JPY 113.10 GBP 1.3225 CHF 0.9214 RUB 73.7422 TRY 13.8410 WTI$ 68 Gold 1784.90 BTC 48,300 -900 ETH 4084 -95

S&P +0.51% Nasdaq +0.17% EuroStoxx +1.10% FTSE +0.82% Dax +1.05% SMI +0.75%

Macro :
- Italy’s Debt Rating Raised at Fitch on Robust Economic Outlook

Keep an eye on :
- ABI BB : AB InBev Sets Mid-Term Organic Ebitda Growth Target at 4%-8%
- AZN LN : AstraZeneca Is Said to Study Listing of New Vaccines Division
- SAB SM : Banco Sabadell May Look to Sell TSB Next Year: Daily Mail
- BAVA DC : Bavarian Nordic: Positive Topline Results for Vaccine Candidate
- DHER GY : Delivery Hero Fails in Another Buy as The Chefz Mulls Options
- DMGT LN : DMG Media Publisher Martin Clarke to Step Down in February 2022
- ENEL IM : Enel Completes Sale of 50% of Open Fiber to CDP, Macquarie
- ENGI FP : Engie, Masdar in $5b UAE Green Hydrogen Pact
- ALGAU FP : Aramco in Pact With Gaussin to Study Making Hydrogen Vehicles
- G IM : Italian Billionaires’ Challenge to Generali Hinges on Asset Unit
- GVNV NA : EssilorLuxottica To Hold Total Interest of 99.73% in GrandVision
- SHBA SS : Nykredit Hires JPMorgan for Handelsbanken Unit Takeover: Borsen
- INTE NA : CSC Agrees to Buy Intertrust for EU20/Shr in Cash: M&A Snapshot
- LEO GY : Pierer, Leoni Find Some Consensus About Supervisory Board
- MFE IM : Mediaset Issues A-Class Shares, Initiates Trading
- RNO FP : Renault to Cut 1,700 Jobs Instead of 2,000, Les Echos Reports
- ROG SW : Roche Director Paul Bulcke Not to Stand for Re-Election in 2022
- SGO FP : Saint-Gobain Agrees to Buy GCP for $32/Shr in Cash: M&A Snapshot
- SRG IM : SNAM’s Alvera Says January EU Gas Storage Key for Price Trend
- TW/ LN : Elliott Management Has Built Stake in Taylor Wimpey: Daily Mail
- TE FP : Technip Energies Gets Petrochemical Contract by Borouge in UAE
- VLA FP : Valneva Says no Conclusion on VLA2001 as Booster from COV-Boost

>>> Europe : Brokers Upgrades & Downgrades - 6th of December 2021

>>> Up
* Berkeley Raised to Equal-Weight at Barclays; PT 4,460 pence
* Crest Nicholson Raised to Overweight at Barclays; PT 430 pence
* City Pub Raised to Buy at Panmure Gordon; PT 116 pence
* Deutsche Bank Raised to Overweight at JPMorgan; PT 15 euros
* EMS-Chemie Raised to Buy at Stifel; PT 1,020 Swiss francs
* Hollywood Bowl Raised to Buy at Peel Hunt; PT 275 pence
* Merck KGaA Raised to Outperform at Exane; PT 255 euros
* Piippo Raised to Reduce at Inderes; PT 3 euros
* Sobi Raised to Buy at Pareto Securities; PT 235 kronor
* UniCredit Raised to Overweight at JPMorgan; PT 15 euros
* Wells Fargo Raised to Overweight at Morgan Stanley

>>> Down
* abrdn plc Cut to Underweight at Morgan Stanley; PT 266 pence
* Bank of New York Mellon Cut to Underweight at Morgan Stanley
* Citigroup Cut to Equal-Weight at Morgan Stanley
* Bureau Veritas Cut to Equal-Weight at Barclays; PT 29.50 euros
* Just Eat Takeaway Cut to Market Perform at Bernstein
* Naturgy Cut to Equal-Weight at Barclays; PT 24.70 euros
* Novartis Cut to Neutral at Exane; PT 85 Swiss francs
* Persimmon Cut to Underweight at Barclays; PT 2,500 pence

>>> Initiation
* Apple Reinstated Overweight at KeyBanc; PT $191
* Evotec SE Rated New Overweight at Morgan Stanley; PT 53 euros
* Evotec SE ADRs Rated New Overweight at Morgan Stanley; PT $30
* Hertz Reinstated Neutral at Goldman; PT $32
* Hertz Reinstated Overweight at Barclays; PT $28
* Hertz Reinstated Overweight at JPMorgan; PT $30
* Hertz Reinstated Equal-Weight at Morgan Stanley; PT $27
* Hertz Reinstated Buy at Deutsche Bank; PT $34
* Kistos Rated New Buy at Berenberg; PT 495 pence
* Rivian Rated New Neutral at Goldman; PT $94
* Rivian Rated New Outperform at Baird; PT $150
* Rivian Rated New Neutral at JPMorgan; PT $104
* Rivian Rated New Outperform at Wedbush; PT $130
* Rivian Rated New Overweight at Morgan Stanley; PT $147
* Rivian Rated New Buy at Deutsche Bank; PT $130
* Rivian Rated New Outperform at RBC; PT $165
* Stillfront Rated New Buy at Handelsbanken; PT 64.50 kronor

>>> Call
* Stadler Rail to Neutral at Citi on Balanced Risk/Reward Outlook
* Synthomer Double-Downgraded at Morgan Stanley on Supply Outlook

WSJ : China Seeks First Military Base on Africa’s Atlantic Coast, U.S. Intellige

China Seeks First Military Base on Africa’s Atlantic Coast, U.S. Intelligence Finds
Alarmed officials at the White House and Pentagon urge Equatorial Guinea to rebuff Beijing’s overtures

BATA, Equatorial Guinea—Classified American intelligence reports suggest China intends to establish a military installation in this tiny Central African country, a move that would give Beijing its first permanent naval presence on the Atlantic Ocean, according to U.S. officials.

The officials declined to describe details of the secret intelligence findings. But they said the reports raise the prospect that Chinese warships would be able to rearm and refit opposite the East Coast of the U.S.—a threat that is setting off alarm bells at the White House and Pentagon.

Principal deputy U.S. national security adviser Jon Finer visited Equatorial Guinea in October on a mission to persuade President Teodoro Obiang Nguema Mbasogo and his son and heir apparent, Vice President Teodoro “Teodorin” Nguema Obiang Mangue, to reject China’s overtures.

“As part of our diplomacy to address maritime-security issues, we have made clear to Equatorial Guinea that certain potential steps involving [Chinese] activity there would raise national-security concerns,” said a senior Biden administration official.

The great-power skirmishing over a country that rarely draws outside attention reflects the rising tensions between Washington and Beijing. The two countries are sparring over the status of Taiwan, China’s testing of a hypersonic missile, the origins of the Covid-19 pandemic and other issues.

World-wide, the U.S. finds itself maneuvering to try to block China from projecting its military power from new overseas bases, from Cambodia to the United Arab Emirates.

In Equatorial Guinea, the Chinese likely have an eye on Bata, according to a U.S. official. Bata already has a Chinese-built deep-water commercial port on the Gulf of Guinea, and excellent highways link the city to Gabon and the interior of Central Africa.

The “most significant threat” from China would be “a militarily useful naval facility on the Atlantic coast of Africa,” Gen. Stephen Townsend, commander of U.S. Africa Command, testified in the Senate in April. “By militarily useful I mean something more than a place that they can make port calls and get gas and groceries. I’m talking about a port where they can rearm with munitions and repair naval vessels.”

Equatorial Guinea, a former Spanish colony with a population of 1.4 million, secured independence in 1968. The capital, Malabo, is on the island of Bioko, while Bata is the largest city on the mainland section of the country, which is wedged between Gabon and Cameroon.

Mr. Obiang has ruled the country since 1979. The discovery of huge offshore gas and oil reserves in 1996 allegedly allowed members of his family to spend lavishly on exotic cars, mansions and other luxuries, according to U.S. Senate and Justice Department investigations.

Contacted by The Wall Street Journal, Gabriel Mbaga Obiang Lima, Equatorial Guinea’s oil minister and one of the president’s sons, requested that questions about his country’s relationship with China and allegations of corruption in his family be submitted in writing. He didn’t respond to those questions. Equatorial Guinea’s ambassador in Washington didn’t respond to multiple interview requests.

U.S. intelligence agencies began picking up indications of China’s military intentions in Equatorial Guinea in 2019. During the closing days of the Trump administration, a senior Pentagon official visited the country, but the approach apparently left the Obiangs uncertain about how seriously the U.S. took China’s military aspirations.

The Biden White House has sought to deliver a sharper message: It would be shortsighted of Equatorial Guinea to insert itself between the front lines of U.S.-China global competition.

At the same time, the U.S. has taken steps to warm relations. In March, the U.S. offered aid after an apparently accidental ammunition explosion leveled an army base near Bata, killing at least 100 people.

The same month, Equatorial Guinean troops participated in U.S.-led naval exercises in the Gulf of Guinea. In August, an American Navy ship anchored off the Bata port, and the captain invited local officials and naval personnel aboard to observe firefighter training.

The White House doesn’t know whether its diplomatic outreach will have the desired effect and believes it will require a persistent, long-term effort to fend off a Chinese naval presence.

At the same time, the U.S. wants to convey a nuanced message: Washington isn’t asking Equatorial Guinea to abandon its extensive ties with China, but just to keep relations within bounds the U.S. considers unthreatening.

The U.S. concern “is that the Chinese would develop a naval base in Equatorial Guinea, which would then give them naval presence on the Atlantic,” Maj. Gen. Andrew Rohling, commander of the U.S. Army Southern European Task Force—Africa, said in a June interview.

Following the visit by Mr. Finer, Mr. Obiang Mangue, the president’s son and de facto head of Equatorial Guinea’s security forces, announced that the White House had named him “the No. 1 interlocutor in relations between our two countries.”

He tweeted a thank-you video showing the protocol gift he received from Mr. Finer’s delegation, a silver platter engraved with the U.S. presidential seal. A few days later, Mr. Obiang Mangue and the chargé d’affaires at the U.S. Embassy in Malabo discussed proposals raised during Mr. Finer’s visit.

Shortly afterward, however, Mr. Obiang, the president, spoke by phone with Chinese President Xi Jinping, after which Beijing put out a statement highlighting that “Equatorial Guinea has always regarded China as its most important strategic partner.”

China helps train and arm the Equatorial Guinean police.

The Chinese Ministry of Foreign Affairs didn’t respond to a written request for comment on any basing plans in Equatorial Guinea or elsewhere on Africa’s Atlantic coast.

Beijing set up its first overseas military base in 2017 in Djibouti, on the opposite side of the continent. The former French colony looks onto the Bab-el-Mandeb strait, a strategic chokepoint for shipping traffic transiting the Suez Canal. The Chinese facility has a pier capable of docking an aircraft carrier and nuclear submarines, according to U.S. Africa Command.

The base is 6 miles from the largest American base in Africa, Camp Lemonnier, home to 4,500 U.S. troops.

“China doesn’t just build a military base like the U.S.,” said Paul Nantulya, research associate at the Pentagon-funded Africa Center for Strategic Studies. “The Chinese model is very, very different. It combines civilian as well as security elements.”

Chinese state-owned companies have built 100 commercial ports around Africa in the past two decades, according to Chinese government data.

This spring, U.S. intelligence officials uncovered what they said was construction on a secret military base at a Chinese-run commercial port in the United Arab Emirates. The Biden administration persuaded Emirati authorities to halt construction, at least temporarily.

