Finance Articles

1) Uranium

 Prices up by 50% the last year

 War Russia/Ukraine => Energy crisis
 Zero carbon emission objectives.
 Many countries adopt nuclear energy (Japan massive investments recently, France
nationalize EDF, South Korea 30%...)
 Demand will outpace supply => Price goes up, especially the stock prices of Uranium
producing companies
 Many signs: producers wanting to expand their capacities by over 10%

2) Natural disasters – Pakistan

 Extreme storms and floods have become so frequent and destructive that economic
developments are being crippled and pushing like Pakistan to the brink of collapse.
 One third of the economy is under water
 Agriculture=25 % Pakistan’s GDP
 Debt=80% Pakistan’s GDP before the event
 Rupee lost 1/3 of its value
 25% Inflation => Protests, political chaos
 But Pakistan 6th largest nuclear arsenal => conflict with India would kill 127 million
directly and more than 2 billion because of a global famine.
 Flooding =climate catastrophe => climate debt => reorganization of the geopolitical
order
 Accelerate the transition to net zero carbon emissions.

3) UK fiscal policy

 Higher interest rates in a country can increase the value of that country’s currency
relative to nations offering lower interest rates (ex: Yen VS USD)
 Political and economic stability and the demand for a country’s goods and services
are also prime factors in currency valuation
 Inflation can lead central banks to set higher interest rates to help cool down a hot
economy
 The UK has unveiled the biggest tax cuts since 1972, to boost growth and make
London the major financial center.
 Boosting productivity, attracting investments.
 Bad timing? Inflation high, interest rates hike
 It will lead the BOE to raise interest rates even higher
 The government’s big gamble is that tax cuts and reductions in regulations will fuel
stronger growth, and in turn generate greater tax revenues.
 And so, the additional huge fiscal stimulus is likely to drive up inflation more than
growth, which will be less useful for the exchequer, leading to more borrowing and
debt.
 This explains the dramatic reaction in gilt markets where the benchmark 10-year gilt
yield (interest rate) has risen by 25 basis points (bps) in response to the
announcement but is up around 84 bps since rumours began to circulate over the
governments’ response to the energy crisis. This is equal to a 4.5% fall in the
price/value of those bonds.
 downgrading the UK’s rating, which could lead to some holders of government
bonds to be forced to sell some or even all of their holdings. 
 UK open ended institutional property funds have had to suspend withdrawals this
week, thanks to a sharp fall in property prices in the wake of the disastrous response
to the unfunded tax cuts in last month’s mini-budget

4) BLOOMBERG – 05/10/2022 – FED’s Monetary policy

 The bureau of Labor Statistics’ JOLTS job vacancy dropped very sharply last month,
far more than expected => tightness in the labor market => pressure on wages and
inflation => hiking campaign will end soon?
 Bank of Australia hiked by only 25 basis point. Not relevant for the US : less exposed
to the global economy than Australia, with China for example.
 Hope is back
 3 cuts between Mar-23 and Jan-24 expected, now just two expected. US stocks
rising, falling dollar, falling US bonds yield.
 Europe Stocks best week since Nov 2020 with Biden elected and success of Pfizer.
 Chance of a pivot treated as a big and important deal.
 But the FED insists on continuing their policy. A “pivot” rather than a “pause”
requires something somewhere in the financial system to break.
 UK open ended institutional property funds have had to suspend withdrawals this
week, thanks to a sharp fall in property prices in the wake of the disastrous response
to the unfunded tax cuts in last month’s mini budget
 Credit Suisse is close to insolvency. ECB keeps an index of systemic stress in the
eurozone, and also the US => suggests that the ECB at least is working on the
assumption that it may be required to make a pivot
 GSIFI (Global systematically important Financial Institutions) deemed so crucial by
international regulators that they are required to maintain a stronger capital base,
Absolute Strategy shows that their share price has fallen this year. The market may
be wrong, but this may be watched as sign that the fed will be forced to pivot, to
avoid events such as the bankruptcy of Lehman Brothers in 2008 or the meltdown of
Long-term Capital management in 1998.

