– Activist investors in the US are seeing an opportunity in rocky markets, said The New York Times (paywall). Turbulent periods for the markets aren’t usually regarded as the best times for activist investors but at the 13D Monitor Active-Passive Investor Summit held in New York City earlier this week the ‘business of activism’ appeared quite agile.
While volatile markets are often seen as bad for the kinds of moves hedge funds recommend, those who attended the conference saw a plethora of undervalued companies to push. Activist hedge funds have been relatively quiet over the past two years. Professionals at the conference said the optics of pushing for changes during the pandemic were not great or that some changes were not possible.
– The globally challenging economic climate has not weakened the US cyber-security market, according to Security Week. In Q3 2022, a total of 221 companies in the sector raised $3.3 bn, while 104 M&A deals had a disclosed value of $11.7 bn: 2022 is likely to set a new M&A record. Investment interest remains high despite cyber-security stocks declining by 2.1 percentage points during Q3. Although stocks fell, cyber-security continued to outperform the broader tech industry, maintaining the trends from Q1 and Q2 of high inflation, rising interest rates and fears of recession leading to market volatility.
Investment advisory firm Progress Partners said there had been an over-reaction to the market conditions. ‘While current conditions may put pressure on earnings in the short term, we think the market has overcorrected to the downside and equities are trading at a steep discount to their intrinsic valuations,’ said Progress Partners in its Q3 Cybersecurity Market Report. ‘This is especially true in cyber-security software, in our opinion.’
– The resignation of UK Prime Minister Liz Truss left the markets ‘calling the shots’, according to Bloomberg (paywall). This month of economic chaos will be a warning to any future British leader about the risk of being reckless with the country’s finances, said UK traders after Truss’s resignation. In interviews earlier this week, many investors predicted the next prime minister will restore calm and make policy decisions that bring stability back to markets. The pound strengthened to above $1.13 and the yield on UK 10-year gilts was near levels before the mini-budget was announced last month. The FTSE 250 Index rallied as much as 1.2 percent. ‘Markets are calling the shots right now,’ said Geoffrey Yu, senior FX strategist at Bank of New York Mellon. ‘That’s the bottom line.’
– Tesla reported third-quarter earnings and executives addressed a broad range of questions during the earnings call, including macroeconomic concerns and CEO Elon Musk’s pending takeover of Twitter. Shares fell by about 5 percentage points following the results, reported CNBC. The firm’s net income for Q3 2022 reached $3.33 bn, with automotive gross margins holding steady at 27.9 percent, exactly where it stood in the second quarter of 2022. During the same period last year, Tesla reported $1.62 bn in profits.
On an earnings call earlier this week to discuss the results, Musk answered shareholder questions about electric vehicle demand and a possible share buyback. ‘I can’t emphasize enough we have excellent demand for Q4 and we expect to sell every car we make for as far into the future as we can see,’ he said. Tesla is likely to do a ‘meaningful buyback’ next year, he added, potentially between $5 bn and $10 bn, pending board approval.
– Saudi energy giant Aramco is ‘pushing ahead with plans’ for an IPO, reported Reuters via Bloomberg. The world’s top oil producer is in the process of adding more banks to the IPO, which could value the unit at more than $30 bn, Bloomberg reported, citing people familiar with the matter. No final decisions have been made and the IPO could be delayed or cancelled if market conditions worsen, the report added.
Reporting on the same news, Yahoo Finance noted that while the global IPO market has suffered due to weakening economies and rising interest rates, there’s still plenty of appetite for deals in Saudi Arabia, which is the fastest-growing of the G20 group of major economies. Arabian Drilling Co, an oilfield-services firm, attracted $43 bn in orders for its listing this month. Aramco, controlled by the Saudi Arabian government, is mulling the deal at a time when other national oil companies in the Persian Gulf are also seeking to build their trading businesses.
– The Bank of England confirmed it will push ahead with selling £80 bn ($89 bn) of UK government bonds from the start of next month. As The Guardian pointed out, the sale will start a day later than planned despite fears over choppy conditions in financial markets after the mini-budget.
The central bank said it would delay the start date to November 1 to avoid a clash with the government announcing its debt-cutting plan, which is due on October 31. The decision to push ahead comes despite swirling speculation that the bank could be forced into a lengthier delay in order to smooth over turmoil in bond markets following former chancellor Kwasi Kwarteng’s ill-received mini-budget.
Earlier this week, the bank dismissed a report in the Financial Times that it was set to delay the sale of bonds built up under its quantitative easing program since the 2008 financial crisis, amid concerns over turbulence in the gilt market.
– UK asset managers warned of tough times as investors pull or divert cash, reported The Guardian. Asset managers said they are navigating tough investment conditions in the UK as economic turmoil reduced the value of their portfolios and persuaded customers to pull and divert their cash. London-based firms including Jupiter, Schroders and St James’ Place issued trading updates on Thursday, laying bare the challenges facing fund managers amid soaring inflation and global uncertainty, including the effects of the war in Ukraine. Jupiter alone suffered net outflows worth £600 mn over the three months to the end of September. That was despite investors placing £3.8 bn of new cash with the firm over the quarter, including £500 mn from an unnamed sovereign wealth client pumping fresh cash into UK investments.
– Retail investors took shelter in cash after the stock market rout, said the Financial Times (paywall). It noted that almost $140 bn had poured into money market funds as traders sat on the sidelines. The rush into cash followed a long and volatile sell-off in US equity markets this year, which wiped nearly $15 tn off the valuations of publicly traded companies. Wall Street’s benchmark S&P 500 Index last month closed out its longest streak of quarterly losses since the 2008 financial crisis.
– BlackRock and Vanguard opted not to quit fossil fuel investments, reported the Financial Times. The world’s two biggest asset managers were among financial institutions telling a UK inquiry they will continue to invest in fossil fuels and do not subscribe to the view that climate change plans require an end to new coal, oil and gas investment. The statements earlier this week were in response to a request from the UK’s Environmental Audit Committee, which in August wrote to members of the Glasgow Financial Alliance for Net Zero, an umbrella climate finance group, asking how they would balance retiring fossil fuel assets with assuring the UK’s energy security, given the ‘pivotal’ role of the finance sector in reaching the UK’s environmental goals.
– Fund clients called for new rules to fight ESG ‘mislabeling’, according to Bloomberg. Professional investors think asset managers looking after their ESG allocations need more regulations to rein them in. The issue of how to treat ESG fund labels is growing increasingly thorny. In the US, the SEC has proposed rules that would require firms to provide more data to justify the ESG labels they use. In the EU, asset managers are struggling to keep up with regulations that are based on an unclear definition of ‘sustainable investment’ and have already reclassified hundreds of funds amid widespread confusion.