WOW! Equity Bulls Market is in top gear this month, trolling the old idiom ‘sell in May and go away’. MSCI World Equity Index posted gains of almost 8% since May, piling on 3.2% in the last week.
US inflation readings drove government bond yields and the dollar lower while providing a jump to stocks’ momentum. Nasdaq was back leading the pack, with the index now up 35% YTD against the 33% fall recorded last year.
US earnings season kicked off with the big banks posting decent returns so far helped by better-than-expected net interest rate margins as policy rate hikes are slow to be passed on to depositors. Being earnings season, earnings guidance will be crucial in helping to determine the vitality of profits.
I see pressure ahead as growth slows and the impact of rate hikes makes consumers and businesses inhibited to spend. However, it would be disastrous to get in the way of the charging bulls despite many markets now looking overbought short term.
Inflation continues to fall steadily slowing from 4% in May to 3% YoY in June, the lowest since Q1 2021. The slowdown has been broad-based and includes many service components like the airfare and lodging, indicating that consumer demand in these sectors is beginning to fade.
A vital point is that the core inflation also fell more than expected with the monthly rate slowing to only 0.16%, returning to an annualized rate below 2%. Producer prices confirmed the fading price pressure with the annual rate falling back to a mere 0.1%.
Bond yields dropped substantially in the aftermath of the soft inflation numbers with the 10y Treasury yield Markets falling back below 4%. Meanwhile, small business sentiment ticked up slightly in June but remains at very placid levels, while some of the components reflect a deteriorating employment situation.
Hiring plans weakened considerably, matching post-Covid levels reached in March this year while the compensation component dropped to the lowest since Q2 2021, directing to reduced wage pressure in the economy. Whilst this is unlikely to stop the Fed from hiking once again at its meeting next week the latest set of inflation data provide further evidence of rapidly falling price pressure.
Whilst on the above, I cannot afford to ignore the bell-weather ‘China’s markets’, whose GDP growth slowed from 2.2% to 0.8% QoQ in Q2, with YoY growth coming in at 6.3%, below the consensus expectation of 7.1%. Although industrial production improved from 3.5% to 4.4%, retail sales weakened markedly from 12.7% to 3.1%, in part distorted by base effects.
The service sector remained the primary driver of growth, while goods consumption showed a lackluster performance.
Investment improved moderately, led by infrastructure investment, but property investment continued to contract. Notably, the unemployment rate for youths reached 21.3%, setting another record high. June exports contracted by 12.4% YoY, marking the sharpest decline since March 2020, and imports fell by 4.1%, reflecting weak processing imports and soft domestic demand.
In June, China’s markets aggregate financing and new bank lending, while exceeding expectations, still showed softer YoY growth compared to May. Overall, the latest data indicate downside risks to China’s growth in the second half of the year, highlighting the necessity for additional stimulus measures.
Closer to home, ADIA along with a consortium of investors led by Singapore-based SC Capital Partners has acquired a portfolio of 27 resort hotels in Japan for about $900 million. The consortium, formed by Singapore-headquartered private equity real estate firm SC Capital Partners Pte Ltd (SCCP) , which also includes Goldman Sachs Asset Management, acquired the portfolio from Daiwa House Industry, a Japan-based home construction and real estate development company.
Japan Hotel REIT Advisors Co., Ltd. (JHRA), a company that is majority-owned by the SCCP Group will manage the portfolio, a joint statement issued on Wednesday said. Mohamed Al Qubaisi, Executive Director of the Real Estate Department at the Abu Dhabi Investment Authority, said: “Japan’s real estate sector continues to deliver superior returns, and the country’s hotel market is well positioned for growth from the rebound of travel.”
In Saudi, Wa’ed Ventures, the Kingdom-based venture capital arm of Aramco, announced a strategic investment in Tenderd, a startup specializing in AI-enabled technologies for real-time emissions intelligence. The platform provides customers with AI-generated insights to increase asset utilization and reduce emissions, targeting heavy industries such as construction and logistics.
The investment in Tenderd reflects a commitment to addressing sustainability challenges facing the industrial sector and providing solutions to decarbonize their operations, said Fahad Alidi, MD at Wa’ed Ventures. Tenderd brings will bring transformational solutions to traditional capital-intensive industries market like that of the energy, construction, and logistics sectors by utilizing AI-generated insights to increase asset optimization and reduce emissions.
Tenderd is backed by top investors, including Y Combinator, Peter Thiel, BECO Capital, and Dynamo Ventures. The investment from Wa’ed comes at a time when the world is demanding more sustainable practices from heavy industries. Tenderd is serving industries that constitute 40 percent of the global GDP. These companies spend $2 trillion annually operating capital equipment, but a lack of operational intelligence leads to only 50 percent utilization, resulting in an excess of 1 billion tons of CO2 and $500 billion in costs each year.
Tenderd’s technology addresses these issues by providing companies with real-time insights to make better operational decisions. Ultimately, this results in cost savings, better resource utilization, and a smaller environmental footprint.
Technologies offered by companies like Tenderd are increasingly becoming necessary for companies operating in Saudi Arabia’s new economic landscape, with a paramount focus on efficiency and sustainability. With Wa’ed Ventures’ investment, they will be able to evolve industrial operations and the overall market leads the charge towards a greener, more sustainable future” said Tenderd’s CEO, Arjun Mohan. Companies will be able to leverage the power of technology to help them take the right steps toward increasing their operational intelligence and reducing their environmental footprint creating sustainability.
Enjoy the summer and take care of your investments. We are writing history in these unprecedented financial market times.
Risk warning – As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance and the contents of this outlook is not a reliable indicator of future performance. This article/print is protected through international copyright & print laws and may not be reproduced, distributed or copied without exclusive permission from the writer.
Geoffrey Muns is an Independent Financial Advisor and Planner certified from the UK, US, and UAE based out of Dubai for the past 20 years. He also works in the PE/VC space and is a seasoned investment banker having worked with international banks and investment firms in the region. You may contact him at 1mgicapital@gmail.com
