FINSUM + Magnifi: How to Adapt as China Pulls the Reins on Stimulus
(March 2021)
The U.S. is set to ramp up its stimulus efforts as it passes the Biden Administrations' $1.9 trillion covid relief package. China, however, is preparing to curb spending. The People’s Bank of China will begin to close the faucet as money market liquidity, government bond issuance, and private credit growth all taper. In a typical slowdown, one could expect major changes for China. However, economist Carol Liao and Pimco strategist Gene Frieda believe this could be different. The Biden stimulus package will boost demand in the U.S. and developing markets. This could be a stabilizing force for China, particularly in the commodities markets. The yuan looks more attractive as currency movements can lag credit swings. Finally, U.S. tariff relief could be promising for the country's currency.
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FINSUM + Magnifi: Why Healthcare ETFs are About to Win
(March 2021)
The multinational biopharmaceutical company Amgen has agreed to terms to acquire Five Prime Therapeutics Inc. Amgen aims to improve its portfolio of cancer drug treatment candidates. Among the drugs in part of the acquisition is the promising stomach cancer drug called bemarituzumab which will enter stage 3 testing. Amgen sees the drug as a major tool to leverage growth in the Asia-Pacific markets where stomach cancer is much more prevalent, the U.S. had only about 3% of stomach cancer cases compared to China last year. Five Prime’s stock soared on the news to match the premium offer put on existing shares by Amgen in the acquisition. Several ETFs hold high stakes in Amgen such as VanEck Vectors (BBH), IShares Nasdaq Biotechnology (IBB), and iShares Evolved U.S. Innovative Healthcare (IEIH). Amgen makes up anywhere from 4-7.8% of the holdings of these ETFs.
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FINSUM + Magnifi: Why the Nasdaq is Really Dropping
(March 2021)
The ten-year treasury yield hit one year high at 1.6% on Friday, just after President Biden signed the $1.9 trillion stimulus package into law. Some are arguing that this is a new equilibrium for a healthy U.S. economy; others are concerned that inflation is on the rise. The rest of the market was mixed as the Dow Rose on open and the S&P fell. The bigger story is tech stocks, as the Nasdaq fell over a percentage point on open. Some are pointing the fingers at increased regulation in China as tighter regulation affects the whole sector. However, others believe it’s the increase in bond yields that point to the reason for technology faltering. Inflation erodes future cash flows and if the Fed raises rates in the short run that could limit growing companies' access to cheap liquidity. Meanwhile, vaccine companies did well among the news of increased effectiveness in the U.K.
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FINSUM + Magnifi: Forget WFH, Here is the Next Asset Class to Jump
(March 2021)
The onset of the pandemic had weak demand for about every good in the U.S. except toilet paper. The traditional energy sector is the basis for so much of the economy that this, in turn, caused a huge oversupply, so much so that oil prices dipped into the negative. Pent-up demand and smaller supply put the traditional energy sector in a good place for a comeback as OPEC members have slowed production. As the economy opens back up, oil and gas will benefit from returning commutes, travel plans, and all the goods circulating the economy as well. Energy ETFs like the SPDR fund XLE, which has holdings of exclusively U.S. energy companies—with its largest holdings being among Exxon Mobil, Chevron, and ConocoPhillips—are in a bullish position to rally from the reopening. VanEck Vectors Oil Services (OIH) SPDR’s Oil and Gas Production ETF (XOP) also hold a collection of major oil and gas companies.
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FINSUM + Magnifi: This New Treatment Spells a Turnaround for Biotech Behemoth
(March 2021)
Vertex Pharmaceuticals was a shining star amongst the already bright biotech industry. In the nearly decade-long stretch between 2012 and 2020, it quadrupled the growth in the S&P 500. But as of late Vertex is slipping, down 25% since October since news broke about the halt of a new drug treatment. A drug intended to treat lung and liver disorder AATD was a bust, which caused the company that made its mark treating cystic fibrosis to slip. However, the fundamentals that allowed Vertex to climb in the 2010s are still present. Vertex continues to innovate in cystic fibrosis, with a new drug entering phase three of research, and Vertex has another play with AATD. It plans to enter the new drug into play for phase two of treatment in Q2. The company has considered acquisitions outside the company, but Vertex has assured investors of a robust development pipeline.
