Investors weigh new stock leadership as broader market wobbles

Moves this week further spurred a shift that has seen months-long outperformance for energy, financial and other shares expected to benefit from an economic recovery. (File/AFP)
Short Url
Updated 27 February 2021

Investors weigh new stock leadership as broader market wobbles

  • Tech and momentum stocks helped drive returns in 2020 “when everyone was locked down and all they had was their computer”

NEW YORK: A shakeup in stocks accelerated by the past week’s surge in Treasury yields has investors weighing how far a recent leadership rotation in the US equity market can run, and its implications for the broader S&P 500 index.
Moves this week further spurred a shift that has seen months-long outperformance for energy, financial and other shares expected to benefit from an economic recovery, while a climb in Treasury yields weighed on the technology stocks that have led markets higher for years.
The two-track market left the benchmark S&P 500 down for the week, and sparked questions about whether it could sustain gains going forward if the tech and growth stocks that account for the biggest weights in the index struggle.
So far this year, the S&P 500, which gives more influence to stocks with larger market values, is up 1.5 percent, while a version of the index that weights stocks equally is up 5 percent.
“That just tells us the gains are less narrow, more companies are participating, and I think that’s healthy,” said James Ragan, director of wealth management research at D.A. Davidson.
The focus on market leadership comes as investors are weighing whether the S&P 500 is due for a significant pullback after a 70 percent run since March, with the rise in long-dormant yields the latest sign of trouble for equities as it means bonds are more serious investment competition. The yield on the 10-year US Treasury note this week jumped to a one-year peak of 1.6 percent before pulling back.
Economic improvement will be in focus in the coming weeks, including the monthly US jobs report due next Friday, as will the country’s ability to ensure widespread coronavirus vaccinations, especially as new variants emerge.
Tech and momentum stocks helped drive returns in 2020 “when everyone was locked down and all they had was their computer,” said Jack Ablin, chief investment officer at Cresset Capital Management. “Now it seems with the vaccines, the stimulus and the prospect of reopening that we are looking out toward a recovery phase.”
The shift in the market this week is building on one that was fueled in early November, when Pfizer’s breakthrough COVID-19 vaccine news generated broad bets on an economic rebound in 2021.
Among the moves since that point: the S&P 500 financial and energy sectors are up 29 percent and 65 percent, respectively, against a nearly 9% rise for the benchmark index and 7 percent rise for the tech sector. The Russell 1000 value index has gained 16.5 percent against a 4.3 percent climb for its growth counterpart, while the smallcap Russell 2000 is up 34 percent.
“You definitely are seeing the reopening trade that has pretty much come alive here,” said Gary Bradshaw, portfolio manager of Hodges Capital Management.
Despite the gains, there remains “plenty of room for the reflation trade to run from a valuation perspective,” Lori Calvasina, head of US equity strategy at RBC Capital Markets, said in a report this week. RBC is “overweight” the financials, materials and energy sectors.
Rising rates tend to be favorable for more cyclical sectors, David Lefkowitz, head of Americas equities at UBS Global Wealth Management, said in a note, with financials, energy, industrials and materials showing the strongest positive correlations among sectors with 10-year Treasury yields.
Still, how long the market’s reopening trade lasts remains to be seen. Investors may be reluctant to stray from tech and growth stocks, especially with many of the companies expected to put up strong profits for years.
Any setbacks with the economy or with efforts to quell the coronavirus could revive the stay-at-home stocks that thrived for most of 2020.
And with a GameStop-fueled retail-trading frenzy taking hold this year, banks and other stocks in the reopening trade may fail to draw the same attention from amateur investors as stocks such as Tesla, said Rick Meckler, partner at Cherry Lane Investments.
“There isn’t the pizzazz to those stocks,” Meckler said. “There rarely is a potential for stocks to make the kind of moves that big tech growth stocks have made.”


Saudi Credit Bureau issued 116m reports in 16 years

Updated 10 April 2021

Saudi Credit Bureau issued 116m reports in 16 years

  • SIMAH plays an important role in helping consumers, corporates, and SMEs obtain financing
  • Its credit data on individuals and corporate borrowers helps remove the uncertainty that has traditionally been associated with lending

