Investors weigh whether to cash in on stock profits as summer kicks off
Big investment houses cautious on taking money off the table even after strong year-to-date gains
Equities investors are sitting on solid returns since the start of the year, leading them to ask one of the oldest questions in finance: should they take their profits before the summer holidays kick into full gear?
Rising valuations for equities, bubbling inflation worries and concerns that central banks will have to tighten the liquidity spigot that has helped to drive up stock markets have all led investors to ponder whether it is best to sit out the coming months.
“I’m hearing the ‘sell in May’ question all the time,” said Johanna Kyrklund, chief investment officer at asset manager Schroders.
US stocks are up about 11 per cent since the start of 2021, while those across European bourses are up about 12 per cent, according to MSCI indices that track both markets in dollar terms. Equities in the Asia-Pacific region have climbed a more modest 4 per cent.
These gains have helped to push valuations above their long-term averages on most measures in the US, UK, Europe, Japan and emerging markets. Still, Schroders is advising its clients to stay invested.
“Equity valuations suggest it’s time to slow down in markets, but you can’t take your foot too far off the gas due to the dearth of more defensive options,” Kyrklund said.
Neither HSBC nor State Street is recommending a summer off strategy to clients either.
However, data suggest that in some markets, taking some chips off the table before the summer revs up has been a successful strategy. Swiss bank UBS found that while a “sell in May” strategy, compared with staying fully invested, delivered outperformance in Europe over the past 15 years it did not in the US.
June tends to be a weak month for European equities, which have produced negative returns for the six months between May and October in four years during the past decade, according to UBS. But US returns have turned negative between May and June only in 2001 and 2015 over the same period.
“Trying to time the US market for seasonal reasons would have missed the outperformance of growth stocks in the bull market since the 2008-09 financial crisis,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Kyrklund also found seasonal investing unappealing and said it was “too early to be overly defensive” in the present market and economic upswing. “There is no recession on the horizon so you need to stay invested and you can’t sit in cash,” she said.
Schroders recommends against traditional hedges against a fall in equities such as government bonds, gold and cash that deliver little or no income in the current environment. Instead, Kyrklund is advising clients to increase their exposure to value stocks, financials and commodities.
HSBC is recommending that investors increase their exposure to UK and continental European equities and south-east Asian stock markets. “Governments bonds are no longer the natural hedge,” said Joanna Munro, the global chief investment officer at HSBC asset management.
Lori Heinel, State Street’s global chief investment officer, expects European equities to outperform but thinks Chinese stocks also “deserve consideration” because valuations are below their long-term averages and Beijing is tightening monetary policy.
“We have also added exposures to commodities as a hedge against [economic] growth shocks,” she said.
Nestlé document says majority of its food portfolio is unhealthy
Internal company presentation acknowledges more than 60% of products do not meet ‘recognised definition of health’
The world’s largest food company, Nestlé, has acknowledged in an internal document that more than 60 per cent of its mainstream food and drinks products do not meet a “recognised definition of health” and that “some of our categories and products will never be ‘healthy’ no matter how much we renovate”.
A presentation circulated among top executives early this year, seen by the Financial Times, says only 37 per cent of Nestlé’s food and beverages by revenues, excluding products such as pet food and specialised medical nutrition, achieve a rating above 3.5 under Australia’s health star rating system.
This system scores foods out of five stars and is used in research by international groups such as the Access to Nutrition Foundation. Nestlé, the maker of KitKats, Maggi noodles and Nescafe, describes the 3.5 star threshold as a “recognised definition of health”.
Within its overall food and drink portfolio, some 70 per cent of Nestlé’s food products failed to meet that threshold, the presentation said, along with 96 per cent of beverages — excluding pure coffee — and 99 per cent of Nestlé’s confectionery and ice cream portfolio.
Water and dairy products scored better, with 82 per cent of waters and 60 per cent of dairy meeting the threshold.
