- UBS expects another global equity rotation
- IMF President Georgieva: ‘’The global economy is at the crossroads’’
- Apple acquired more than 100 companies in the last six years
UBS Expects Another Global Equity Rotation
Tightening financial conditions will likely lead to a “phase change” in global markets in the second quarter, resulting in lower overall returns and favoring growth stocks over value, according to UBS Group AG.
Strategists, including Bhanu Baweja, stated that growth and profitability will provide the greatest return in the second quarter, reporting that: “The decline in real interest rates and credit spreads will point to the end of the tail risk in liquidity. These changes will cause a significant change in the nature of the rally, if not drastically. The most recent rise in the market was due to the rigid liquidity tail risks.”
They announced that it expects a rotation in global stocks that will lead to a phase change. According to UBS Group, the world’s largest asset manager, tightening financial conditions will lead to a “phase change” in global markets in the second quarter, which will result in lower overall returns and favor stocks that promise sustainable growth over low-value stock purchases.
A study of similar historical “phase changes” as liquidity drivers transition from loose to neutral indicates lower market returns and slightly outperforming value shares in growth stocks, UBS said. The dollar generally sees modest gains against emerging-market currencies and, the strategists wrote, a rotation from the U.S. into other markets becomes less persuasive.
Strategists wrote that the transition from a liquidity-driven market to growth and the earnings-based market would peak inflation enthusiasm and precede any reduction of Federal Reserve support. They said this regime change would be marked by a decline in real interest rates and credit spreads, which would signal the end of the “wind blowing up the sails” of liquidity.
The recent rise in US real interest rates has alarmed investors, who see negative real interest rates as the cornerstone of the risky asset rally.
Rising real interest rates indicate that the economy is accelerating, and may lead to tightening in financial conditions and change in asset allocations. 10-year inflation-indexed bonds rose from minus 1.08 percent on February 11 to minus 0.77 percent last week.
“A small increase in real rates will likely not be a big concern, but as real rates accelerate, each incremental move becomes more challenging for markets,” wrote Baweja and his team.
IMF President Georgieva: ‘’The Global Economy is at the Crossroads’’
International Monetary Fund (IMF) President Kristalina Georgieva stated that the expectations of recovery are dangerously diverging between countries and regions, “Strong policy actions must be taken to reverse this dangerous separation between and within countries.” Reminding that the global economy is expected to grow by 5.5 percent this year and 4.2 percent in 2022, Georgieva emphasized that the rise of the global economy will be long and uncertain.
“Expectations for recovery diverge dangerously between countries and regions,” Georgieva pointed out that much of the world is facing a slow distribution of vaccines in an environment where new virus mutations are spreading.
“While developed economies and a few emerging markets are recovering faster, there is a huge risk that most developing countries will experience stagnation for years,” Georgieva said.
By the end of 2022, emerging markets and developing nations — excluding China — will see per capita incomes 22 percent below pre-crisis levels, compared to just 13 percent lower for advanced economies, which will throw millions more into extreme poverty, Georgieva warned.
Georgieva warned that this expected blow to per capita income would increase the number of extremely poor people in the developing world. “That is why we need much stronger international collaboration to accelerate the vaccine rollout in poorer countries,” she said.
Stating that the income gap between developed economies and 110 emerging and developing countries before the crisis was predicted to narrow in 2020-2022, Georgieva stated that only 52 economies will catch this difference and 58 will stay behind.
“Even in the best-case scenario, most developing economies are only expected to enter widespread vaccine coverage by the end of 2022 or beyond,” Georgieva said, citing “partially unequal access to vaccines.”
The Washington-based crisis lender estimated more than half of the world’s 110 emerging and developing countries will see their incomes fall further behind advanced economies through the end of next year. Also, the virus-driven economic crisis also will widen income gaps within developing nations, especially as millions of children are still facing disruptions to education.
“Allowing them to become a lost generation would be an unforgivable mistake. It would also deepen the long-term economic scars of the crisis,” she warned.
G20 finance ministers and central bank chiefs led by Rome will meet by videoconference to discuss the state of the recovery and how best to attack the problem.
Apple Acquired More than 100 Companies in the Last Six Years
Tim Cook, the CEO of American tech giant Apple, announced that they have acquired more than 100 companies in the last six years. This equates to the company adding a firm to its portfolio every three to four weeks, Cook said during Apple’s annual meeting of shareholders, a report by the BBC noted.
Apple’s biggest acquisition in the last 10 years was Beats Electronics, the headphone manufacturer. Apple, rap singer and producer Dr. He paid $3 billion in 2014 to the company founded by Dr.Dre.
The company bought Shazam, its song recognition app, for $400 million in 2018. Obviously, Apple buys small companies and integrates their innovations into its products.
One of them is PrimeSense, an Israeli company that develops 3D sensing technology. Apple took advantage of this software in FaceID (face recognition) technology. The company has also invested heavily in “backend” technology for iPhone and Macbook computers. Overall, Apple’s investments last year include artificial intelligence, virtual reality, payment system, and podcast companies.
Apple’s list of acquisitions and investments is extremely varied. The company acquired driverless car manufacturer Drive.ai in 2019 to integrate it into its own autonomous driving technology.
In 2016, the company invested a billion dollars in Uber’s biggest competitor in Asia, car-sharing service Didi Chuxing.
Apple is a profitable company worth more than $2 trillion and recently reported its strongest quarter in terms of revenue of all time, bringing in $111.4 billion in the first quarter of its 2021 fiscal year, the report added.
Analysts say Apple has acquired 100 companies in the past six years and has a great purchasing power, but is still very selective. As an example, Elon Musk, the CEO of the electric car manufacturer Tesla, announced in 2013 that he was trying to sell the company to Cook while the company was having a hard time, but Tim Cook refused.
However, when compared with its tech rivals, the value of its total acquisitions, though abundant, is below the values of, for example, Microsoft’s $26 billion purchase of LinkedIn, Amazon’s $13.7 billion payment for Whole Foods, and Facebook’s purchase of WhatsApp for $19 billion.
Meanwhile, Apple is planning to increase dividend according to Chief Executive Tim Cook, CNBC reported, citing the shareholder meeting.
The company’s shareholders also approved compensation for Apple executives for fiscal 2020, the report said.