Sidekick Market Pulse - 6th Feb 2023
Welcome to this week’s Market Pulse, your 3 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.?
In this week’s addition, we’re trialling a new feature: Market Pulse Audio! If you’re on the go and want to listen rather than read the updates, you can now get each Pulse via audio format. Just click the ‘Get the Full Pulse’ links to jump straight in.
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Cyril (CIO), and the rest of the Sidekick team.
It’s important to note that the content of this Market Pulse (including the answers to any questions) is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
1) UK Economy in the IMF doghouse
The UK economy is facing dire straits. The International Monetary Fund recently released their economic growth forecasts for G-7 countries. In it, they relegated the UK to the economic doghouse. The UK economy is the only G-7 economy expected to decline in 2023. Even Russia is expected to do better[1].?
UK household spending is being weighed down by high energy costs, rising mortgage costs and higher taxes. The Bank of England has hiked interest rates 10 times since the pandemic and they expect more than 4 million people will face higher mortgage bills over the next 12 months[2].
It’s not just the UK consumer that is struggling. As pandemic support was scaled back, more UK businesses went bust in 2022 than in any year since the global financial crisis. The construction, hospitality and retail sectors have been particularly hard hit. Things probably won’t get any easier after this coming April when the government is expected to reduce the level of energy support[3].?
The road to recovery for the UK economy will likely be a long and bumpy one. But despite the somewhat gloomy economic outlook from the IMF, investors appear to be more upbeat. The FTSE 100 recently reached an all time high thanks to strong performance from the Financials, Materials and Energy sectors[4].
2) Short-sellers circling.?
Short sellers make money when stock prices fall and they are always on the lookout for overvalued companies or signs of impropriety. A previous high profile accounting scandal surrounding the German payments processor, Wirecard, was the subject of an in-depth research report by a group of short-sellers. Recently we had another such research report by a group of short-sellers. This one unleashed a $100bn shockwave.
Hindenburg Research, a US based activist investor, wrote a scathing report, in which they allege that the India-based Adani Group has been involved in share price manipulation and accounting fraud. Hindenburg Research is so confident in their research that they invited the Adani Group to sue if their report was factually inaccurate[5].
Since the release of the report the valuations of many of the listed Adani Group companies have collapsed. So far, more than $100bn in value have been wiped out from Adani Group companies. Gautam Adani’s wealth has also taken a hammering. He was once the second richest man in the world. Now he ranks at #21[6].?
The Adani Group has denied any wrongdoing. They called the allegations malicious and nothing short of an “attack on India”. They responded to the allegations in a 413 page report but the lack of a meaningful rebound in share prices suggest this did little to assuage investor fears[7].
3) Corporate earnings in the doldrums.?
Corporate earnings season is in full swing. As of last Friday (3 Feb), 50% of companies in the S&P 500 Index (US) have reported, with 20% of Stoxx600 (Europe) and 30% of companies in the Topix index (Japan)[8].
So far US companies are reporting revenues 4% higher than the same period last year. Corporate profitability did not fare so well as earnings per share fell 5%. If earnings per share are down 5% after all the companies report, it will be the first decline since 2020.??
It’s still too early in the European reporting season to make any significant conclusions but so far trends appear broadly similar to what we’re seeing in the US. Strong performance in energy and industrials and somewhat weaker trends in technology related areas.?
In Japan, only a third of companies have reported so far. Revenues are 16% higher than last year with earnings per share up 5%. Revenues and earnings at Japanese exporters will have been boosted by a weaker Yen. The Yen weakened from 114/US dollar in the last quarter of 2021 to 141/US dollar during the last quarter of 2022[9].
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It’s important to note that the content of this Market Pulse (including the answers to any questions) is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
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CEO & Co-Founder @ Sidekick. Making private wealth a little less...private
2 年The good news... we have a new audio feature! The bad news... you have to listen to my voice narrating this week