“We have made significant improvements to our products . . . [but] our portfolio still underperforms against external definitions of health in a landscape where regulatory pressure and consumer demands are skyrocketing,” the presentation said.
The data excludes baby formula, pet food, coffee, and the health science division, which makes foods for people with specific medical conditions. This means the data accounts for about half of Nestlé’s SFr92.6bn (£72.7bn) total annual revenues.
The findings come as foodmakers contend with a global push to combat obesity and promote healthier eating. Executives at Nestlé are considering what new commitments to make on nutrition and are aiming to unveil plans this year.
The group is also updating its internal nutrition standards, known as the Nestlé Nutritional Foundation, that were introduced under former chief executive Peter Brabeck-Letmathe, who characterised Nestlé as a “nutrition, health and wellness company”.
One option could be to drop or replace these standards for products seen as treats, like confectionery, according to a person familiar with the situation.
Mark Schneider, chief executive, has acknowledged that consumers want a healthier diet but rejected claims that “processed” foods including those made by Nestlé and other multinationals tend to be unhealthy.
However the presentation highlights Nestlé products such as a DiGiorno three meat croissant crust pizza, which includes about 40 per cent of a person’s recommended daily allowance of sodium, and a Hot Pockets pepperoni pizza that contains 48 per cent.
Another product, an orange-flavoured San Pellegrino drink, scores an “E” — the worst mark available under a different scoring system, Nutri-Score — with more than 7.1g of sugar per 100ml, the presentation says, asking: “Should a health forward brand carry an E [rating]?”
Separately, Nestlé’s strawberry-flavoured Nesquik, which is sold in the US, contains 14g of sugar in a 14g serving, though it is designed to be mixed with milk. It is described as “perfect at breakfast to get kids ready for the day”.
Nestlé said it “is working on a company-wide project to update its pioneering nutrition and health strategy. We are looking at our entire portfolio across the different phases of people’s lives to ensure our products are helping meet their nutritional needs and supporting a balanced diet.
“Our efforts build on a strong foundation of work over decades . . . For example, we have reduced the sugars and sodium in our products significantly in the past two decades, about 14-15 per cent in the past seven years alone.”
Marion Nestle (no relation), visiting professor of nutritional sciences at Cornell University, said Nestlé and its rivals would struggle to make their portfolios healthy overall.
“Food companies’ job is to generate money for stockholders, and to generate it as quickly and in as large an amount as possible. They are going to sell products that reach a mass audience and are bought by as many people as possible, that people want to buy, and that’s junk food,” she said.
“Nestlé is a very smart company, at least from my meetings with people who are in their science [departments] . . . but they have a real problem . . . Scientists have been working for years to try to figure out how to reduce the salt and sugar content without changing the flavour profile and guess what, it’s hard to do.”
Some products perceived as healthy, such as plant-based meat alternatives, are areas of strong growth for foodmakers. Nestlé has sold some of its divisions that produced less healthy products, such as a 60 per cent stake in the Herta charcuterie arm in 2019.
Nestlé was ranked highest among the world’s big food and beverage manufacturers in a 2018 index of efforts to encourage better diets compiled by the Access to Nutrition Foundation, though the foundation warned that “all companies need to do much more”.
Nestlé said: “In recent years, we have launched thousands of products for kids and families that meet external nutrition yardsticks. We have also distributed billions of micronutrient doses via our affordable and nutritious products.”
It added: “We believe that a healthy diet means finding a balance between wellbeing and enjoyment. This includes having some space for indulgent foods, consumed in moderation.
“Our direction of travel has not changed and is clear: we will continue to make our portfolio tastier and healthier.”
EU should focus on top 5 tech companies, says leading MEP
Andreas Schwab, who will steer the debate on bloc’s flagship tech regulation, says focus must be on US giants
The EU lawmaker who will steer the EU’s flagship tech regulation through the European parliament has said it should focus on the largest five US tech companies.