5) BLOOMBERG – 31/10/2022 – Africa shows how hard it’s becoming to pump crude
oil.

 Production -33% since 2010 west coast of Africa

 Reasons: theft, underinvestment, sabotage, and civil strife
 Biggest producers: Angola and Nigeria
 Nigerian National Petroleum CEO: will boost output by 0.5 million barrels a day
 But not realistic. Main problem? Insecurity, many pipelines had to shut down
 New Producer: Namibia. Shell and total found some resources

6) BLOOMBERG – 31/10/2022 – To Buy or to Rent

 Mortgage rates are at historic highs

 New York, and Singapore… proposed a Discount Rent Rate to fill the units that were
empty after the beginning of the pandemic. But in 2022, the rates have exploded.

 The rise in mortgage rates over the past year is just one factor leading to a downturn
in housing demand.

7) BLOOMBERG – 09/12/2022

 Investors are taking heart from any signs of softness in prices that may allow
policymakers around the word to be less hawkish and more supportive of economic
growth.
 Dollar dropped for the 3rd day in a row, yen and yuan strengthening
 Treasury yields declined (10y ->3.45%) also in Japan and Australia
 PPI cooled more than expected in October. The one of November will be released
soon. Labor market is cooling, more and more jobless claims
 JPM Asset Management sees more room for equities to decline from the current
levels
 In China/HK supportive sentiment as the Chinese premier said that stable prices
leave more room for macro policy adjustments as it tries to bolster economic growth

8) World’s Money Managers See Double-Digit Stock Gains in 2023

 Some of the world biggest investors predict that stocks will see low double double-
digit gains next year, which would bring relief
 China begins to ease some of its tough Covid curbs
 Hideyuki Ishiguro, senior strategist at Nomura asset management expects 2023 to be
the “exact opposite of this year”
 Part of this is due to valuations, which have slumped to leave the SCI ACWI trading
near to its long-term average forward 12-month P/E ratio

 Possible triggers for a rebound: better news on inflation, growth, a fluky reopening
China and a ceasefire in Ukraine
9) WILTW -8/12/2022

a) President Xi’s visit to Saudi Arabia

 Riyadh is announced to be joining the BRICS or the SCO

 Xi state visit Saudi Arabia: discussions to issue yuan-based contracts?
 Geopolitically, it would represent the greatest challenge to the petrodollar system
since its inception in 1974.
 This visit shows how important the Gulf and broader Arab world is important for
Beijing.
 Xi says: an epoch-making milestone in the history of China-Arab relations
 It is similar to what Kissinger said in 1974
 Since 2013, China has become Saudi’s largest trading partner.

 Tensions btw US/Saudi: Saudi announced to cut the production of oil by 2 million
barrels/day, Biden says : “there would be some consequences to what they have
done”
 Reason for the trip: Sign agreements in the energy, security and investment
sectors. (AI, 5G, aerospace, smart cities…)
 Dec 1, the ministry of Foreign Affairs of China published a document: A report on
China-Arab Cooperation in the new era
 “new era” -> 2 important functions : a new rising order is seeking to reverse
perceived historical injustices, to increase self-reliance and reduce dependance on
the increasingly weaponized dollar; and Beijing has a long term strategic vision with
the region : Egypt/Saudi/UAE/Qatar wants to join SCO
 China has always supported Arab countries in their quest of independence
 China has a huge business opportunity as Arab countries heavily rely on security
technologies
 Beijing’s Digital Silk Road promotes a currency through a digital token that runs on
an independent, state-controlled trading platform : entirely new and innovative way
to challenge the dollar - > it can reduce the demand for dollars and treasuries
 Belt and Road initiative (BRI). Signed by 21 Arab Countries.
b) OSX Index