American diplomats in Mauritania, along Africa’s northwest coast, have advised local authorities to rebuff any effort by Beijing to use a Chinese-built port for military purposes, according to a U.S. official.

In a report to Congress this year, the Pentagon said China “has likely considered” African bases in Kenya, Seychelles, Tanzania and Angola.

There are no visible signs of major construction at the Bata port, which was upgraded by China Road & Bridge Co., a state-owned enterprise, between 2009 and 2014.

The U.S. knows it faces challenges in its bid for Equatorial Guinea’s favor, seeking help from a country it has pointedly criticized.

The State Department has accused the Obiang regime of extrajudicial killings, forced disappearances, torture and other abuses.

A U.S. Senate committee issued a report in 2004 criticizing Washington-based Riggs Bank for turning “a blind eye to evidence suggesting the bank was handling the proceeds of foreign corruption” in accepting hundreds of millions of dollars in deposits controlled by Mr. Obiang, his wife and other relatives.

The bank said it regretted that it “did not more swiftly and more thoroughly complete the work necessary to fully meet the expectations of our regulators.” PNC Financial Services Group Inc. acquired Riggs the following year.

Separately, the U.S. Justice Department pursued the allegedly ill-gotten gains of the president’s son Mr. Obiang Mangue.

In 2011, Mr. Obiang Mangue called the U.S. ambassador in Malabo asking for help clearing his name against what he said were unfair allegations surfacing in the press. “I have never stolen money from our country’s treasury,” he told the ambassador, according to a State Department cable entered into court records. He told the ambassador he had earned his riches by winning legitimate government contracts during the country’s oil-fueled infrastructure boom.

In a series of civil cases, however, U.S. government lawyers accused Mr. Obiang Mangue of amassing a fortune of more than $300 million “through corruption and money laundering” while earning less than $100,000 a year as minister of agriculture and forestry. In a 2014 settlement, Mr. Obiang Mangue surrendered to the federal government proceeds from a Malibu mansion, a Ferrari and other assets.

This fall, the Justice Department announced that it would steer $26.6 million of the surrendered assets back to Equatorial Guinea in the form of Covid-19 vaccines and other medical aid, bypassing the government.

The Equatorial Guinean Foreign Ministry responded with a statement condemning the U.S. announcement as a “misrepresentation” of the facts. In a series of tweets, Mr. Obiang Mangue said it had been his desire to use the funds for medicine and that the U.S. government hadn’t forced him to do so.

Though often at odds with the Obiang regime, the U.S. isn’t without leverage.

Equatorial Guinea relies on American oil companies to extract offshore resources that have made the country the richest on the sub-Saharan mainland, as measured by per capita annual gross domestic product.

And the State Department recently raised Equatorial Guinea’s ranking in the annual assessment of how diligently countries combat human trafficking. The upgrade could allow the Biden administration to offer maritime-security assistance to help win Equatorial Guinea’s cooperation.

The country faces a growing threat from pirates and illegal fishing in its waters on the Gulf of Guinea.

“We think there is a fair amount we could do together on the maritime-security side that would be in our interest and of interest to them,” said the senior administration official.

WSJ : Hedge Funds Suffer Big Losses on Biotech Rout

Hedge Funds Suffer Big Losses on Biotech Rout
Some hedge funds have logged losses well into double-digit percentages as regulatory concerns and other issues have buffeted the biotech sector

Biotech stocks have fallen to earth with a thud in 2021 after soaring last year amid excitement over the development of Covid-19 vaccines, dealing big losses to some hedge funds.

The sector is being buffeted by concerns Congress will move to put a lid on drug pricing and a surfeit of early-stage biotech shares as the IPO market booms.

Perceptive Advisors, a prominent biotech hedge fund that manages about $9 billion, lost about 30% this year through November in its main fund, investors say. A hedge fund managed by OrbiMed Partners, which invests more than $18 billion in healthcare in public and private markets, has lost more than 40% this year through November, people familiar with the fund say. Both funds had scored big gains over the past two years.

Meanwhile, a hedge fund run by San Francisco-based Logos Capital, which manages about $1.4 billion, is down more than 25% for the period, other people say. Cormorant Asset Management lost 10% in November alone, adding to double-digit losses earlier in the year.

“It’s been a very challenging year,” said Bihua Chen, founder of Cormorant, which focuses on smaller biotech companies.

The SPDR S&P Biotech ETF (XBI), an equal-weighted index of biotech stocks, has fallen about 22% so far this year through Friday, and is down 37% from its Feb. 8 peak. The ETF has tumbled nearly 9% since Thanksgiving. Biotech is the worst-performing of all 11 S&P 500 sectors this year, a time when the broader index has notched a total gain of nearly 21%.

Consonance Capital decided to close a billion-dollar hedge fund in October after suffering its own heavy losses, said people familiar with the firm. Consonance also operates a healthcare private-equity fund, which has been unaffected by the biotech selloff, according to a spokesman.

The losses follow blockbuster gains over the past few years, when biotech funds were a rare bright spot in the hedge-fund industry. Perceptive was up 31% in 2020 and 49% in 2019, for example. Its founder, New York-based Joseph Edelman, recently spent $70 million to purchase an oceanfront mansion in Laguna Beach, Calif., in what agents said is a sales record for Orange County. Logos, which started during 2020, gained 68% last year.

The reversal has caught investors by surprise, coming as biotech companies including Moderna Inc. and BioNTech SA have achieved historic success developing Covid-19 vaccines that have sent their shares soaring.

“Biotech saw money rush into the sector when the pandemic hit and this year we have experienced the hangover effect,” said Brad Loncar at Loncar Investments, which created two biotech exchange-traded funds. One has lost more than 15% this year and the other has gained about 2%. Mr. Loncar said stocks such as Moderna and BioNTech, which are up 194% and 322% this year, have helped mask some of the pain other biotech stocks have suffered.

Biotech companies research and develop drugs, typically in yearslong processes rife with setbacks, outright failures and regulatory uncertainty. But there is also potential for huge wins when they develop successful treatments.

Lately, the sector has been pressured by legislative efforts that have created uncertainty about some biotech companies’ ability to reap big profits. That has sparked selling by generalist investors, or those with less experience trading volatile biotech shares, traders say.

What’s more, a flood of companies in the sector have gone public this year, with 91 biotech IPOs compared with an average of roughly 46 annually in the past five years, according to Dealogic. Many haven’t even started human drug trials.

Acquisition activity—traditionally a meaningful source of returns—was less robust than expected, too, some investors say. And safety scares, including deaths of several study subjects, have dealt a blow to gene-therapy efforts that biotech funds typically back. Some funds also have been burned by betting against the S&P 500 as a hedge against their biotech holdings, traders say.

Some biotech fund managers are sounding notes of optimism. They see the broad selloff as indiscriminate and note that past declines have been followed by robust rallies. Several high-profile Covid-19 drugs could be on the way and falling valuations may boost merger volume in 2022. A Dec. 1 SVB Leerink research note estimated the biggest U.S. and European biopharmaceutical companies could have more than $500 billion of cash by the end of 2022 to use for deals and other activities, with new debt capacity significantly adding to their firepower.

Firms including San Francisco-based EcoR1 Capital, a rare biotech investor whose hedge funds have made money so far this year, are calling in cash from clients to put into newly cheap stocks, according to people familiar with the matter.

WWD : Gildo Zegna Discusses Road to IPO

Gildo Zegna Discusses Road to IPO
The Ermenegildo Zegna Group's CEO has “great ambitions for the next 111 years.”

MILAN — Gildo Zegna has “great ambitions for the next 111 years” of the Ermenegildo Zegna Group. “As a family business, we think long term, but we like to be seen as pioneers, taking bold actions and hopefully this will be rewarded,” the chief executive officer of the company said in an exclusive interview.

These forward-looking steps include the group’s decision to publicly list on the New York Stock Exchange later this month after entering into a business agreement with Investindustrial Acquisition Corp., a special purpose acquisition corporation, sponsored by investment subsidiaries of Investindustrial VII LP.

Ahead of the listing, as reported, the men’s wear giant has kicked off a major rebranding project, which will result in the label to being known simply as Zegna.

The executive, speaking at the group’s sprawling headquarters in Milan, and his son Edoardo, chief marketing, digital and sustainability officer, in a video call from London, underscored that the rebranding strategy had been initiated two years ago with the goal to elevate the brand to pure luxury and to be further recognizable.

“We were comfortable with the decisions pre-COVID-19, and the IPO was a propeller, it made us go faster, and be more disciplined,” Gildo Zegna said.

Edoardo acknowledged that the brand had been known for years for its tailoring, but said that now more than 50 percent of sales derive from leisurewear, a trend seen before COVID-19 and accentuated by the pandemic.

“Just look at what my father is wearing,” said the young executive, donning a blue sweater. Sure enough, for the interview Zegna senior wore a soft cashmere overshirt — a cornerstone of Zegna’s Luxury Leisurewear collection — and comfortable looking pants in a brown palette.

Asked about these past few months in preparation for the listing, which is expected some time after the SPAC’s board meeting scheduled on Dec. 15, Gildo Zegna said he has been “controlling [his] anxiety with positive energy and minimizing unexpected things. It’s been a very interesting journey. The team did a fantastic job, as the burden of requests and paperwork is huge.”

He gave a shoutout to chief financial and operating officer Gianluca Tagliabue, who was part of the roadshow — all done digitally — with his son Edoardo, as well as Rodrigo Bazan, CEO of Thom Browne, which Zegna acquired in 2018; Antonio Gatti, managing principal of Investindustrial, and Alessandro Sartori, artistic director of Zegna.

“It was a big undertaking, with 75 different interviews over two months,” he said.

He also cited Francesca di Pasquantonio, director of investor relations; Riccardo Mulone, UBS Country Head Italy, and attorney Scott Miller, as well as Sergio Ermotti, chairman of Investindustrial Acquisition Corp.

As is often the case, personal relations were key in the development of the group’s new chapter. Zegna said the deal with Investindustrial stems from a longtime acquaintance with Andrea C. Bonomi, founder of Investindustrial and chairman of the Industrial Advisory Board. “Our family knew Andrea Bonomi and his family, and as family companies, not many things have to be explained,” the executive said.

Bonomi and Ermotti contacted Zegna in January, and “over afternoon tea” made their offer.

“There was an interesting negotiation over three months and they convinced me of the validity of the project. It was extremely confidential, it was the most delicate decision of my life, but I think I made the right decision for the family and the future of the brand.”

Zegna explained that going public through a merger with IIAC’s investment entity allowed the group “to move more quickly than through a traditional IPO. It also allowed us to continue to focus on managing Zegna throughout the process.”

He noted that “this is the type of transaction SPACs were designed to support: taking public a well-managed company with strong fundamentals and growth potential.”

He also underscored the importance of “trusted, long-term partnerships.” Bonomi and his team at Investindustrial “share our values — including a commitment to sustainability and a focus on the growth of great Italian brands and companies.”

While the Omicron variant spreads and uncertainties continue to hover, Zegna admitted these “past couple of years have been challenging for the industry and, of course, COVID-19 continues to keep us on our toes,” but he highlighted that the group has “demonstrated strength and resilience over our entire history and in particular in the recent years. We are stronger than before and we look to the long term. We have a very robust organization that is ready for anything, it’s fire-proof and I’m very proud of how we reacted, the energy is very high. I think we have done the right changes during COVID-19 regardless of this project. I learned a lot during COVID-19, the hardship and silence helped me to control myself, and be focused on protecting the health of our employees and we got through 2020. These past two years have been the most exciting and challenging of my career, but I remain positive and I have no regrets.”

Asked what he expects from the IPO, Zegna said the family company is “a true industrial reality, with factories and an integrated supply chain. Our objective is to continue to strengthen our industrial roots and at the same time remain laser-like focused on building our brand equity.”