RIYADH: The Saudi Credit Bureau (SIMAH) issued more than 116 million credit reports to the Saudi market since its establishment in 2004 until the end of December 2020, helping its members identify their customers’ credit behavior and bring more transparency to the Kingdom’s lending system.
Over the same period, the size of SIMAH’s database of consumers rose to around 18 million — individuals and companies. The number of credit scores it provided between 2018 and 2020 amounted to over 28 million.
SIMAH plays an important role in helping consumers, corporates, and small and medium-sized enterprises obtain financing.
Its credit data on individuals and corporate borrowers helps remove the uncertainty that has traditionally been associated with lending.
The new data comes as SIMAH launched its latest awareness campaign Amwalk-2. The financial literacy program is designed to help all segments of society achieve their financial goals, reduce defaults and enhance the culture of savings.
With Amwalk-2, SIMAH aims to shed light on issues related to financial and credit aspects of individual consumers, in an effort to raise the level of financial literacy and introduce consumers to the importance of financial planning.
It also aims to enhance the essential role of SIMAH, being the first licensed credit bureau in the Saudi market, in helping consumers assess their creditworthiness and guide them toward the most optimal use of credit cards.
Through Amwalk-2, SIMAH is actively contributing to the preservation of consumers’ rights and follows the eight credit principles: Neutrality, transparency, education, awareness, credit behavior, complaints, protection and confidentiality.
It seeks to stress the importance of a credit report in organizing and managing budgets, taking financing decisions and knowing financial obligations with credit donors.
“Amwalk-2 comes as an extension of Amwalk-1 that SIMAH launched in 2019, as one of the largest financial education programs. We believe in the importance of spreading financial culture and try to play a role in this aspect by highlighting consumers’ rights,” SIMAH CEO Swaied Alzahrani said in a statement.
“Financial education is progressively necessary. It’s turning into essential for the typical family making an attempt to determine the way to balance its budget, buy a home, fund the children’s education and ensure an income when the parents retire. Recent developments have created financial education more and more necessary for financial well-being.”


Aramco agrees $12.4 billion pipeline deal with EIG

Updated 10 April 2021

Aramco agrees $12.4 billion pipeline deal with EIG

  • Aramco to hold 51% stake in new company
  • Aligns with recently announced "Shareek" program

RIYADH: Aramco has agreed a $12.4 billion leaseback deal with a consortium led by EIG Global Energy Partners in one of the biggest energy infrastructure transactions.
It represents a continuation of Aramco’s strategy to unlock the potential of its asset base and maximize value for its shareholders, it said in a statement.
A newly-formed unit called Aramco Oil Pipelines Company will lease usage rights in Aramco’s stabilized crude oil pipelines network for a 25-year period.
In return, Aramco Oil Pipelines Company will receive a tariff payable by Aramco for the stabilized crude oil that flows through the network, backed by minimum volume commitments.
Aramco will hold a 51 percent majority stake in the new company and the EIG-led consortium will hold a 49 percent stake.
The Saudi oil giant said it would retain full ownership and operational control of its stabilized crude oil pipeline network and that the transaction would not impose any restrictions on Aramco’s actual crude oil production volumes.
“This landmark transaction defines the way forward for our portfolio optimization program,” said Aramco President Amin Nasser. “We are capitalizing on new opportunities that also align strategically with the Kingdom’s recently-launched Shareek program. Aramco’s strong capital structure will be further enhanced with this transaction, which in turn will help maximize returns for our shareholders.”

Related


Oil prices dip on mixed supply and demand outlook

Updated 10 April 2021

Oil prices dip on mixed supply and demand outlook

  • Downward pressure has been exerted by the decision of OPEC+ to increase supplies by 2 million barrels per day between May and July

LONDON: Oil prices edged lower on Friday on rising supplies from major producers and concerns over a mixed picture on the COVID-19 pandemic’s impact on fuel demand.

Brent crude futures for June fell 37 cents, or 0.59 percent, to $62.83 a barrel while US West Texas Intermediate (WTI) crude for May was at $59.24, down 36 cents.

Both contracts are on track for a 2-3 percent drop this week but still far from a low of $60.47 hit two weeks ago.

Downward pressure has been exerted by the decision of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to increase supplies by 2 million barrels per day between May and July.

Analysts expect global oil inventories to continue to fall, but predict fuel demand will accelerate in the second half of the year as the global economic recovery gathers steam.

“A lot of destocking is going on, so we are well into the rebalancing process,” said Energy Aspects analyst Virendra Chauhan.

Physical markets will still need to pick up before prices and inter-month spreads can rally, he added.

For all the optimism, renewed lockdowns in some parts of the world and problems with vaccination programs could threaten the oil demand picture.

Stephen Innes, chief global markets strategist at Axi, said oil prices are expected to trade in a range between $60 and $70 as investors weigh these factors.

“Oil is currently in a wait-and-see mode, with market participants looking at the vaccination pace to understand when oil demand will recover further and at nuclear talks in Vienna to see when more Iranian barrels might come back,” said UBS commodity analyst Giovanni Staunovo.

Talks to bring Iran and the US fully back into the 2015 nuclear deal are making progress, delegates said on Friday, but Iranian officials indicated disagrement with Washington over which sanctions it must lift.