 OIL-service stocks are bucking market trends

 The sharp upward reversal in the R/S ratio likely reflects a capex cycle that could
outstrip expectations, even in a recessionary environment
 It shows the differences btw the reality and original expectations of the world’s top
oil and gas mega projects
 China is reopening -> peak of oil consumption is going to be reached
 US unemployment in the oil industry reached new lows
 Wood Mackenzie consultancy says Deepwater oil production will be the fastest
growing oil and gas resource sector through the end of the decade, growing by a
cumulative 60% by 2030
 Offshore projects can generate profits under a scenario of lower international oil
prices, as their large scale allow for costs reductions
 Drilling activity is accelerating: Canada is doubling upstream capex, the Norwegian
Continental Shelf is likely to see a $28 billion worth of new projects, 50% above the
previous record set in 2012
c) China’s world-leading battery recycling infrastructure strengthens the nation’s
control of the critical-materials supply chain

 Battery recycling very important for energy transition

 China is dominating critical materials, it is a significant choke point in global supply
chains that carries the risk of being weaponized during periods of high geopolitical
tensions
 China dominates the entire downstream EV supply chain: produces 75% of EV
battery, hold 53% market share in sales of EV cares, 90 % for buses/trucks vs 7-10%
in the US
 China boats 55% of rare-earth elements and 85% of refining capacity.
 It dominates the battery recycling market with over 80% of operational and planed
global capacity
 China’s competitive advantage is its proximity to the manufactures of cathodes and
other parts
 Risk of supply chain weaponization. Western world accelerates policy and funding to
reduce reliance on China
 Battery recycling will be critical for helping to stem EV metal shortages

 China has been creating policies and standards for battery recycling over the last
decade, while the west is just getting started. China is innovating solutions to track
batteries throughout their lifetime -> traceability system
 They were the firsts to adopt EV vehicles -> batteries coming to an end-> perfect for
recycling and scale

d) Hitachi is widening its global lead in decarbonization and industrial-digital

transformation services

 Hitachi may be the only large company with decades of experience across industry
sectors to now integrate innovative tech into its customer’s operations to drive
efficiency and reduce carbon footprint
 It aims to improve people’s life, contribute to the environment and increase value
for customers and partners’ companies: represents now 30% of its revenue, and
aims to achieve 50%
 Hitachi moving into a high growth phase, with adjusted EBIDTA on track to jump
over 70% by 2024 because:
o Japanese companies rushing to digitize
o Top digital business-transformation in Asia
o Acquired GlobalLogic for 9.6 billion USD that has a 20
o 5 profit margins
o Considers India as one of its key growth markets
 Green-energy development is becoming the core profit driver
 Positioned to benefit from the resurgence of the nuclear energy industry. Develops
safer and optimized reactors

 It is set to outperform in 2023. A DCF analysis shows that it is traded at a 45%

discount to the underlying value

e) Investing in Europe?

 US equity marked is overshadowed by major risks: stock market to GDP, USD index
are at historic highs and the great tech bubble is bursting
 Europe offers a historic discount to the US

 US over owned and Europe under-owned

 Europe offers the world’s most extreme value spread

 German equities trade at a record P/E discount compared to the rest of EZ
 Energy sector trades at a 50% P/E discount compared to the market
 A breakdown in DXY is bullish for European equities, as it tracks the EUR/USD rate
very closely
 They will also benefit from China Reopening. Indeed, the Stoxx 600 derives 20% of its
sales from the Asia-Pac
 Any sign of de-escalation btw Ukraine and Russia will be very bullish for European
equities
 Conference with Macron, Biden said: “happy to sit down with Putin to see what he
wants” if “there is an interest in him deciding he’s looking for a way to end the war”
 Energy crisis in Europe: in the Nordic regions, prices surged to 318 euros/MWh, the
third highest weekly price ever, Germany forced to produce 40% of its electricity
from coal plants
 Advice: invest in Greece (economical and political cycles negatively correlated to the
rest, European stocks exposed to China, commodity sectors, domestic-focused
European companies as euro/usd up
 Call options on an energy-intensive firms forms that rely on revenue from Russia

f) Secondary consequences of 0 interest rate