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FINSUM + Magnifi: Chinese Banking Experiences Unprecedented Rally
(March 2021)
The Chinese banking sector has a tighter leash with regulators than most all other countries. For the most part, this oversight keeps investors away, but a new day has come for the Chinese banking sector. Many investors are scouring previously underinvested industries to find value as Chinese mainstays have dipped. China’s cap-weighted index, CSI 300 Bank Index is up 12% YTD, despite fundamentals being relatively unchanged. Investors are veering away from companies that form the CSI 300 consumer staples index, seeing rising price-to-earnings ratios as a warning sign. Many also expect the regulatory burdens facing Chinese banks, who are being asked to support the economy with low-interest rates, to be lifted. Higher interest rates would bolster future earnings for the banking sector.
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FINSUM + Magnifi: Bonds Offer Security for Income Investors
(March 2021)
Bond market investing hasn’t seemed so attractive recently as rates on even long-term government debt such as the 10-year Treasury hit lows of 0.318% nearly a year ago, but the yield curve is sloping upward and it's time to move back into the bond market. For retirement investors, in particular, bonds offer safety and security at least at maturity, and for those looking to hedge, bonds gain in value as the tougher times hit the equity market. While young investors can bear swings in stocks, many don’t consider bonds to offer stability in tumultuous equity and employment markets. For investors getting closer to retirement, increasing bond/equity share is a no-brainer, but all investors can add some diversity to their portfolios. For growth-oriented investors international and corporate bonds ETFs like BND or BWX, income investors can look to inflation-protected securities like TIPS or ETFs like BLV, and short-term government debt is the answer for the most conservative.
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FINSUM + Magnifi: Regulators Stepping into Chinese Fintech
(March 2021)
The Premier of the state council of China, Li Keqqiang, announced plans to increase oversight and regulation in the country’s financial and fintech sectors. This comes as an addition to an over 3-year long saga of back and forth between the government regulators and the inscrutable financial sector. The aims are to create an economy that serves the people and the real economy, but in practice, it will very much curb the growing role of technology companies in finance. Giants in Chinese technology, such as Tencent and Ant Group Co., will be particularly hard hit by the new regulations. Microlending restrictions already shook up Ant Groups' initial public offering, placing it on hold. Regulators are also artificially lowering rates on lending and extending repayment timelines for small businesses.
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FINSUM + Magnifi: Look Out for a Big U-Turn in the Muni Market
(March 2021)
Even before the pandemic and subsequent crisis, the high-yield Muni market failed to deliver the returns after taxes that the corporate bond market did despite most being tax-exempt for investors. However, David Hammer, Exec Vice President of Pimco sees a different direction for muni's moving forward. Hammer says he sees high-yield muni’s value on the rise as tax collection holding increased in 2020 and a perception of less risk in muni’s. Hammer helps run Pimco’s High Yield Muni Bond fund (PHMIX), which has generated a 5-year annual return of 5.82% and ranks among the top 10% for its Morningstar category. PYMAX is another Pimco muni fund that has a lower $1,000 minimum investment. Hammer says he looks for bonds that are “resilient and have secured cash flows, and we can expect spreads to compress further.” Modern high-yield bonds aren’t all funding local governments; many are profitable private companies that are making public goods, such as airlines.
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FINSUM + Magnifi: BofA says Big Sell Signs are Flashing
(March 2021)
The post-pandemic bull run has touched the breaks, but not necessarily stopped the momentum. However, Bank of America’s Sell Side Indicator, which informs sell-side strategists how much of their portfolio should be allocated to equity. The Indicator jumped up near a percentage point in February after a rise in January as well. BofA Quant, Savita Subramanian indicated that the indicator is in the shell region, and the last time it reached this high was June 2007. Rising bond yields are also pointing to a let-up in equities. Finally, the Wilkshire 5000 (a total stock market indicator) divided by the annual U.S. GDP is Warren Buffet's favorite aggregator and is pushing to record highs. Rising interest naturally puts pressure on stocks anyway and maybe it gives investors an alternative to equities.
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