Financial Newsletter February 7 , 2025

?? 1. BIGGING UP BIG: BOFA'S INVESTMENT STRATEGIES

The recent BofA Securities report highlights a clear uptrend for Bonds, International Stocks, and Gold (BIG). Data shows that:

• Gold has recorded an 8.5% YTD increase, while global equities have risen by 4.1%.
• High-yield bonds have gained 1.5%, while investment-grade bonds are up 1.2%.
• The US dollar has lost 0.7% YTD, while cryptocurrencies have suffered a significant 8.6% decline.

?? Key Trends:

• Regional banks and REITs are surpassing their 2021-2022 highs, suggesting that investors may need to reduce underweight positions in bonds.
• International markets are anticipating the peak of US exceptionalism, with Brazil leading (+12% YTD), followed by Germany (+10%) and China (+6%).
• Gold could reach $3,000 per ounce, following its historical trend during periods of economic and political uncertainty.

?? 2. PALLADIUM SANCTIONS RISK: DEUTSCHE BANK'S POSITION

A Deutsche Bank analysis highlights the vulnerability of the palladium market to new sanctions against Russia.

?? Key Factors:

• The US imports 42% of its palladium from Russia, which produces 44% of global supply.
• A supply disruption could cause prices to skyrocket and force short speculators to cover their positions.
• US exchange inventories of palladium have remained almost unchanged over the past month, signaling a potential supply squeeze.

The possibility of sanctions on palladium and titanium was raised in October 2024 but did not materialize. However, with the upcoming Munich summit from February 14-16, new restrictive measures may emerge.

?? 3. CHINESE TECHNOLOGY: THE GREAT IGNORED COMEBACK

According to JPMorgan, Chinese tech stocks are experiencing a strong rebound but continue to be ignored by Western investors.

?? Reasons for the rally:

• Trump is less aggressive on tariffs (for now).
• Upcoming catalyst: The National People’s Congress (NCP) on March 5 may provide clarity on fiscal strategies.
• Chinese AI re-evaluation: DeepSeek and Alibaba are making significant progress in the sector.
• Extremely low valuations: Chinese software companies trade at 10x to 15x earnings, while US tech stocks are valued between 25x and 40x.

The suggested strategy is to invest in KWEB option spreads, offering limited downside risk with high potential returns.

?? 4. TRUMP'S CHIP TARIFFS: REAL THREAT OR NEGOTIATION TOOL?

The Société Générale report analyzes the possible consequences of Trump's semiconductor tariffs.

?? Key Data:

• Taiwan generates 15% of its GDP from the semiconductor industry, with NTD 4.3 trillion revenue in 2023.
• The country holds a 78% global share of advanced chip manufacturing (<10nm), crucial for AI and high-performance computing.
• 5% of Taiwan's GDP is at risk if tariffs are implemented.

Potential Effects:

• 100% tariffs on Taiwanese chips could also impact US producers like Nvidia and AMD.
• Taiwan could pass on the costs to end-users due to its dominant market position.
• The US may need to reconsider its strategy, as domestic chip production remains too expensive (+50% compared to Taiwan).

?? 5. BEIJING'S RESPONSE TO NEW US TARIFFS

According to ING Research, China has announced trade retaliations against additional US-imposed tariffs.

?? Current Scenario:

• The US has imposed a +10% tariff on Chinese products.
• China will respond with tariffs on US goods starting February 10.
• There is still room for negotiation, with potential high-level talks in the coming days.

Other Events in Asia:

• South Korea: January unemployment rate fell due to political stabilization and Lunar New Year-related job increases.
• Philippines: Inflation remains within the 2-4% target, paving the way for a possible 25bp rate cut at the next BSP meeting.

?? CONCLUSIONS

?? Global markets are undergoing a transition phase with new investment strategies focusing on Bonds, International Stocks, and Gold. ?? The Chinese tech sector could be a major undervalued opportunity. ?? Trump's trade policies are creating both risks and opportunities, especially in semiconductors and precious metals. ?? Geopolitical tensions remain a key element to monitor.

#Markets #Investing #Economy #ChinaTech #Gold #Bonds #Palladium #Tariffs #Geopolitics #Trump #BigTech #USChina #TaiwanChips #AI #Finance

?? Sources:

BofA Securities, Deutsche Bank, JPMorgan, Société Générale, ING Research.