Andreas Schwab, a German MEP and longtime critic of Google, spoke after France and Germany both called for the EU to be tougher on Big Tech. He said Google, Apple, Amazon, Facebook and Microsoft, were the “biggest problems” for EU competition policy.
“Let’s focus first on the biggest problems, on the biggest bottlenecks. Let’s go down the line — one, two, three, four, five — and maybe six with Alibaba,” he said to the Financial Times.
“But let’s not start with number 7 to include a European gatekeeper just to please [US president Joe] Biden,” he added.
The EU defines “gatekeeper” companies as those which span several countries, have a significant impact on the market, and link large numbers of users to large numbers of businesses.
His position is likely to be seen as anti-American, at a time when the EU is focusing on rebuilding transatlantic ties.
Schwab is also a part of the EPP, a powerful political alliance whose members include the German chancellor Angela Merkel and Ursula von der Leyen, the president of the European Commission.
Last December Brussels unveiled its plan to tackle the market power of Big Tech. The new regulations outlined revenues and market share thresholds that would define up to 20 companies as “gatekeepers”, including companies headquartered in the EU, such as Booking.com.
But in a new report, which is set to be published on Monday, Schwab called for higher thresholds of €100bn market capitalisation, rather than €65bn in the original proposals, and of €10bn turnover in the last three financial years, rather than €6.5bn.
He also defined a gatekeeper as a company that offers “two or more core platform services”, meaning platforms such as Booking, which mostly offer one service, would not fall within the scope.
“The scope of the [Digital Markets Act] should be clearly targeted to those companies, which play an unquestionable role as gatekeeper due to their size and their impact on the internal market,” the report said.
Separately, Schwab said large online platforms should be forced to be more transparent about the ways they make money from online advertising. He said the business model was a “big black hole”, adding that transparency was key to foster competition in the continent.
His report, while not binding, has been widely anticipated in Brussels because it is seen as setting the tone for months of tough debates over the Digital Markets Act.
Last week, France, Germany and the Netherlands called on the European Commission to enact even harsher rules against Big Tech to prevent them from acquiring small companies to kill competition.
Egyptian Officials Accuse Ever Given’s Captain of Losing Control of Ship in Suez Canal
The ship swerved left and right before becoming lodged in the canal’s bank, chief investigator says
ISMAILIA, Egypt—Egyptian officials made their most specific allegations against the captain of a container ship that blocked the Suez Canal for nearly a week in March, accusing the skipper of losing control of the Ever Given and hitting the vital waterway’s bank.
The ship swerved left and right before becoming lodged in the bank of the canal, said Sayed Sheisha, the chief investigator for the Suez Canal Authority. “The captain issued eight commands within 12 minutes as he tried to bring the ship back into alignment.”
The question of who is to blame for the accident is at the heart of a dispute over how much compensation the ship’s owners should pay. Egyptian authorities seized the ship in April and are now demanding $550 million to cover lost revenues, damage to the canal and the cost of rescuing the ship.
The Japanese company that owns the ship, Shoei Kisen Kaisha Ltd., didn’t respond to calls and emails seeking comment. The company that manages the ship, Bernhard Schulte Shipmanagement Ltd., also didn’t immediately respond to a request for comment.
A lawyer for the Japanese company has previously blamed the Suez Canal Authority for allowing the ship to enter the canal during a massive sandstorm that was taking place in Egypt at the time. Initial investigations into the accident had focused on a sudden gust of wind.
Earlier this month, an appeals chamber at Ismailia Economic Court heard recordings showing disagreements between Suez Canal Authority pilots and its control center over whether the ship should enter the canal, according to people familiar with the matter.
Lawyers representing Shoei Kisen Kaisha said the authority shouldn’t have allowed the ship to enter the waterway and that the ship should have been accompanied by at least two tug boats.
The Ever Given’s insurer, UK P&I Club, said that the insurer and the ship’s owners are committed to a fair and amicable resolution of the matter, in comments made on Saturday before Egyptian authorities made the allegations against the captain.