The company “is first and foremost targeting organic growth,” taking “a major step” with the rebranding and the reorganization of the group. “We did this to create a more streamlined and focused brand that is both unique and immediately recognizable. This also allows us to focus more on the creation of new and iconic products such as the Triple Stitch,” he said, showing his own sneaker model in a brown hue. “Together with other actions on the positioning and pricing and on the store footprint optimization this should support organic growth.”

That said, he acknowledged Zegna is open to additional acquisitions to strengthen the group’s supply chain or to buy “another like-minded brand. This transaction is going to fuel Zegna’s growth in many ways, including the potential for additional and selective M&As. Continuing to build our Made in Italy platform is key. I am a firm believer that nothing in the world compares to Italian craftsmanship and quality, and our goal is to create and have access to the best fabrics, textiles and other materials through our platform.”

Zegna is indeed “evaluating possible new acquisitions,” as the group “will very carefully consider potential targets to ensure they align with our overall, long-term strategy — as was the case with Thom Browne. We’re extremely pleased with that acquisition, and we want to pursue similar ones in the future.”

He pointed to the acquisition of Achillfarm in 2014 or the more recent investments in Tessitura Ubertino and Filati Biagioli Modesto earlier this year with the Prada Group, as reflections of a strategy focused on the acquisition of manufacturers that produce raw materials and artisanal fabrics and textiles of the highest quality.

The executive was confirmed as CEO and will also take on the role of chairman, which ensures continuity.

“Zegna has been a family business ever since my grandfather started his wool mill in Trivero, Italy, in 1910. It was very important to me and to the family that we continue to lead the company and build on its success and legacy — which were built on a unique set of values, especially a focus on sustainability and community.”

Never losing focus of these values means to further respect nature and people. “At the same time, I have run the company like a public company hiring and developing a strong management team and a strong sense of belonging. Going public will help us grow the successful company our family built and deliver quality to our customers and value to our shareholders. It also helps build loyalty and retain and attract new talent.”

Next year, the company will focus on the execution of the new singular brand strategy which the executive expects “to be a tailwind going forward.”

Asked about the men’s wear segment, he said that “luxury leisurewear is our present and our future and we have read the market transformation well.”

He underscored the company has always done “a phenomenal job at staying close” to customers, which remains a priority. “We’re going to do this in many different ways, but two important ones are by focusing on the growth of our luxury leisurewear segment and engaging in various collaborations to attract a new generation of customers.”

Edoardo said the new five-letter logo “creates dynamism and projects us into the future, digs into what makes us different and amplifies it. It is inspired by font and branding of the past” and will mark all collections and products.

The road in the new logo is inspired by Road 232 that founder Ermenegildo Zegna built more than 110 years ago in the mountains of Northern Italy, Piedmont, surrounding the Trivero headquarters. “The road is our road and is a metaphor of our legacy. I am a member of the fourth generation, which is still here, and our road continues with new challenges and opportunities. Zegna belongs to today.”

He believes the company’s message is “unique,” differentiated thanks to the Oasi Zegna park and its sustainability and ethical message that goes back to the founder.

More than 70 stores have already changed their banners with the new logo and the transformation is expected to be completed within 2022.

“It’s a visual pointer, a verbal remembrance. Five letters have more space on stores, on the clothing, it’s a modern paradigm and mind-set. I am used to seeing the Ermenegildo Zegna logo, but I almost need spectacles compared to the new logo,” he quipped. “The founder is not going anywhere, the group is still called Ermenegildo Zegna but the new logo has a more simplified structure from an architectural standpoint. It is more powerful, more modern and more recognizable. We have always been a low-key family, but now we go to the next level, we need to be bolder and prouder of where we come from.”

The new Zegna logo and the double-stripe vicuña-colored signifier will be revealed for the first time with an exclusive outdoor and activewear capsule collection, designed with the mountaineering and the world of winter sports in mind, to bow on Dec. 3.

This capsule adds an element of technical performance to the world of Zegna and involves external partners. The capsule includes ski suits and puffers in Techmerino, technical jumpers, trousers and underpinnings. Zegna has developed mountaineering shoes with La Sportiva; a new customized version of the famed Piuma-R ski helmet with Kask; a performance ski with Zai, and a drinking bottle in a black aluminum version with Sigg.

As reported, the initial public offering deal is expected to give the fashion group a market capitalization of $2.5 billion. The Zegna family will continue to control the company with a stake of about 62 percent. Investindustrial will have an 11 percent stake and 27 percent will be free floating. Based on the transaction value, the merged entity will have an anticipated initial enterprise value of $3.2 billion.

>>> MS's Global Reflections

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This may have been one of the longest weeks in recent memory and I’m certainly ‘grateful’ it’s finally over. A mix of catalysts this week, including more incremental news on Omicron and a massive pivot from the Fed on inflation, led all three major indexes as well as MSCI Global to close lower on the week. This is a far cry from the ‘grind higher’ moves we have seen at the index level recently, especially with both the Nasdaq MSCI Global Indexes down 4+% over the past month. With carnage across almost every pocket of the market this week, weariness going into year-end could lead many investors to ‘pump the brakes’ on chasing incremental returns as PnL have seemingly evaporated since the beginning of November. The week after Thanksgiving in the US seems to kick off the holiday season, but this week’s activity has left any potential ‘holiday cheer’ much to be desired.

 

All of the ‘noise’ around Omicron and the Fed this week was more than enough to make my head spin. Going into the weekend, I’m spending my time thinking about three factors that should dictate the trajectory of markets: fundamentals, positioning and valuation.

 

On fundamentals, it feels as though one of the worst stories for a stock right now is broken growth. You don’t have to look far to find companies like Zoom (ZM), Peloton (PTON), Roku (ROKU) and DocuSign (DOCU) to understand the extent to which sentiment around these ‘exciting’ names can quickly turn to angst. After a wide miss on billings growth, DocuSign (DOCU) saw its stock price fall by over 40% in one day. Nevertheless, DocuSign (DOCU) is still meaningfully (~70%) higher than its pre-covid levels, which bulls would argue is warranted given the company has potentially proven itself beyond a covid winner with meaningful secular tailwinds. These results, however, bring into question the sustainability of the company’s growth as well as the durability of its valuation as the stock has de-rated from above 20x EV/Sales to below 14x. DocuSign (DOCU), among other names mentioned earlier and a plethora of ‘growth’ ‘winners’ may be facing the reality of how difficult it can be for companies to sustain meaningfully rapid quarterly growth against a growing base of revenue with lofty expectations.

 

After weeks highlighted by a ‘stock-picker paradise’ for those operating beneath the surface of indexes grinding higher, positioning may now be more important than ever. Chris Metli and the QDS team note that dispersion levels between and within sectors each fell more than 80%iles this week to the 9th and 13th %tiles, respectively (more on this below). Some of the most pronounced rotations have been out of the MS Crowded Longs (MSXXCRWD) and MS Unprofitable Tech (MSXXUPT) baskets recently, each down 16% and ~25% since the beginning of November. This has served as a meaningful challenge, as per our PB content team, Large Cap Tech and Unprofitable Tech still combine for 30% of net exposure. As indices have been held up by Large Cap Tech, bears could argue that any further degradation in markets would impact this subset of names from here. This would suggest we could be far from the bottom after two of the largest weeks of Tech selling YTD. US L/S gross and net exposure levels are at 12M lows (0th and 2nd %tiles), however on a 5Y basis, these levels are still elevated (57th and 75th %tiles, respectively), begging the question of where positioning settles out after a significant de-grossing on a short term basis. With retail turning net sellers of equities toward the end of this week and dealer gamma now neutral, the disappearance of these ‘safety nets’ for market declines presents a potentially perilous road ahead for investors.

 

This week could be an inflection point for how investors approach valuation for companies going forward. An accelerated tapering schedule lays the groundwork for tightening financial conditions that throw many growth-oriented valuations into question. Investors are no longer blinded by massive TAMs and shrugging off winding paths to profitability. Instead, the question now becomes ‘who will survive’(Gloria Gaynor, anyone?) against a backdrop of higher rates and the absence of Fed accommodation. Of course, it would be hard to have a price target without considering the prevailing risk of Omicron… but how do you price this in? It’s still too early to ascertain the danger of this new variant, yet ignoring it altogether could be catastrophic. Two weeks should give us enough time to assess the danger of this new strain and at the same time, see the Fed’s policy response following its December 15th FOMC Meeting.

 

Given the holiday season and my proclivity to be more optimistic, I think it would be worthwhile to look through some of the negative headlines from this week that distract us from what is still a strong market. We should be emboldened by the strength of the consumer and continued strength of earnings revisions going into the Q4 and into next year. The 4Q 2021 estimate is up 13% YTD vs. the 20-year average of -7% (4Q revision from start of year through 11/24 of each year). The out year estimate (2022 in this case) is up 14% YTD vs. the 20-year average of -3%. These revisions upward this year for 4Q and the out year are also much stronger than the last two years which were negative. Bottom line, revisions have been stronger into quarters/the out year than normal. Furthermore, the forward S&P multiple has de-rated several turns to ~20x, while balance sheets broadly remain strong and demand across multiple industries seems to remain quite buoyant. On the variant, bulls would argue that we are better prepared now than we ever have been for incremental challenges around covid and the Fed’s recent actions on tapering and rates were a long time coming.

 

I continue, like many of you, to have several observations that crossed my mind this week including…

  • It’s been another very eventful week with various waves of news updates keeping investors on their toes. The Savone Family Movie of the Week is Chasing Mavericks
  • With the holidays on the horizon again, it’s time to break out some of the best Christmas classics. The Holiday Bonus Movie of the Week is The Polar Express! I find this one just as entertaining for me as it is for my son. Please keep the holiday movie suggestions coming… much appreciated!
  • My Cowboys traveled again on Thursday night to play the Saints in their rowdy Caesar’s Superdome in New Orleans. They left with a must needed win, although it wasn’t pretty! This team likes to keep me on my toes…
  • My Hoyas and Bruins bounce back this week with much needed victories as well. The NCAAM basketball rankings have been moving around this week, and UCLA now sits in 5th with the other powerhouse teams. I hope they get another chance at taking the #1 spot...
  • Looking to my team in Italy, Roma face a very strong Inter Milan team at home on Saturday. I hope they keep their hot streak going!
  • Speaking of Italian athletic prestige, it seems that the college basketball world has a new star: Italian-American Paolo Banchero. He is #1-ranked Duke’s most dominant player. Could he be the next superstar player with Italian roots to reach the Hall of Fame? 
  • Twitter (TWTR) founder and (ex)-CEO Jack Dorsey passes on the virtual reigns to successor Parag Agrawal, making him the youngest CEO in the S&P500 at age 37. I wonder what he’ll do differently to capture the younger generations as more social media platforms come into the picture… and my wife and I do my very best to keep our 14-year old off these platforms.
  • Just when I thought NYC streets couldn’t get any more crowded, Lyft (LYFT) reported that they are moving to quickly double Citi Bike dock availability to meet demand. As of December, Citi Bike has recorded 25.5M rides this year—4M more than in all of 2019…it seems that the subway has some serious competition now!
  • Spotify (SPOT) has come out with its yearly “Spotify Wrapped,” which presents the data on the music you listened to all year in an engaging way. What was your favorite song of the year?  
  • Inspired by the Peter Lynch philosophy,I’m always looking for companies with products that are near and dear to my family’s hearts when investing… Several come to mind recently: Disney, Allbirds, Warby Parker, Lulu and Oatly. In an ideal world, pairing a great product with an attractive growth trajectory would be the ultimate result for an investment. This process has been a struggle as of late as these companies de-rate; which resonates the most with you?
  • If you’re interested in our upcoming 4th Annual Space Summit next week, come hear from someone who sent people to space herself: Shayla Rivera, former NASA Rocket Scientist, Professor and Comedian is coming to us on Monday! This event is part of our ongoing Diversity & Inclusion series. If interested in attending, please click here to register for our webinar.

