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After-pandemic best stocks
“Our European economics team estimates that the Eurozone and the United Kingdom now have approximately €1 trillion [$1.16 trillion] in excess savings from the pandemic.” In an Oct. 11 research note, the analysts led by Nick Nelson stated, “We see this as a key driver of equity markets.”
Between September 6 and 14, the bank’s Evidence Lab polled 5,000 consumers in the United Kingdom and Europe about their spending intentions. “The categories most likely to see the greatest increase in consumer spending are holiday/travel spend, fuel, car purchases, and home improvements,” the analysts predicted.
“In particular, we would concentrate on names in the top five categories for increased spending in the survey — such as travel spend (IAG), vehicle purchase (Volkswagen), housing related (Taylor Wimpey), and transport (National Express, Stagecoach),” the bank stated.
Volkswagen topped the list of potential beneficiaries of European consumers’ excess savings, with a 57 percent potential upside to UBS’s 12-month price target, while Stellantis has a 51 percent potential upside.
IAG, the parent company of British Airways, has a potential upside of 44 percent, while Taylor Wimpey has a potential upside of 48 percent. According to UBS, bus companies National Express and Stagecoach have 52 percent and 45 percent upside potential, respectively.
UBS’s list also includes consumer companies such as sportswear company Adidas (with a potential 39 percent upside), Prada (36%), and luxury group Richemont (31 percent ). Reckitt Benckiser, a manufacturer of household products, has a potential 39 percent upside to UBS’s price target.
The bank compared its findings to those of an earlier survey conducted in April. “Restaurants / bars implied spending has fallen, possibly as a result of the fact that restaurants across Europe have already been widely open for the last 6 months.” “Implied spending on health is also down from the April survey, possibly because people believe the pandemic is coming to an end,” the analysts wrote.
According to the bank, overall spending intentions are down around 3 percentage points from the previous survey. “This could be due to the fact that some of the initial spending was completed over the summer as European countries emerged from lockdown.” Nonetheless, the analysts believe that “the pent-up excess savings suggests that this could be a theme for a while.”
Cheap global stocks
Rieder’s comments on “Halftime Report” came as the S&P 500 rose about 30 points, or 0.68 percent, to around 4,516 on Tuesday. Year to date, the broad equity index is up about 20%.
“Could you squeeze another 5 to 8% out of the market?” I believe so. “I don’t see why not,” Rieder, the head of BlackRock’s Global Allocation Investment Team, said. He is also the world’s largest asset management firm’s chief investment officer of global fixed income.
“I believe technology has some additional upside that could be even more significant.” I believe you can add another 5% to 8%, possibly 10%. The system has a massive amount of liquidity.”
“Even if the Fed tapers, it will not reduce the size of its balance sheet.” “They’re just reducing the amount of effort they’re putting in,” Rieder explained. “I believe there are a lot of flows.” Consider the size of money market funds today. What will happen to them? What about the pension funds and endowments? “Boy, I still believe you’ve got some ups here.”
To be sure, Rieder believes that certain sectors of the stock market are more appealing than others, but he emphasizes that he still sees opportunity.
“When I look around, I see a lot of stocks that make sense to buy.” I was just looking at car companies the other day. “Boy, they’re pretty reasonable in comparison to where they’ve been in the past,” Rieder said. “There are enough stocks with reasonable valuations out there, yeah, I think we’re going to keep going higher” in the overall market.
Inflation has been a major topic on Wall Street for months, and it will continue to be so as earnings season begins and corporate management teams discuss results and their business outlooks.
Rieder believes that people “underestimate” the market’s ability to deal with price pressures.
“We’re doing a lot of research on this for a call I’m doing in a couple of days.” When you have this kind of inflation… impact on the equity market, stocks do pretty well” if companies can pass on increases to consumers. Rieder stated. “Given the demand function, I would argue that you can.” As a result, I believe the earnings figures are long-term. “I believe we still have room for growth.”
JPMorgan likes China stocks
In late September, many factories were forced to shut down due to a lack of coal and high commodity prices. Major investment banks lowered their full-year GDP forecast for China, citing concerns that the shutdown would harm growth, while predicting Alibaba stock forecast to grow in the coming years.
“New onshore coal production capacity is now ramping up, and deliveries will likely catch up in November, supporting more balanced demand and supply dynamics in 2022,” JPMorgan analysts wrote in an Oct. 9 note.
Here are some of the bank’s top China stock picks to capitalize on the trend.
All are rated “overweight,” indicating that the analysts expect the stocks to outperform others in their coverage over the next six to twelve months.
China’s Resources and Power
Hong Kong-traded JPMorgan’s favorite power company is China Resources Power for three reasons.
In five years, it is likely to increase its renewable energy capacity from 40% to 60%.
Because “market-based electricity” accounts for more than two-thirds of the company’s power sales, the company is “the biggest beneficiary” of a likely state directive to raise the price of electricity for industrial users.
CR Power is better able to withstand higher coal prices than its competitors.
Cosco Shipping Inc.
Shares of Cosco Shipping, like other container and bulk shipping stocks, fell in the aftermath of China’s power crisis, but JPMorgan analysts believe the sell-off was overdone.
“For container shipping, end demand is driven by consumer demand in the United States and Europe, while power outages in China will have no effect on demand,” the analysts said.
They claim that, among other things, global stimulus from the United States and other countries to support infrastructure development will benefit bulk shipping companies like Cosco.
Inovance in Shenzhen
According to the analysts, China’s factories have been under increasing pressure due to production delays, rising raw material costs, and, to a lesser extent, power shortages.
In this environment, one of their investment calls is to bet on manufacturing automation, specifically through companies like Shenzhen Inovance, which manufactures products like industrial automation sensors, electric vehicle motors, and assembly robots.
“We are fundamentally optimistic about China’s industrial automation (IA) sector,” wrote the analysts. “Policy supports industrial upgrades and automation in the manufacturing sector.” Certain cyclical headwinds may be mitigated by the policy tailwind.”
The inflation factor
“We have to keep an eye on what this Fed does.” If they try to play from the old playbook, slow and gradual, double down on every inflation trade,” Jones advised. “Apple stock forecast and Microsoft stock forecast look very solid,” he added.
Jones believes that inflation is here to stay and that the Federal Reserve is not doing enough to address rising prices, calling the central bank’s actions “the most inappropriate monetary policy that we’ve seen perhaps in my lifetime.”
Tudor Investment Corporation’s founder and chief investment officer highlighted the trades he believes will fare best in an inflationary environment.
“Double down on long commodities, long TIPS breakevens, long Aussie/yen in FX world,” Jones said, referring to Treasury inflation-protected securities and the Australian dollar/Japanese yen currency pair.
Jones also identified an asset that he believes investors should avoid because the Fed is slow to act against rising prices.
“You don’t want to be on a fixed income,” Jones explained. “You don’t want to hold that in any way because what they’re saying, what they’re telling you by their actions, is that they’re going to be slow and late in combating inflation, and somewhere down the road, somebody will have to come in… and put the hammer down.”
The trader and hedge fund manager reiterated his positive outlook on bitcoin and cryptocurrencies, describing them as his preferred inflation hedge.
“Bitcoin would be an excellent hedge.” “Cryptocurrency would be an excellent hedge,” Jones said. “There’s a strategy in place for crypto, and it’s clearly winning the race against gold right now… That, I believe, would also be a very good inflation hedge. At the moment, it would be my preferred option over gold.”
