The old against the new

In “Talking Points This Week,” Niraj Shah studies how top business leaders and market makers are navigating the rapidly changing financial landscape.

The old one is that inflation, higher rates, war, oil price volatility and weak consumer sentiment continue to dominate the investment landscape. The news is that stocks that were leaders in the covid world have crashed in recent months. If Zoom and Twilio have been out of shape lately, Netflix is ​​last on the list, losing 200,000 subscribers in a quarter and losing more than 30% of its market capitalization in a single day. More importantly, we see 2022 ushering in gains for agricultural companies, travel & tourism stocks, and defense stocks, all of which have been dormant for 18 months, if not longer.

The problem, however, for stocks in general, is that the former has a stranglehold on sentiment, and this shows up in the way yields and the dollar index are soaring. We take a look at some of the above in this week’s review. What we are not going to do is examine whether Ukraine’s alleged offer of talks leads to a breakthrough in this ongoing conflict. While the business world certainly needs it, the only humanitarian aspect at stake leads to praying that the conflict will be resolved quickly.

Stocks: many factors, old and new

James Bullard, a member of the US Federal Reserve, said the Fed must act quickly to raise interest rates to around 3.5% this year with several half-point hikes and that the Fed should not rule out rate hikes of 75 basis points. These increases will come as the global economy cools, with the International Monetary Fund predicting a growth rate of 3.6% for 2022 and 2023, down 0.8% and 0.2% respectively from its benchmarks. January forecast. Could slowing growth figures and a path of rising interest rates hamper the performance of global equities? The answer, on the books of many investors, may be yes, as predicted in the survey of Bank of America fund managers, where participants were cash-rich and believed the likelihood of a recession was highest. since a while.

A brief respite for an Indian market watcher is that Indian GDP growth is projected at 8.2% for 2022. However, Indian markets are believed not to be cheap as earnings forecasts will see a downward revision consensus. Assessing whether the Indian market is expensive or cheap is a relative matter, depending on which compass you look at. Macquarie says that at 20x the two-year forward C/E, India remains rich relative to the world’s emerging markets, with a premium at nearly +2-3 standard deviation. Another report explained how, at 20x, valuations have deteriorated a bit. A safer way to gauge this would be to look at averages. These indicate that the Indian markets are above average, which could suggest that there could be a course correction or a weather correction in the coming year. Perhaps the old problem of earnings falling short of expectations is one that could come back to haunt Indian stocks.

Meanwhile in China: old wine in a new bottle

I borrowed one CNN Tagline here, simply because what happens in China can have a major impact on the rest of the world. The country is in the midst of a strict lockdown following a major covid outbreak, with some key areas under siege, so to speak. Shanghai has become the epicenter of the country’s worst coronavirus outbreak since 2020, with many of its 25 million people – triple the population of New York – braving their third week of lockdown and the city is still seeing the number of serious cases of covid multiplying by the day. And that highlights the manufacturing and supply issues of manufactured goods. While Q1CY22 GDP may have beaten forecasts, all signs point to a rather bleak outlook for the second quarter. The problem is not just what is happening with China’s GDP, but what the strict lockdowns are doing to the rest of the world. Demand for raw materials, supply of finished goods, freight rates and supply chains are all impacted. Of course, there will be an increase in containers from China as its economy recovers, but that’s for a later date. For now, the freight market is slowing down and supply chains, if they haven’t already, will soon take a big hit. Not a good sign. It’s as if supply chain grunts are no longer a new development in a world that has seen multiple fractures since March 2020.

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