 

As mentioned earlier, a series of data points I continue to follow closely relate to dispersion levels. The ratio of dispersion between sectors vs dispersion within sectors ­­­­jumped meaningfully this week to the 36th %ile from the 24th %ile last week. As noted, the fall in both dispersion between sectors (-83 %iles) and dispersion within sectors (-80 %iles) was the largest 1w decline in both of these metrics since June 2021 (and March 2021 prior to that). Chris Metli and the QDS Team highlight two dynamics currently at play: one is more macro-driven (i.e. by Fed), and the other is single-stock driven (i.e. stock pickers forced to unwind from P/L pressures). As is often the case during times of heightened volatility, it appears that the macro forces are dominating broader moves in equity prices. Please reach out to be connected with Chris Metli and the QDS team.

 

On positioning as of 12/2, US Equity L/S gross leverage decreased ~4% WoW to 190% while net leverage decreased ~4% WoW to 58%; this gross leverage is the lowest we’ve seen in the past 12 months. On a YTD basis, absolute performance for the US L/S remains positive, albeit at low single-digit returns (down from +7.2% last week), but relative to the S&P 500 up +20.8%, that upside capture rate remains challenged vs historical averages. Across other regions, gross leverage for EU L/S funds rose ~6% WoW to 180%, while net leverage was down ~1% WoW at 46%. Asia fund gross leverage fell ~2% WoW to 134% meanwhile net leverage fell ~4% WoW to 69%. Turning back to the US, L/S funds have de-risked into year-end amidst increased volatility levels that have pressured PnLs.

 

From a historical dynamic, the latest TMT unwind from April 27th to May 13th featured the MS Unprofitable Tech Basket (MSXXUPT) down ~26% and the MS High EV/Sales Basket (MSXXEVSA) down ~20%. Similarly, these two baskets are down ~27% and ~19.9%, respectively, since 11/15. Nonetheless, the magnitude of recent hedge fund selling is unique to what we saw during the TMT unwind in May. Noah Bramlage on our Prime Brokerage Content Team desk believes there are two factors at play causing this: 1) Hedge funds are monitoring their PnL cushions cautiously into year-end and 2) Retail has not been buying the recent dips (12/1 was the biggest day of net retail supply since March this year according to Chris Metli and the QDS team, where tech saw the largest outflow).

 

Although it will take another week or two to get a clearer picture of Omicron’s impact on this evolving pandemic, MS Biotech Analyst Matt Harrison’s base case is that Omicron will rapidly replace the Delta variant, increase infection rates and reduce vaccine effectiveness. On the bright side, Matt believes that the severity of the disease will be in line with (or possibly less than) Delta. He expects a ~50%+ drop in neutralization antibody titers given the significant mutation burden with Omicron compared to previous VOC). While the world waits for data to come out in the next few weeks, Moderna (MRNA) and Pfizer (PFE) are testing the ability of their current vaccines to neutralize Omicron. Pfizer says it could develop and produce a tailor made vaccine against a new variant in about 100 days. Meanwhile, Moderna is advancing three lines of defense in parallel: 1) have evaluated a higher dose booster of mRNA-1273 (100 µg), 2) are studying two multi-valent booster candidates in the clinic that were designed to anticipate mutations such as those that have emerged in the Omicron variant and data is expected in the coming weeks, and 3) are rapidly advancing an Omicron-specific booster candidate (mRNA-1273.529). Please reach out to be connected with Matt for information on these developments.

 

As scientists continue to uncover the implications of the Omicron variant, investors maintain their focus on how countries will impose restrictions on travel and activities. However, MS Chief US Equity Strategist Mike Wilson is confident the market had already baked in seasonal increases in Covid cases prior to Thanksgiving, implying that the recent selloff was as much about Omicron as it was about the market looking for an excuse to go lower. The combination of tightening financial conditions and decelerating growth is usually not bullish for stocks, and when pooled together with one of the highest valuations on record, it is evident why Mike targets 3900/4400/5000 for his 12-month S&P 500 Bear/Base/Bull cases. In all, Mike believes the investment environment is no longer rich with opportunity, meaning one must be more selective. In a world of supply shortages, Mike favors companies with high visibility on earnings due to superior pricing power or cost management. He also suggests that investors be cautious of valuation and not overpay for open-ended growth stories with questionable profitability. Mike reiterates his view on Healthcare, REITs, and Financials outperforming next year. As a reminder, names within his Fresh Money Buy List that fit within these criteria are Iqvia Holdings (IQV) and E-Trade Financial (ETFC). Please reach out to be connected with Mike and the team.

 

Along with Omicron, Fed Chairman Powell took the spotlight this week as he turned far more hawkish than expected. MS Chief US Economist Ellen Zentner forecasts a base case for the FOMC to announce a $30 billion/month taper pace ($20 billion/month in Treasuries and $10 billion/month in MBS), with the reduction commencing in the monthly purchase period beginning mid-January. The decision to accelerate the taper reflects the Fed’s increasing discomfort with elevated inflation and a view among policymakers that it is no longer appropriate to add accommodation to the economy. Ellen expects a sea change in the SEP dot plot alongside an accelerated taper announcement, pointing to a firm median of one hike in 2022 as a likely minimum of what we will see, with good reason to believe that the dot plot could show a median of two hikes in 2022.

 

Looking to November payroll numbers, Ellen highlights that the overall report was strong, despite the lower-than-anticipated headline miss on NFP. She notes that the most important data point on the report was the unemployment rate dropping 0.4pp to 4.2%, which reinforces the key thesis in her 2022 outlook: tightness in the labor market should continue to support wages, but as more labor returns, the pace of wage increases should abate. Please reach out to be connected with Ellen and the team.

 

Looking at the economy more closely, the MS Equity Strategy, Economics, and Corporate Credit Strategy teams collaborated on a report this week that sheds light on how the US “workers economy” will affect margins and the market. The teams highlight that labor scarcity is driving a reversal of the secular fall of the labor share of corporate income over the past two decades. Non-financial corporate profit margins have risen sharply over this period, but as labor compensation catches up with realized productivity, they could fall by one third to levels last seen in the 1990s. At the macro level, the teams believe that margin compression can offer a buffer against higher labor costs driving prices higher, helping the Fed get to maximum employment with contained inflation. At the industry level, they point out that information technology, manufacturing, and trade have seen the widest gaps between productivity and labor compensation. In all, the teams think margin compression and the impact on profitability could matter for credit profiles in the long run, but near-term credit markets are cushioned by healthy levels of EBITDA margins and ample liquidity. Please connect with the teams for a deep dive.

 

Looking across the pond to Europe, MS European Equity Strategist Graham Secker highlights that the Morgan Stanley’s Global Risk Demand Index (GRDI) has fallen to a 10Y low, currently at -3SD, which suggests an attractive entry point for equity investors. This indicator historically has proved to be a solid buy signal over the following three months after initial occurrence. Graham also notes that fundamentals are strong ahead of the Omicron headlines so companies effectively pass through rising costs via higher prices to consumers in a high demand environment. This boost to corporate earnings is in-line with his forecast for the corporate sector overall, which is 4% ahead of consensus for Europe by 2022 year-end. The team thinks a de-rating in MSCI Europe is unlikely, with its N12M PE now below its 12/22 target of 15 and its equity risk premium 50bps above its 5-year average. With Europe’s inflation surprise index higher than other major regions, Ross highlights a list of 26 single names that are potential beneficiaries of higher inflation, which includes Engie (ENGI FP), Sika (SIKA SW) and Tesco (TSCO LN). Please ask for the full list or to be connected with the teams.

 

Shifting focus to Asia, MS Asia Economist Chetan Ahya highlights that the Omicron virus poses a near-term risk to his constructive outlook on Asia. He notes that the supply chain disruption risks in India and ASEAN are higher than in Northern Asia, but their vaccinated population is also higher than before. On a brighter note, Asia’s manufacturing PMI rose to 52.5 in November as demand strengthens and supply side disruptions ease. China’s EV momentum sped up and Xpeng (XPEV US) set another monthly delivery record of 15k units in November (54%MoM), attaining its volume target one month earlier than MS and street expectations; MS China Autos Analyst Tim Hsiao has raised his price target of NIO (NIO US) to $66 this week. As the SEC finalizes HFCAA Enactment, MS Chief China Equity Strategist Laura Wang believes the trading termination of a designated company could happen as early as 2024 and provides hedging strategies and stock lists in light of this. Please ask for strategies and the full list or to be connected with the teams.

 

In Japan, MS Japan Economist Robert Feldman highlights that the Kishida government has ambitious plans as it declares a new growth strategy based on technology, redistribution, and enhanced economic security. While many key plans have yet to be clarified, the private sector continues to pursue productivity growth through increased investment and more rapid adoption on new technologies. MS Analyst Masahiro Ono highlights Panasonic (6752 JT) as a stock to buy ahead of January 2022, as it is expected to formulate a concrete business plan to realize benefits from its acquisition of Blue Yonder and enter the supply-chain management software market, which has a global TAM of ~$17.6 billion and CAGR over 10%. Please ask to be connected with the teams.

 

I wanted to highlight a few upcoming MS conferences including the 4th Annual Space Summit, taking place in person (Dec 7), the 8th Annual Auto 2.0 Conference, taking place in Las Vegas (Jan 5), and the Virtual 14th Annual Latin America Executive Conference (Jan 12-14). Companies confirmed to participate in this year’s Auto 2.0 Conference included Aptiv (APTV), Fisker (FSR), and Tesla (TSLA). These conferences are always in high demand, so be sure to reach out to your sales coverage for more information. Thank you again to the MS Global Corporate Access team for such great work around the world! Please see below for all upcoming MS Conferences & Events.

 

Finally, I want to congratulate our Corporate Access team for putting together another successful conference, highlighted by the conclusion of our Consumer & Retail Conference this week. The key takeaways from the conference touched on the debates surrounding consumer spending, supply chain, and inflation. The best ideas from the conference include Driven Brands (DRVN), Capri (CRPI), McDonald’s (MCD), and Caesars (CZR). Please see below for more takeaways from the conference.

 

Despite underwhelming headlines around Black Friday and Cyber Monday, companies generally struck a bullish tone, noting that consumers are still spending. Names all the way from Capri (CPRI) to Walmart (WMT) to Caesars (CZR) show that North America trends are continuing with a very strong US consumer this quarter. Although these names hope this bullish trend continues, investors are debating whether this is peak retail and demand will normalize next year. While nobody truly knows how much demand can be retained, there are some cracks showing up in Tech, as WFH winners like DocuSign (DOCU), Peloton (PTON), and Chegg (CHGG) are starting to show weaknesses. One outlier that spoke about greater retention going forward was Dick’s Sporting Goods (DKS), which expects share gains across key categories and sales re-basing at higher levels as they monetize new customers acquired during the pandemic. Following the conference, this name could become the next battleground stock.

 

Touching on supply chain, the main takeaway from the conference was that the worst headwinds are now behind us, as ports begin to operate 24/7, labor returns, and companies with scale become prioritized. Looking bigger picture, the supply chain disruption is giving scaled players an opportunity to accelerate market share from independents struggling to source product. Names like Floor & Décor (FND) are looking to take advantage of the situation and be prudent about raising price. They are looking to acquire customers who struggle to find product, make them realize their price points are competitive, and capture that customer long-term once they appreciate their value proposition. Lastly, trends in commodity inflation might be worse than expected in Q4, creating incremental earnings risk. However, bullish investors are looking through this in hopes to see relief in 2022.