The Ever Given, one of the largest cargo ships in the world, ran aground in the Suez Canal on March 23, causing global supply-chain chaos as hundreds of ships piled up in a backlog on either side of the canal.
The ship was freed on March 29 after six days of work by Egyptian engineers and sailors with help from a Dutch specialized salvage company.
Egyptian authorities impounded the ship on April 12 and are refusing to allow the ship to leave until its Japanese owners agree to pay compensation. The Suez Canal Authority initially demanded more than $900 million but later reduced the amount it sought as compensation.
“We first estimated the value of the ship’s cargo at $3 billion. Our share of that value was established at $912 million for the above mentioned costs. When the shipowners got back to us saying the value of the cargo was $750 million, we lowered our demand,” said Mr. Sheisha.
The ship, along with its cargo of some 18,000 containers and its crew of Indian sailors, remains at anchor in the Great Bitter Lake, which separates two segments of the canal.
Mr. Sheisha told reporters at the Suez Canal Authority’s headquarters on Sunday that the institution had concluded its own investigation into the cause of the accident, blaming the incident on errors made by the captain.
He said the ship was veering to the right as it entered the canal and that the captain tried to pull the ship back to the center. He said the captain accelerated when the ship’s response was too slow. The ship veered instead to the left, and then to the right again before slamming into the bank of the canal, Mr. Sheisha said.
The case in the Ismailia Economic Court over the fate of the ship is continuing, but both parties have asked to adjourn the proceedings until June 20.
The Suez Canal Authority has sent the results of its investigation to the International Maritime Organization, Mr. Sheisha said, but said Egyptian officials wouldn’t release the full report to the public during continuing negotiations over compensation.
The ship’s crew haven’t been allowed to leave the ship since it ran aground. Union leaders representing the crew have said the sailors have been treated well but have expressed concern that they could be trapped in Egypt indefinitely if the dispute isn’t resolved quickly.
Two members of the crew were granted permission to leave on April 15 for urgent personal reasons, according to the Suez Canal Authority.
US regulators signal bigger role in cryptocurrencies market
New OCC head says agencies should set a ‘regulatory perimeter’ for digital coins
US financial authorities are preparing to take a more active role in regulating the $1.5tn cryptocurrency market as concern grows that a lack of proper oversight risks harming savers and investors.
The new efforts reflect a break with the Trump administration, which in some cases encouraged the use of cryptocurrencies in the financial system. But they could take time to bear fruit as US regulators struggle to determine who has the legal authority to oversee the volatile market.
In an interview with the Financial Times, Michael Hsu, who was installed this month as acting comptroller of the currency, said he hoped US officials would work together to set a “regulatory perimeter” for cryptocurrencies.
“It really comes down to co-ordinating across the agencies,” said Hsu, who heads the Treasury department bureau that oversees national banks. “Just in talking to some of my peers, there is interest in co-ordinating a lot more of these things.”
Cryptocurrencies have been on a rollercoaster ride this year. In February, the price of Bitcoin soared after Tesla founder Elon Musk said the company had ploughed $1.5bn into the cryptocurrency, and went on to reach a record high of more than $60,000 in April.
But the price plunged after Chinese regulators signalled a crackdown on the use of digital coins, while Musk reversed a move to allow bitcoin payments for Tesla cars, citing environmental concerns. Other cryptocurrencies have experienced similar volatility.
One sign of the new US approach came this month with the first meeting of an inter-agency crypto “sprint” team, involving officials of the three leading federal bank regulators — Hsu’s Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation.
Hsu said the team’s goal was not to make policy but to “put some ideas in front of the agencies to consider” as they try to catch up with the growth in cryptocurrencies.
“It’s small and it’s senior,” Hsu said of the working group. “The idea is that time is of the essence and if it’s too big that gets harder.”
The Securities and Exchange Commission and the Commodity Futures Trading Commission have also discussed how to protect investors in the crypto market.
Gary Gensler, the SEC chair, told a House committee last week that there are “gaps in our current system”, pointing to a potential need for legislation to specify which regulator should oversee crypto exchanges.