“If a fulsome framework can be crafted in the coming weeks, significant quantities of Iranian oil will likely hit the market in H2 2021,” RBC Capital analyst Helima Croft said in a note this week.


Pakistan's current $16 billion forex reserves will make import payments ‘easy’ — experts

Updated 10 April 2021

Pakistan's current $16 billion forex reserves will make import payments ‘easy’ — experts

  • The country's foreign currency reserves increased to $22.18 billion after four years, following significant Eurobond inflows
  • The situation has not done much for the national currency that may come under pressure in the long term due to debt servicing

KARACHI: Pakistan's foreign exchange reserves have reached $22.18 billion, with more than $16 billion held by the central bank, after a span of four years, as the country raised $2.5 billion by issuing Eurobonds, said an official statement released on Thursday.

"The State Bank of Pakistan (SBP) has received the proceeds of government's $2.5 billion Eurobond issuance in its account," said the statement circulated on Thursday night. "As a result, SBP's foreign exchange reserves closed above $16 billion, their highest level since July 2017."

According to economic analysts, the inflows have brought the government in a more comfortable position to pay for its imports, including any COVID-19 vaccines.

"The inflow of $2.5 billion has raised the cushion of the State Bank and it will also improve the country's current account position," Dr. Abid Qaiyum Suleri, member of the government's Economic Advisory Council (EAC), told Arab News on Friday.

"The inflows have made it easy for the country to make payments for imports of COVID-19 vaccine, wheat or sugar due to an improved reserves position," he continued. "This is also the right time to tap international market."

Some economists also suggested that Pakistan should utilize the Eurobond proceeds to pay off some of its debts.

"The country has arranged the liquidity to pay off previous external debts because time to make these payments is due and the prices of oil are also increasing with the ease of lockdown," Dr. Vaqar Ahmed, joint executive director at the Sustainable Development Policy Institute (SDPI), said.

"For the payment of external debts and oil imports the Eurobond proceeds can be utilized," he added.

The inflows did not generate any major fluctuations in the currency and interbank markets as the rupee only appreciated 0.05 percent to close at Rs152.94 against the greenback on Friday.

"Going forward the rupee can come under pressure due to debt servicing since the country is availing G20 debt relief at present," Samiullah Tariq, head of research at the Pakistan-Kuwait Investment, told Arab News. "Only strong and enduring inflows can resist the fall of rupee. Otherwise, we expect three to four percent depreciation in the long run."

Despite its limited impact on the national currency, an official statement announced that the country had returned to the international market for the first time by issuing securities since 2017.

"Pakistan has entered the international capital market after a gap of over three years by successfully raising $2.5 billion through a multi-tranche transaction of 5, 10 and 30-year Eurobonds," the finance ministry said on Thursday.

"The transaction generated great interest as leading global investors from Asia, the Middle East, Europe and the US participated in the global investor calls and the order book," it added.

This is for the first time that Pakistan has adopted a program-based approach with registration of Global Medium-Term Note program.

"The program will allow Pakistan to tap the market at short notice," the ministry continued in its statement. "The government intends to make full use of this program and become a regular issuer in the International Capital Markets."


Riyadh city chiefs deny Bloomberg report of unpaid Metro contractor claims

Updated 09 April 2021

Riyadh city chiefs deny Bloomberg report of unpaid Metro contractor claims

  • Pandemic leads to supply chain disruptions
  • All claims go through contractual process

RIYADH: The Royal Commission for Riyadh City (RCRC) has denied claims it has not paid contractors building the city’s multi-billion dollar metro project.
It follows a Bloomberg report published earlier in the week headlined “Saudi Arabia’s Unpaid Tab With Metro Builders Runs Into Billions.”
It said that payments had been made in a timely manner on the project which started in 2013 and that any contractual claims were assessed through a dispute resolution process.
“All claims filed go through a dispute resolution process in order for all disputes to be resolved professionally and amicably,” it said in a statement. “The COVID-19 pandemic affected the construction of mega projects, such as supply chain interruptions. However, despite the outbreak, we have ensured the project’s continuity, as we adapted business behavior and construction processes.”
The Riyadh Transit Network Project (RTNP) aims to support the Kingdom’s 2030 economic diversification agenda by boosting the transportation sector and raising the capital city’s profile.
With its six lines totaling 176km and 85 metro stations, the metro network will cover most of the densely populated areas of the city, public facilities, as well as governmental, educational, commercial and medical institutions.
It will connect to King Khalid International Airport and King Abdullah Financial District, in addition to main universities and the downtown area.
The metro service will also be integrated with the Riyadh Bus network, linking to 3,000 bus stops spread across the city over 1,900 km of routes.