 

Nevertheless, please find below a selection of this week's data points, charts and research from each region (Europe, US, LatAm, Asia, Japan, EEMEA) that I believe points to an inflection or material change for individual sectors, companies and/or the macro environment this week. I have tried to avoid the obvious beats and misses and instead highlight what I thought to be the more significant trends and inflection points.

 

Have a great weekend. Drink lots of fluids, take Vitamin C, and make sure to wash your hands!

 

#FORZA

 

Nick

 

*Included in my 2021 Global Ideas Deck. Please ask for the presentation.

 

Please see below the list of client webcasts MS is hosting over the next few days. Please note, these are widely attended events open to Morgan Stanley’s Institutional and Corporate Client base, and appropriate Morgan Stanley personnel. Webcast link information should not be forwarded or shared beyond intended recipients.

Source: Morgan Stanley US Alpha Team & Global White Phone Teams

Time (EST)

TOPIC & SPEAKERS

WEBCAST LINK

Monday, December 6, 2021

Neudata Data Insights and Scouting Summit

9:00 AM

Global Macro Forum: Omicron, Tapering, and the Implication for Markets

Here

 

MS

Matthew Harrison, US Biotech Analyst
Ellen Zentner, Chief US Economist
Mike Wilson, Chief Investment Officer & Chief US Equity Strategist
Jeffrey Sun, Head of NA Oil Trading and Co-Head of Global Oil Flow
Andrew Sheets, Chief Cross-Asset Strategist

 

10:00 AM

MS Weekly Industrial Webcast

Link to Follow

 

MS

Mark van der Pluym, US Industrials Specialist Sales

Tuesday, December 7, 2021

Morgan Stanley 4th Annual Space Summit

MS Virtual Food Delivery Day

Neudata Data Insights and Scouting Summit

11:00 AM

2022 Year Ahead US Muni Outlook

Here

 

MS

Michael Zezas, US Chief Municipal Strategist
Samantha Favis, Municipal Strategist
Barbara Boakye, Municipal Strategist

 

Wednesday, December 8, 2021

Neudata Data Insights and Scouting Summit

8:00 AM

MS QIS Spotlight

Here

 

MS

Stephan Kessler, Global Head of Quantitative Investment Strategies Research

 

Thursday, December 9, 2021

Neudata Data Insights and Scouting Summit

8:00 AM

Morgan Stanley Research Global e-Learning: Battery

Here

 

MS

Adam Jonas, Global Head of Autos & Shared Mobility
Shawn Kim, Head of Asia Tech
Grace Kim, US Autos & Shared Mobility
Tim Hsiao, Greater China Auto Parts
Jack Lu, China Specialty Chemicals, Battery & Components

 

9:00 AM

Global Retail and Consumer: Supply Chain Disruption Update

Here

 

MS

Kimberly Greenberger, US Retail Softlines & Branded Apparel & Footwear Analyst
Edouard Aubin, EU Brands & Retail Analyst
Terence Cheng, China Consumer Analyst
Elena Mariani, EU Brands & Retail Analyst
Dustin Wei, China Consumer Analyst

 

Friday, December 10, 2021

8:00 AM

MSQA: Inside the Mind of an Analyst - Autos

Here

 

MS

Billy Kovanis, US Autos & Shares Mobility Research Analyst
Harald Hendrikse, EU Autos & Shared Mobility Research Analyst
Rikke Jacobson, EU Industrials Specialist Sales
Mark van der Pluym, US Industrials Specialist Sales
Reyna Venkat, Thematic Investment Strategist, Institutional Equity Division

 

 

UPCOMING CONFERENCES –

Please reach out to your sales representative if you are interested in attending any of these conferences.

Dec 7 (New York) I 4th Annual Space Summit

Dec 7 (London) I Business Services, Leisure & Transport Corporate Access Day

Dec 7-9 (China) I Virtual China Wind & Solar Symposium

Dec 9-10 (Global) I Virtual Global Metaverse Symposium

Jan 5 (Las Vegas) I 8th Annual Auto 2.0 Conference

Jan 5-7 (China) I Virtual China New Economy Summit

Jan 11-12 (China) I Virtual HK/China 2021 Top Picks Outlook Seminar

Jan 12-14 (New York) I Virtual 14thAnnual Latin America Executive Conference

Jan 13-14 (China) I Virtual China Cyclicals Corporate Day 2022

Jan 18 (Asia) I Virtual Asia ESG Symposium

Mar 7-10 (San Francisco) I TMT Conference

Mar 15-17 (London) I European Financials Conference

Mar 22-24 (Hong Kong) I Virtual Hong Kong Summit

May 10-12 (London) I Virtual EEMEA Conference

May 24-26 (China) I 8th China Summit

Jun 24-26 (New York) I China BEST Conference for US & EU Investors

Aug 31-Sep 1 (Beijing) I Asia TMT Conference

Sep 5-6 (London) I Asia BEST Conference for EU

Nov 16-18 (Singapore) I 21st Asia Pacific Summit

 

The following comments are a summary of Morgan Stanley Research by Morgan Stanley Equity Sales & Trading:

 

SELECT COVID VIRUS AND TREND FOR RE-OPENING DATA POINTS

 

Global – Biotechnology – COVID-19 Outbreak Dynamics

MS Research Analyst Matthew Harrison provides an update on the Omicron variant. He remains focused on transmissibility and vaccine evasion where data will take ~2 weeks. Current data suggests transmissibility (Rt) is greater than Delta and lower neutralization by vaccine induced antibodies is likely which could impact protection against symptomatic disease, although he remains hopeful that protection against hospitalization is high. S gene target failure is starting to rise in England in the last 5 days (~3x) suggesting an Omicron wave is beginning to start. Unlike prior waves where the HR for reinfection was less than 1 (~0.7 for both beta and delta), the hazard ratio (HR or relative risk) for reinfection in the Omicron wave is estimated at ~2.4, suggesting substantial immune evasion versus prior infection. Download the Complete Report

 

US – Retail – Total Discretionary Retail Traffic

 

MS BROAD TRENDS & INFLECTION POINTS

 

Positive

 

ìUS – Software – Automating Real-Time Business Operations; Upgrade PATH To Overweight And APPN To Equal-weight

MS Research Analysts Keith Weiss and Sanjit Singh highlight that a growing mandate for real-time operations and resiliency looks to transform a once siloed automation mkt from tactical point solutions to more strategic end-to-end platforms. They estimate that this new category in enterprise automation has a $40 billion TAM by 2025, supporting market growth in excess of 20%. They note that three macro themes underpin the adoption of enterprise automation initiatives over next several years: 1) Growing mandate among executive leadership that business operations need to be more resilient to unforeseen changes in the business environment, 2) Increasing need for IT and operations to be able to respond in real-time to better serve customers and sustain growth, 3) A higher priority being placed on projects focusing on the automation of both business processes and manual tasks in order for enterprises to operate effectively in an increasingly competitive labor market. The team believes that MSFT (OW, $364 PT) and NOW (OW, $807 PT) are best positioned to merge as early category leaders, given their breadth of capabilities and strong expertise in process level automation. PATH ($74 PT) and APPN ($95 PT) is also well-positioned, and they upgrade PATH to Overweight and APPN to Equal-weight. Download the Complete Report

 

ìAsia – Transportation – Qianlei Fan and Takuya Osaka-san provide their thoughts on the shipping sector and reassess the market dynamics 2 months since their joint bullish report published in late Oct 2021. They have been calling for higher for longer shipping cycle citing three factors – supply chain disruption, DM consumption demand and contract renewals – which are playing out as expected with their checks pointing to tight supplies and solid spot rate trends even in the current low season. Stock picks: COSCO Shipping, SITC, Nippon Yusen, Mitsui OSK, Kawasaki Kisen. Download the Complete Report | Download the Complete Report

 

ìUS – Chemicals – Single-Use Plastic Debate Shifting From Problem To Carbon-FP Solution

Source: Company data, Morgan Stanley Research

MS Research Analyst Vincent Andrews, the Chemicals, Consumer, and Business Services teams believe that the confluence of new chemical recycling technology from Eastman (OW, $142 PT) and aggressive recycled content goals from Pepsi (OW, $172), and likely others, could lead to a tipping point in the single-use plastic debate, particularly as it relates to plastic bottles (i.e., PET). In particular, the team notes that investor and consumer perception of PET is likely to shift from a post-consumer waste “problem” to a carbon footprint reducing “solution.” The team thinks that, the impact here could be far-reaching as consumer purchasing behavior could shift away from brands with low recycled content, and government policy could potentially accelerate the proliferation of regional PET chemical recycling value chains around the world. Vincent believes that Eastman is set to be the global leader in polyester chemical recycling and his base case suggests a $10-50 per share opportunity (versus the current $110 share price, which he does not believe prices anything in). Also, Vincent and the team point out that waste management companies, such as WM (EW, $153 PT), RSG (OW, $141 PT), and WCN (OW, $150 PT), will be key to success here as sourcing post-consumer polyester will be the main determinant of the pace of chemical recycling expansion. Download the Complete Report

 

ìUS – Communication Infrastructure – Towers Screen Attractive As 5G Leasing Hits Its Stride; SBAC Is Preferred Name

Source: Morgan Stanley Research

MS Research Analyst Simon Flannery highlights that towers now trade at just a 5-10% premium to the REIT group with 2022 AFFO multiples of ~27x vs ~25x, which is well off the ~35% premium he saw in mid-2020 despite continuing to offer 2-3x the long-term AFFO/sh growth. He notes that while the companies put up strong 3Q results with AFFO/sh growth averaging >12%, he believes that the 5G-driven momentum is being overshadowed by macro risks (interest rates, inflation) and an ongoing preference for subsectors with more immediate pricing power (Storage, Residential). Simon points out that services businesses continue to show record trends, boding well for 2022+ growth as the Big 3 + DISH (Covered by MS Research Analyst Ben Swinburne, EW, $40 PT) race to build out nationwide 5G networks; he sees Big 3 capex rising 7% in 2022. SBAC (OW, $407 PT) is Simon’s preferred pick in the group given their leading exposure to domestic tower leasing, supportive contract structures and capital allocation optionality. He also remains OW CCI ($208 PT) with >15% total returns supported by a ~3% dividend yield. Simon also notes that potential catalysts include: 1) 2022 guidance from AMT (EW, $294 PT) and SBAC in February, 2) Clarity on DISH's network build progress, 3) Spectrum auction updates, and 4) Resolution of the C-Band FAA delay. Download the Complete Report

 

ìîUS – Cryptocurrency – MS Head of Cryptocurrency Research Sheena Shah highlights that since launching her new cryptocurrency research product almost a month ago, she is finding that the MS investor conversations have moved on from asking "what is Bitcoin?" to trying to understand more about the broad universe of companies and services that form the cryptocurrency industry. Interestingly, the most common question she is asked is “what are other investors doing to get cryptocurrency exposure and how are they setting up their teams?” Sheena points out that retail investors remain large participants in the market along with early crypto adopters and, from the institutional investor community, it is no longer just hedge funds that are participating via futures; long-term asset managers and pension funds are now starting to question what role cryptocurrency should play in their portfolio and how to gain exposure to the related infrastructure around blockchains and web 3.0. She also notes that interest from the MS investor base has largely come from US-based accounts with European funds asking more about the developments related to central bank digital currencies and their future interaction or competition with stablecoins and cryptocurrencies. Download the Complete Report

 