Gensler said his aim was to bring “similar protections to the exchanges where you trade crypto assets as you might expect at the New York Stock Exchange or Nasdaq”.
Gensler said the Treasury department has been focused on “anti-money laundering and guarding against illicit activity” in the crypto market. Janet Yellen, the Treasury secretary, has said she fears bitcoin is used “often for illicit finance”.
By installing Hsu at the OCC, Yellen also signalled a change in approach to crypto. Hsu is, in his own words, “a career public servant and a bank supervisor at my core”. His OCC predecessors under Donald Trump included Brian Brooks, a former chief legal officer of Coinbase, a crypto exchange, who is now chief executive of Binance.US, a rival crypto exchange.
As one of Hsu’s first acts at the OCC, he asked staff to review a Trump-era decision to give national trust charters to companies that provide custody services for cryptocurrencies.
While Hsu believes there is no turning back from innovations such as the blockchain technology used in cryptocurrencies, he said in congressional testimony this month that the current enthusiasm for banking innovation reminded him of the years leading up to the financial crisis.
The danger is that new and improved techniques give rise “to a large and less regulated shadow banking system”. Today, fintechs and technology platforms are devising payment processing tools that “bring great promise”, he said, “but also risks”.
“For me, it is hard not to feel some déjà vu,” Hsu told legislators.
‘Final Fantasy’ producer says 5G will end games console’s long reign
Square Enix’s Naoki Yoshida predicts that mobile standard will enable quality image delivery to any device
The advent of 5G as a global standard will herald the long-term demise of the dedicated games console, even as the Covid-19 pandemic has boosted short-term demand for the machines, said one of Japan’s most prominent figures in game production.
The prediction from Naoki Yoshida, a director at Square Enix who oversees the development of the blockbuster Final Fantasy and Dragon Quest series, comes despite demand for Sony’s PlayStation 5 outstripping supply and sales of Nintendo’s Switch continuing to beat forecasts.
But improved streaming speeds and a long-term shift away from the television as the primary medium for gaming could change that.
“Once 5G becomes the global standard, there will definitely come a time when we can transfer images to any device,” Yoshida told the Financial Times in an online interview.
“Players can enjoy a high-quality gaming experience on any device by not being tied to a gaming hardware or TV monitor. We’re definitely heading in that direction, and I don’t think coronavirus will slow this shift,” he added.
The games industry and analysts are torn over whether cloud-based gaming and the entry into the market of technology groups, such as Google and Amazon, will finally put an end to the games console. The machines, which date from the mid-1970s, have proved resilient to predictions of their imminent disappearance.
Yoshida is best known for resurrecting the role-playing Final Fantasy XIV: A Realm Reborn following its catastrophic debut in 2010. More than a decade on, the role-playing series is one of the most popular online games, with 22m registered users worldwide. Its upcoming Final Fantasy XVI is also being produced by Yoshida.
Square Enix itself has benefited from lockdowns boosting demand for home-based entertainment. For the fiscal year that ended in March, the group’s operating profit rose 44 per cent from a year earlier to an all-time high of ¥47.2bn ($430m) following the launch of Final Fantasy VII Remake and other new game titles.
“With home consoles, you need to sit in front of the television . . . and turn on the power and wait for the hardware to start up, so it was a time-consuming entertainment,” Yoshida said. “With stay at home, there were more opportunities to turn the switch on.”
Still, following the extraordinary gains last year, industry research group Newzoo forecasts that the console market will decline 8.9 per cent to $49.2bn as gaming companies grapple with supply constraints caused by the global chip shortage.
While the pandemic has forced gaming companies to adopt a more flexible working environment for their artists and programmers, Yoshida conceded some setbacks of not being able to physically interact during game development.
“It’s hard to read the atmosphere when you’re online, so people started asking questions all the time using chats,” he said. “We initially thought it would be more comfortable online but there were unexpected blind spots.”