1. World Themes This week
Clear your schedules, people. This week is looking like a serious hum-dinger. We hope you’re ready because we’re talking about volatility, global equities and trade wars. So buckle up.
Global equities will be the first item on the menu, after last week’s sharp sell-off in most major indexes brought global growth fears back with a bang. Volatility spiked as the VIX ticked up 12.2% for the week from its historic lows, sending out some serious red flags. The change in sentiment filtered through into a weaker open for Asia this morning, which may well infect the rest of the global equity markets today too.
The dreaded doomsday ringer for recessions also sounded on Friday as the US 10 year treasury yield dipped lower than the three month yield. This sign has historically been a predictor of recessions, and has not arisen since 2007…an ominous sign for the economy indeed. This week will be an important benchmark for the stability of 2019’s bull market which seems to have run into some serious headwinds.
And last, but never least, trade war negotiations are back on the agenda, but the outlook is beginning to seem quite a lot dimmer than it has been in previous weeks. Talks are set to resume, but analysts are anticipating extensive pushback from China which will likely demand the full removal of tariffs for a deal to be struck. This is likely to dampen global sentiment and only prolong negotiations.
With no resolutions to the trade war in sight, higher volatility creeping in and the spectre of a yield curve inversion looming over the markets, this week may see a lot more red than investors would like. Let’s hope there isn’t too much damage done before the next growth catalysts can be found!
2. Tencent Under The Microscope
Tencent, China’s second most valuable listed company, took an absolute battering last week after its suffered an eye-watering 32% drop in profits to a new 13 year low. But why?
The Chinese gaming giant has been struggling to maintain its historic growth trajectory of late as demand for its products takes its foot off the gas. Gaming revenues, which account for 45% of Tencent’s business, halved from the previous year to a mere 28% growth, while shareholder profits also tumbled to record lows.
The answer for Tencent is to pivot its business away from gaming towards the growing cloud computing and data analytics sector. The recent slowdown in gaming, and a nine month license suspension, has forced the company to restructure its business to be more diverse and sheltered from shocks to the gaming industry.
However, the shift into cloud and data space throws it into direct competition with rival, Alibaba, which controls roughly 40% of the sector’s market share. So breaking into the market won’t be an easy task.
Nevertheless, analysts are still bullish on the tech giant and upbeat about its decision to restructure, despite last week’s 4% slide, with at least three firms raising their price targets to approximately 430HKD a share. Let’s see if they’re right!
2. Company Results Coming Up This Week
Monday – Hansteen Holdings, Red Hat
Tuesday – Philip Morris, A.G. Barr, Ferguson, Vectura, McCormick & Co
Wednesday – China Life Insurance, Exor, Sonae Industria, Hilton Food, Lennar, Paychex, PVH Corp
Thursday – Brazil Pharma, Buzzi Unicem, Unum Therapeutics, Adler Real Estate, Instone Real Estate, Santa-Fe Group, Accenture, Alpha Bank, Altice
Friday – Agri Bank of China, China Eastern Airlines, China Southern Airlines, Motor Oil (hellas), Piraeus Bank, Erste Group, Carmax
Today we are watching…
1. Red Hat (#redhat)
Tech infrastructure firm, Red Hat, is set to post its earnings today and analysts are on the fence about its chances at a beat today, but leaning closer to the positive side of things. The company was recently bought by IBM for $34bn in cash which gave the stock a massive boost, leaving it up up 21.5% for the year. Its expanding portfolio, partner and customer bases are also noteworthy which will likely filter through into this quarter’s earning’s report nicely. Definitely worth keeping an eye on today.
2. New Oriental ADR (#edu-adr)
Chinese education and technology company, New Oriental, is on a serious hot streak since its December lows, rising over 50%. The stock has gained some mainstream attention today, however, after Morgan Stanley analysts upgraded its price target from $65 to a whopping $95. The share has been trading choppily since the start of March, but still has considerable upside where it currently lies at over 30% below its 52 week high.