ìEurope – Strategy–Inflation has surprised to the upside recently and is now catching the eye of policymakers. Investor focus on the stock consequences of inflation is high but quality/pricing power remains well bid and is at risk from higher real yields. MS Equity Strategist Ross MacDonald identifies 26 stocks considered 'inflation beneficiaries'. Download the Complete Report

 

ìîUS – Aerospace & Defense – MS Research Analyst Kristine Liwag highlights that a wave of consolidation has effectively hollowed out the A&D middle-tier. As she initiates coverage of nine Smid-Cap A&D names, she sees selective opportunity. Kristine believes that overall, the market is underestimating the aerospace recovery. She notes that orders for new aircraft have picked up and cancellations have waned. Her top OW is RBC Bearings ($263 PT).Download the Complete Report

 

ìEurope – Strategy–MS AlphaWise survey shows people want more virtual brands and goods. Accelerating demand for luxury NFTs supports MS Equity Strategist Edward Stanley 2030 profit TAM expansion thesis. Growing (albeit geographically- and gender-skewed) demand for crypto and tokens is leading to more polarised decisions for brands. Download the Complete Report

 

ì LatAm – LatAm Stocks Are Off Since This Summer

Source: Refinitiv, Morgan Stanley Research

The Super Cycle narrative is intact, yet the near-term EBITDA growth outlook is challenging amid higher energy costs. Double-digit FCF% should provide downside protection, while EBITDA growth in 2023 & beyond provides upside. The Super Cycle should elevate US & LatAm profitability for a decade. Download the Complete Report

 

ìEurope – Financials –Strong economic growth in 2022, continuing earnings momentum, and high payout yields all continue to underpin MS Research Analyst Magdalena Stoklosa’s constructive fundamental view. Valuations are attractive, and M&A likely to accelerate. Higher interest rates should be a boon in CEE and UK, and optionality in the Eurozone. Download the Complete Report

 

ìîEurope – Energy –Time Spreads And Inventory Days-Of-Cover Have Historically Shown Strong Co-Movement

After Friday's correction, time spreads are now historically consistent with a ~4 mb/d fall in oil demand and/or a ~180 mln bbl rise in OECD inventories. This is not impossible, but at this stage, still an unlikely outcome. For 2022, MS Research Analyst Martijn Rats still sees low inventories and spare capacity eroding. Download the Complete Report

 

Negative

 

îUS – Freight Transportation – Market Pricing 20x PE; Could See Pressure; Downgrade Industry View To Cautious

Source: Morgan Stanley Research; Freight Pulse Surveys

MS Research Analyst Ravi Shanker highlights that he is cutting his Freight Transportation Industry View from In-Line to Cautious and downgrading USX from OW to EW (PT to $10 from $12) and EXPD from EW to UW (PT to $95 from $110). Ravi is also separately resuming coverage of CNR at EW ($150 PT) and notes his prior downgrade of ODFL from OW to EW ($330 PT) on November 9. His industry downgrade is driven by three main reasons: 1) The cycle is probably closer to the end than the middle and record peaks of 2021 will be hard to top next year, 2) 2022 and 2023 consensus numbers are too high, in his view, with expectations skewed even higher for some verticals like the Rails, and 3) Valuations are too high as well. With virtually Ravi’s entire coverage making a new all-time high in the last few weeks and multiples well in excess of historical levels (20x NTM PE vs. LT average ~18x) on FY22/23e EPS that is over 100% above 2019 levels, he believes that the stocks are still reflecting a high level of optimism. Ravi also provides his views broken down by Transportation sub-industry. Download the Complete Report

 

îìAsia – Economics– Mobility And Its Impact On Asia's GDP

Source: CEIC, national sources, Google, Morgan Stanley Research. Note: The mobility indicator here we have used is the retail and recreation mobility indicator from Google for Asia ex China economies

Chetan Ahya sees near-term risk to his constructive outlook on Asia but thinks downside is less than what transpired in mid-2021, provided that the variant is not more challenging than Delta, given significantly higher levels of vaccinated population and potential for selective lockdowns rather than full lockdowns. In terms of the economic impact, Chetan groups the region into three categories based on their Covid management strategies – 1) further delay to re-opening: China, HK, Taiwan; 2) potential rollback of re-opening measures: Australia, Japan, Korea and Singapore; and 3) risk of selective lockdowns: India and ASEAN, and notes that lockdowns could pose risk of further supply chain disruptions just as economies are ramping up to full operating capacity with North Asia likely faring better than India/ ASEAN. In his year-ahead outlook, Chetan assumed Asia GDP growth of 1.9%Q on a SA basis in Dec 2021 and 1.5%Q in Mar 2022. The drag on 4Q21 GDP should be limited because this is a new outbreak and the starting point of cases is relatively low but the risks will be more for the 1Q22 quarter, depending on the evolution of the Omicron outbreak. Download the Complete Report

 

îìUS – Economy – Tight Labor Markets Lead To Reversal In Distribution Of Income

Note: Dotted line represents pandemic period. Source: BLS, Morgan Stanley Research

MS Economist Julian Richers, the US Econ team, the Equity Strategy, and the Credit Strategy teams explore the implications of the structural shift in the labor share of corporate income for the economy, sectors, equities, and credit markets. The team notes that labor scarcity is driving a reversal of the secular fall of the labor share of corporate income over the past two decades. The team points out that non-financial corporate profit margins have risen sharply over this period, but as labor compensation catches up with realized productivity, they could fall back to levels last seen in the 1990s. The team sees strong wage gains in excess of productivity as not just a temporary phenomenon, but the reversal of a divergence from labor's historical share of corporate income. Higher labor costs are often mentioned as an upside risk to inflation, but the team thinks that corporate profit margins will be the main shock absorber as real wages increase. Contrary to the bottom-up consensus, the team also sees higher wages amid a tightening labor market posing a risk to profit margins for US stocks in 4Q21 and 2022. The team thinks that margin compression and the impact on profitability could matter for credit profiles in the long run, but near-term credit markets are cushioned by healthy levels of EBITDA margins and ample liquidity. Download the Complete Report

 

î Asia – Consumer Discretionary – Estimated Revenue And EBITDA Exposures To VIP Segment And Chinese Tourists In 2019

Estimated Revenue and EBITDA exposures to VIP segment and Chinese tourists in 2019

Praveen Choudhary sees the recent news related to the largest junket Suncity’s Chairman Mr. Alvin Chau could put earnings estimates for most Asian gaming companies at risk. After calculating EBITDA exposure to the VIP segment for companies in Macau, Singapore, Cambodia, and the Philippines, we project the biggest impact on Naga (45%) and Wynn Macau (21%). Though the VIP exposure to EBITDA is not big for most of the operators (except Naga and Wynn Macau), the risk of further regulation in China is adding another layer of uncertainty on top of travel restrictions because of COVID. Macau has another uncertainty related to license renewal process. He sees consensus earnings estimates at risk.Download the Complete Report|Download the Complete Report

 

îìUS – Specialty Retail – MS Research Analyst Kimberly Greenberger highlights that Softline Black Friday store checks indicate traffic declines versus 2019, as expected, and provide further evidence that consumers started holiday shopping earlier this year & likely shopped more online. She notes that promotional breadth decreased an estimated ~400 bps (61% of in-store inventory on promotion, vs. 65% in 2019), likely a result of low inventory levels due to global supply chain issues. Additionally, she estimates that ~60% of retailers pared back discount levels compared to 2019, while only ~20% deepened discounts & ~20% remained unchanged. Kimberly notes that third party sources reported store traffic declined -28.3% vs. 2019 on Black Friday while online sales declined -1.4% y/y; 3P data & store checks showed similar traffic declines. She notes that Thanksgiving Day was weaker than Black Friday, with store traffic declines of -90.4% versus 2019 (per ShopperTrak/Sensormatic Solutions) as most retailers elected to close for the holiday, while eCommerce remained flat y/y (per Adobe Analytics). Kimberly makes out that Anthropologie (URBN) and lululemon (EW, $419 PT) emerged as the biggest winners this Black Friday, with A&F (UW, $32 PT) and Bath & Body Works (OW, $90 PT) also appearing strong. She also notes that Victoria's Secret (EW, $69 PT) and young adult retailers – Hollister (A&F), American Eagle Outfitters (EW, $29 PT), and Urban Outfitters (OW, $43 PT) – lagged pre-pandemic levels in addition to Kohl's (UW, $50 PT). Download the Complete Report

 

MS SINGLE NAMES CONTENT

 

Positive

 

ìUS – Cushman & Wakefield PLC – MS Research Analyst Richard Hill increases his PT on CWK (OW) by ~9% to $23.75 and raises his 21e/22e/23e by ~21% to $1.73 / $2.11 / $2.41. He believes that CWK remains an attractive play on strong CRE fundamentals trading at a ~6.3x multiple based on '23e vs CBRE (Not Covered) at 10.5x and JLL (Not Covered) at 10.2x (using cons. estimates); the historical discount is ~1x. He believes that CWK can catch up to its more cyclical peers as it’s a more balanced ‘mid-cycle’ play on his constructive CRE views. Richard sees risks that skew meaningfully to the upside, with a bull vs bear skew of +61% vs -22%. For his monthly CRE tracker, Richard notes: 1) CRE prices accelerate higher, 2) Four-quarter NOI growth is at +9.1%, a two-decade high, 3) Transaction volumes continue to grow, and 4) The lending markets are wide open. He points out that lending standards eased QoQ across all three major CRE loan categories to their loosest levels since 2Q13 vs 2Q20 where they stood at their tightest levels and demand remains robust as evidenced by the 119% YoY increase in originations in 3Q21. His PT is derived by applying a ~7.5x EV/EBITDA multiple based on ‘23e. Download the Complete Report

 

ìUS – UnitedHealth Group Inc – MS Research Analyst Ricky Goldwasser highlights key takeaways from UNH’s (OW, $526 PT) Investor Day, which unveiled CEO Andrew Witty’s vision. She notes that Optum’s position as the front door for the enterprise was the key message delivered at United’s analyst day. Ricky makes out that revenue per member was $45 in 2021 and is expected to grow to $55 to $57 in 2022. Additionally, Ricky points out that Optum Health continues to lead the enterprise growth and is expected to grow 27-29% to $68-$69 billion in 2022 revenues (in-line with double-digit long-term targets). Ricky found that the Optum Store health marketplace, a new business initiative under OptumRx, is focused on providing consumers access to discounted prescriptions and virtual provider visits in partnership with Optum Virtual Care, sounded very much like GoodRx (EW, $38 PT). She also notes that the discussion in the OptumRx breakout session introduced the idea that low cost generics could be carved out from the benefit plan and may be more appropriate to be paid for out of pocket, a concept she discussed in relation to what the end game may be for Amazon (Covered by MS Research Analyst Brian Nowak, OW, $4000 PT) pharmacy. As United Healthcare’s business model evolves, Ricky thinks that investors' approach to valuing the company will also change and she points to this broader set of industry leaders as a potential new framework. Download the Complete Report

 

ìChina – NetEase, Inc – We Forecast Non-GAAP Net Profit To Almost Double From 2021 To 2025 (17% CAGR), Driven By Games (Both Domestic And Overseas) And Narrower Losses From Non-Game Segments

Source: Morgan Stanley Research estimates

Share price rebounded which seems to show market is now clearer about the concerns around recent removal of several PC versions of games. Alex Poon issued positive RTI yesterday as he views the impact here is immaterial - this is part of an ongoing effort to clean up the industry and not a change in regulation. The mobile version is already licensed and will not be affected, meanwhile visibility for NTES’ 4Q results is high. In a separate note, he highlighted that in medium term, there could be US$22/ADR or 20% upside by 2025 from the potential reduction in channel fee. He believes the channel fee reduction will happen in stages, starting with China and then moving onto overseas market. He estimated that if there is a 20% point reduction on channel fee from the 30-35% blended average that Netease now pays, this could drive a 10% point rise in games GPM (65% in 2021) and 50% increase in FCF by 2025, and a 28% EPS CAGR for 2021-25. Reiterate Netease as his top pick in the online entertainment space in China. Download the Complete Report | Download the Complete Report

 

ìUS – Amazon.com Inc – MS Research Analyst Brian Nowak highlights that AMZN (OW, $4000 PT) stated that it expects to be the largest package delivery carrier in the US by the end of the year, if not early 2022. He notes that this comes as AMZN has significantly expanded its fulfillment and logistics capacity over the last 2 years as part of Amazon Logistics (AMZL). Brian thinks that these comments are largely consistent with his current AMZL estimates that AMZL will ship an estimated ~6.3bn packages this year vs UPS’s (Covered by MS Research Analyst Ravi Shanker, UW, $135 PT) estimated 5.5bn packages. Looking at it another way, he points out that this implies that AMZL will ship 66% of the volumes on AMZN in the US (vs 42% in 2019) as AMZL’s on-AMZN volumes grew at an estimated ~74% ’19-'21 CAGR. Brian continues to believe that AMZL can improve AMZN’s overall shipping efficiency and lower shipping cost per unit (enabling them to ship more packages per truck-roll). He thinks that this higher utilization combined with a slower incremental build could lead to slower forward shipping cost per unit growth too as every 1% change in shipping cost per unit in '23 would lead to ~$1.2bn of incremental EBIT. But AMZN's own volumes may just be the beginning in Brian’s view as his current forecast implies the AMZL network may have enough capacity by 2023 to move 75% of AMZN's own US volumes as well as another 22% of non-AMZN US e-commerce volumes. Brian also notes that this development is a significant but not unprecedented one in the Parcel industry and marks another key inflection point in the competitive dynamics in the industry. Download the Complete Report

 

ìChina – Pinduoduo – Eddy Wang reiterated OW as he believes the 16% share price correction Friday was overdone. He raised FY21 non-GAAP net profit estimates by 25% to reflect stronger 3Q21 results, but trimmed his FY21-23 revenue forecasts by 6%, 4% and 4% to reflect lower revenue forecasts for 1P business. But FY22 non-GAAP net profit was unchanged and FY23 was raised by 2%. 3Q21 online marketing services revenue rose 44%, just 1% below his estimates. This miss was due to the decline in the loss-making 1P business from Rmb2bn in 2Q21 to only Rmb82m in 3Q21, which drove GPM from 65.8% in 2Q21 to 69.5% in 3Q21. Non-GAAP net profit was Rmb3.2bn, the second consecutive quarter of profitability, beating MSe of Rmb813m and consensus of a loss of Rmb364m. MAU grew 17m QoQ to 867m, lower than BABA’s 35m and JD’s 20m, as PDD changed its S&M strategy to spend more on R&D instead, with S&M expense down to 45% of sales  in 3Q21 vs 69% in 3Q20. Eddy believes 3Q will be new normal, as PDD focuses on R&D in areas like agriculture technology which should become the key investment, promoting long-term development and improving user engagement. His price target implies a P/E of 34x FY23 non-GAAP EPS forecast, and a 0.98x PEG on his three-year projected earnings CAGR of 23% in 2022-25.Download the Complete Report | Download the Complete Report

 

ìUS – Adagio Therapeutics – Effectiveness Against Omicron Via Differentiated Profile; Upgrade To Overweight

Source: Company Data and Morgan Stanley Research

MS Research Analyst Matthew Harrison highlights that current evidence suggests that Omicron (B.1.1.529) is rapidly replacing Delta in South Africa, suggesting Omicron may have higher transmissibility than previous variants and is likely to become a new dominant variant in the short term. He points out that current leading antibodies, such as those from Lilly (OW, $275 PT) and Regeneron (EW, $617 PT), are compromised by Omicron. However, Matthew notes that Adagio's ADG20 remains highly effective at neutralizing Omicron. Further, he also points out that Adagio's ADG20 possesses preferable characteristics, including IM administration, long half-life up to 12 months, and coverage of multiple variants. In addition, Matthew notes that Omicron may prompt regulators to help Adagio complete an interim analysis (now expected in 2Q22) sooner for quicker market access given the potential issues with other antibodies. Therefore, he added 4M doses of government stockpiling for Adagio’s ADG-20 in 2022 and now project ~$1.8B in sales. The additional sales raises Matthew’s PT to $49 from $33 and he upgrades the stock to OW (from EW).Download the Complete Report

 

ìUS – Stitch Fix Inc – MS Research Analyst Lauren Schenk highlights that with SFIX ($27 PT) shares underperforming the S&P by -83% YTD, she sees a more balanced risk/reward at current levels. While the structural concerns around SFIX’s competition and retention remain, at ~0.8x ‘23e revenue those concerns appear priced in. Lauren upgrades her rating to Equal-weight from Underweight and per price target remains unchanged. Download the Complete Report

 

ìChina – NIO – Tim Hsiao reiterated OW and raised PT by 3% to US$66 as a new model cycle will kick in from 2022 and valuation is attractive vs peers after more than 40% underperformance vs peers. He raised his FY21-23 volume forecasts by 8-24% and revenue forecast by 6-16%, but widened his FY21 net loss by 70%, lowered his FY22 projection to a small loss, and cut FY23 earnings estimates by 30%. This is driven by lower GPM and OPM assumptions from investment in distribution channels, volume promotion and R&D investment to compete with the technology entrants. He now projects earnings of Rmb8bn in 2023. The pre-production of the upcoming model ET7 rolled off assembly line on 29 November, which should mark the first of the three new models powered by the NT2.0 platform slated for launch in 2022. After the October disruption, NIO reported November sales of 10878 units, up 2.4% vs September, a record high monthly delivery.  The stock is trading on 5.3x FY22 P/S vs XP at 7.6x and LI at 4.9x, and he see favorable risk and reward. His pecking order is Xpeng, NIO, and Li Auto. Download the Complete Report

 

ìNorway – AutoStore Holdings Ltd-W/I –AutoStore is an industrial technology company growing at a ~35% CAGR (FY21-25) with EBITDA margins ~50% – a unique proposition. MS Research Analyst Ben Uglow is persuaded on the growth outlook for automation in e-commerce and AutoStore's ability to dominate its market. However, its valuations already reflect this. Download the Complete Report

 

ìîHong Kong – HSBC –HSBC's share price has been rangebound this year as the prospect of rising rates has not been enough to offset China risk. These risks are now finely balanced. MS Research Analyst Nick Lord sees operational improvements coming through, but not enough to tip the balance. Remain EW with Singapore and domestic UK banks preferred. Download the Complete Report

 

ìî  HSBC – Hong Kong – Market Expectations Are That Rates Will Move Up Further

Source: CME, Morgan Stanley Research

Nick Lord believes the rate environment is more favourable and operating improvements are coming through. But these are not enough to tip the balance. He remains EW as he sees better value and lower risks with Singapore and domestic UK banks. Policy rates in the UK are projected by our economists to increase 65bps in the next 12 months, and the Fed funds futures curve suggests US rates could also start to rise within 12 months. HSBC is one of the most sensitive to US rates, with every 25bps increase in US rates translating into 8% uplift to earnings if all drops through. This compares to 5-6% for BOCKHK, HSB and the Singapore banks. On operating performance, after the scaling back of US and EU retail operation and a reduction in capital allocation to GBM, he believes HSBC will return to average growth which will be better than UK/European banks, but weaker than APxJ banks, but a lot would depend on delivering costs savings to mitigate inflationary pressure. SoTP analysis suggests group cost of equity would fluctuate between 12.2% and 15.1%. Download the Complete Report

 

ìîJapan – Panasonic – Panasonic's ROE And The Contribution From Connect

Source: Company and Morgan Stanley Research,　e = Morgan Stanley Research estimates

Ono-san takes a deep dive into Panasonic’s Blue Yonder, quantifying the TAM, profit drivers and earnings upside based on benchmarking vs global SCM (supply chain management) solutions peers (Kinaxis, Manhattan Associates, SPS Commerce, Descartes Systems etc). SCM has become all the more important amid the pandemic where production disruption has facilitated the need to invest and adopt SCM software across a broad range of industries. Ono-san believes that the market is underestimating the earnings upside from Blue Yonder, which will allow Panasonic to fully enter the SCM software market (global TAM ~Y2trn, 11% CAGR in 2021-25e). Ono-san sees Panasonic’s target of 13% sales and EBITDA CAGR in C20-25e as reasonable given its unique status of providing cloud-based SCM solutions across the three fields of manufacturing, distribution, and retail, and updates F3/22-23e OP forecasts, well ahead of the company guidance/ consensus, with unchanged PT of Y1,900. At current share price, Ono-san sees significant value and would be a buyer ahead of Jan 2022, when Panasonic is expected to formulate a concrete business plan to maximize mutual benefits from the acquisition. Download the Complete Report

 

Negative

 

îUS – CrowdStrike Holdings Inc – MS Research Analyst Hamza Fodderwala highlights the most notable areas of pushback in the last couple of weeks since initiating coverage at UW. First, he notes that investors have asked to what degree does increasing competition actually have an impact or can this be mostly noise. Hamza sees competition for new customers picking up more meaningfully throughout 2022 and does not view the market as zero sum with competing vendors racing to the bottom on lower pricing. Hamza notes that while checks indicate more competitive deal situations, he doesn’t think that there's a material change in overall win rates today and CrowdStrike ($247 PT) remains the dominant share gainer in its core market. Second, investors have asked Hamza if he is underestimating the TAM opportunity. He thinks that there's a large potential opportunity for CrowdStrike over time in adjacent markets as it expands into a broader platform for XDR (extension, detection & response), but it will take a few years become material. Third, investors asked to justify CRWD’s UW rating versus SentinelOne’s ($77 PT) OW rating with a higher valuation multiple. Hamza’s checks point to SentinelOne seeing more significant upmarket traction, resulting in larger deal sizes and more substantial relative share gains going forward. Download the Complete Report

 

îì China – Meituan – Segment Revenue Outlook

Source: Company data, Morgan Stanley Research (E) estimates

Gary Yu cut FY22 estimates from a profit of Rmb4.3bn to a loss of Rmb2.8bn to reflect slower food delivery in 1Q22 and lower unit economics on impact of social benefit costs. But he remains constructive on medium- and longer-term outlook and maintains his PT of HK$320. 3Q revenue grew 38% YoY, in line with his expectation, while margin was slightly better in the in-store segment, resulting in slightly beat in adjusted operating loss of Rmb6.2bn vs his estimate of Rmb6.7bn. But the company guided for a slowdown in food delivery and in-store and hotel in 4Q21, driven by COVID wave, which may last until the Winter Olympic hence the impact may linger until 1Q22.  There are early signs that CGB loss has peaked out in 3Q and should start to narrow in 4Q to Rmb11.6bn. The stock trades on 7.5x FY22 P/S or 24x FY22 P/E based on steady state margin assumptions of 20% for food delivery and 45% for in-store. Download the Complete Report | Download the Report Complete

 

 

 

Nick Savone, Managing Director
Morgan Stanley | Institutional Equity Division
1585 Broadway, 5th Floor | New York, NY 10036
Phone: +1 212 761-0198
Nick.Savone@morganstanley.com

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WSJ : Which Fitness Tracker Is Best For You? Apple Watch vs. Fitbit vs. Oura vs.

Which Fitness Tracker Is Best For You? Apple Watch vs. Fitbit vs. Oura vs. Garmin vs. Whoop
Heath-based wearables are reliable for tracking your body’s trends over time. Just don’t consider them as accurate as clinical tools, experts say.

I have two watches on my left wrist, another on my right arm, a ring on my finger and a sensor embedded in my bra. No one should ever wear this many fitness trackers simultaneously. But in this moment, I am letting the latest heart-rate-sensing, sleep-capturing, workout-recording wearables from Apple, Fitbit, Garmin, GRMN 0.77% Whoop and Oura capture all my data, to see which ones do the best job.
Whether you are training for a race or trying to lose the Quarantine 15, a fitness tracker can provide a helpful motivational nudge. But choosing the right one depends on your preferred activities and health goals—and requires an understanding of what data is most useful to you.
New trackers are much more than pedometers and heart-rate monitors. They also measure blood-oxygen levels, a sign of overall health and altitude acclimation. And they capture heart-rate variability, the difference in time between each heartbeat, which can provide feedback about your body’s ability to recover from exercise. But how accurate are the metrics?
The Right Metrics
Studies have shown that wrist-based wearables’ optical sensors—which beam light onto the skin to detect pulse—are generally accurate during rest, but less so during workouts with unpredictable movement, such as strength training.
The data can still be valuable. Zakkoyya Lewis-Trammell, an assistant professor of kinesiology at California State Polytechnic University, Pomona, said that while wrist-based trackers aren’t clinical devices, she considers them a reliable tool for comparing day-to-day changes.
One helpful approach: Pick metrics that are as close to the sensor’s data as possible—such as resting heart rate over time, said Seth Martin, a cardiologist at Johns Hopkins Medicine. Avoid obsessing over things like calories burned, which is just a calculated guess, he added.
A new metric popping up in wearables looks at whether your body is primed to work out. Fitbit and Oura call it “Readiness.” On Garmin, it’s “Body Battery.” Whoop assigns you a “Strain” score. Several Apple Watch apps, including Training Today, offer similar measurements. A high score means you’re ready for intense exercise; a low score indicates your body needs rest.
A new metric uses heart-rate variability to assign a score: High means ready for exercise, low means get some rest; from left, Garmin, Oura, Whoop and Fitbit.
PHOTO: NICOLE NGUYEN/THE WALL STREET JOURNAL
It isn’t as valid for people who have diabetes, heart disease or who are pregnant, Dr. Lewis-Trammell said. In those cases, she said, the data should be brought to a physician for evaluation.
For people who do outdoor workouts, GPS accuracy is important for logging distance. Dr. Lewis-Trammell found Garmin devices have a better GPS than others. I confirmed this in my own testing.
On one ride testing the wearables’ GPS-tracking capabilities, the Apple Watch and Garmin tracks were very close to my actual route. The Fitbit didn’t lock a GPS signal until about half a mile into my workout, so it displayed less total mileage. It also cut corners (literally) and showed me riding through neighbors’ homes! The route had trees and buildings, which might block GPS signals. Fitbit did better during a beach workout under an open sky.
GPS routes tracked by the Garmin Forerunner 945, blue, and by Apple Watch Series 7, red, matched my ride accurately. The Fitbit Charge 5, green, often cut corners.
PHOTO: NICOLE NGUYEN/THE WALL STREET JOURNAL
A spokeswoman for Fitbit’s owner, Google, GOOG -0.87% shared best practices: Bring a phone to speed up the initial GPS lock-in, don’t start the exercise until the GPS is connected, and make sure the band is secure, but not constricting, for the best signal.
SHARE YOUR THOUGHTS
How do you track your workouts? Join the conversation below.
A word about data privacy: While all of these devices capture potentially sensitive information about your body, none of them sells it to third parties. Google says Fitbit doesn’t use any data, even internally, for the purpose of advertising. If you are concerned, however, you should read the terms of service of the product—and the data-privacy statements of their makers—before buying.
When picking the best tracker for your life and fitness regimen, ask yourself three questions:
What’s my preferred workout type? If you like treadmill running, spinning or pool swimming, you can spend less and get a basic tracker such as the Fitbit or Oura. Outdoor activities require the advanced GPS capabilities of the Garmin and Apple Watch. And if you often go on long hikes or run marathons, you’ll definitely want a Garmin, which has multiday battery life.
What am I willing to wear daily? Most are intended to be worn during sleep, which is when the tracker can most accurately record resting heart rate. Wrist-based wearables range from Oreo-size watches (Garmin) to slender bracelets (Fitbit). If you want stealth, Oura’s ring or Whoop’s clothing-compatible sensor are better—you just can’t get any information from them until you check the app.
What are my goals? Are you looking to improve your health generally, or are you focused on training and performance? The Fitbit, Apple Watch and Oura are sufficient for the former, while self-described athletes should lean toward the Garmin watch or Whoop’s subscription-based coaching service. For the most accurate heart-rate reading during a workout, opt for a chest strap.
Keeping your answers to these questions in mind, review the pros and cons of the models I tested:
Fitbit Charge 5.
PHOTO: FITBIT
Fitbit Charge 5
Price: $180 ($80 a year for optional Fitbit Premium); fitbit.com
Target user: People just getting into exercise
Battery life: 7 days; up to 5 hours with continuous GPS
The Charge 5, released in September, has a bright touch screen and a sleek design. The friendly companion app, which thoughtfully explains why each metric matters, is great for workout newbies. A recent update turned on electrocardiogram capabilities and, for premium subscribers, a readiness score. On the down side, though the Charge 5 has GPS, it can’t record open-water swims—just pool workouts. Strangely, the device can’t be powered down. (Fitbit says users won’t need to save power because of the device’s long battery life.) And, after a six-month trial included with purchase, the app persistently tries to upsell its Premium membership, which includes mindfulness content and deeper sleep insights.
Apple Watch Series 7.
PHOTO: APPLE
Apple Watch Series 7 and SE
Price: Starts at $279; apple.com
Target user: iPhone owners who want smart features
Battery life: 18 hours; up to 7 hours with continuous GPS
The Apple Watch is incredibly versatile, and its interface is the easiest to use. Activity options range from Tai chi to snow sports, and you can listen to podcasts or music sans phone during workouts. The cheaper SE model ($279 and up) offers most of the Apple Watch experience, minus the blood-oxygen and ECG sensors. The Series 7 ($399 and up) has a slightly larger display. This watch is best used with third-party apps, such as Strava, as the accompanying Fitness and Health apps are fairly basic. And yes, the device still requires daily charging.
Oura Ring, third generation.
PHOTO: OURA
Oura Ring
Price: $299 ($72 annual membership); ouraring.com

Target user: People who don’t like stuff on their wrist
Battery life: Up to 7 days
The third-generation ring is lightweight and screenless, an ideal tracker for someone who doesn’t want distractions. It can record heart rate continuously, analyze sleep and use its thermometer to track menstrual cycles. There’s no built-in GPS, though it autologs activities such as runs or even yard work. Without the membership, you can see only readiness, sleep and activity scores.
Garmin Forerunner 945 LTE.
PHOTO: GARMIN
Garmin Forerunner 945
Price: Starts at $600; garmin.com
Target user: People who are very active outdoors
Battery life: Up to 2 weeks; 36 hours with continuous GPS
Of Garmin’s many models, its Forerunner watch offers the most capability in the slimmest package. It is the ultimate wearable for athletes focused on training, and even stores your plans onboard. It can broadcast heart rate to any Bluetooth-enabled or ANT+ device such as a Peloton. The model I tested is pricey. The slightly more affordable Forerunner 745 ($500) offers the same core functionality, minus its big sibling’s longer battery life and increased storage.
Whoop 4.0.
PHOTO: WHOOP
Whoop 4.0
Price: Starts at $18 a month; whoop.com
Target user: Athletes who want to improve performance
Battery life: Up to 5 days
Whoop bills itself as a “personal and health fitness coach.” You don’t pay for the tracker up front—you get it when you subscribe to the service. Like Oura, the Whoop 4.0 is a screenless sensor with automatic workout detection. The device can be worn on your wrist, or embedded in a variety of compatible apparel. Using the app’s journaling feature, you can mark a custom set of behaviors, such as alcohol or caffeine consumption, and Whoop will create an assessment of how those influence your workout performance and sleep. Whoop was one of the first devices to use heart-rate variability to suggest optimal activity intensity to help prevent injury and overtraining. It is a pricey service—and the others are quickly copying the tech for less, but they don’t yet offer the same level of detail.

FT : Toshiba shareholders accuse conglomerate of overlooking privatisation bids

Toshiba shareholders accuse conglomerate of overlooking privatisation bids
Investors plan to vote against proposed three-way division of Japanese industrial giant

Several of Toshiba’s biggest shareholders are accusing the Japanese conglomerate of failing to fully pursue talks with private equity buyers, and say they will ratchet up pressure on the board to revive discussions on a full buyout of the company.

The investors said that despite Toshiba’s claim it had not received convincing indications of a buyout, they believed that at least two private equity buyers had discussed valuations at least 25 per cent higher than the company’s current price of ¥4,743 ($42) a share.

As a measure of their concerns, shareholders who collectively hold more than 30 per cent of Toshiba’s stock, told the Financial Times, that as matters stood, they planned to vote against a proposal introduced in November that would break the 140-year-old industrial giant into three separately listed businesses rather than pursue a full privatisation.

Several managers said they suspected that holders of at least another 15 per cent of Toshiba’s shares would follow suit when a vote on the proposal was held early next year.

In addition to concerns that the three-way split denied investors the chance to consider a privatisation offer, one of the largest shareholders said it was a poor alternative given the extent to which governance issues featured in Toshiba’s many problems in recent years.

“Conducting a three-way split without an appropriate governance structure in place will lead to a worsening of governance problems,” said a manager at one large shareholder.

The division proposal emerged from a months-long strategic review that Toshiba’s second-biggest shareholder, 3D Investment Partners, said in a letter to the company had arrived at “a premature conclusion to an inadequate process”.

At least two funds among Toshiba’s 20 biggest holders told the Financial Times they were also considering more immediate tactics, which could include calling an emergency meeting of shareholders to vote on a purge of the board.

“There are key disclosures we are still waiting for regarding the company’s attempt to solicit private equity buyers and get a realistic price on the table. If the company does not hear us asking for that, an EGM is certainly one option,” said a manager of one big shareholder.

The intensified agitation of shareholders follows the release last month of what several funds described to the FT as a “misleading” statement by a strategic review committee assembled to consider the company’s long-term future and recommend action to the board.

The committee said in November that although it had engaged with six private equity groups — understood to include KKR, Bain, CVC and Blackstone — to discuss a full privatisation, the price level envisioned by the buyout funds were “not compelling relative to market expectations”. 

But several of Toshiba’s largest investors said that, after conducting their own research, they had strong reasons to question the validity of the SRC’s process, which did not represent a formal auction, as well as its outcome.

In particular, a significant group of investors believes that at least two PE groups had indicated to the SRC that a buyout could theoretically value Toshiba at more than ¥6,000 a share — a premium of roughly 20 per cent on the company’s share price during the discussions.

On Friday, Toshiba said the company would “continue to provide sincere explanations to our shareholders”. The company also referred to its earlier statement on the SRC, whose recommendations it noted the board had “unanimously” endorsed.

Within the past two weeks, investors have been contacted by Makinson Cowell, an outside adviser on investor relations that previously conducted a survey on Toshiba’s behalf in July. Investors said they had left the researchers in little doubt about their misgivings over the SRC’s process.

They added that, despite Toshiba’s claims of commitment to greater transparency, they cited as another cause for concern the fact that the results of Makinson Cowell’s latest survey would not be shared with investors, a policy confirmed by Toshiba.