Week 30.09 - 06.10: OpenAI's Funding Round, Pink Floyd, Eurozone Inflation, Chinese Stocks and more...
Weekly Financial Digest
Key Stats of the Week🎵 $400M - Price Sony agreed to pay for Pink Floyd's music rights.
📈 25% - Five-day gain in the CSI 300 Index, marking its largest rally ever.
🚗 25% - Year-on-year increase in Tesla deliveries - bucking the downward trend in the automotive industry.
📉 1.8% - Eurozone inflation in September falling below the ECB's 2% target and fuelling expectations of interest rate cuts.
🔥 $6.6B - Amount OpenAI raised in its latest funding round - bringing its valuation to $157B.
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Weekly Sector Performance
M&A Roundup📰 Media: New York Sun owner Efune is close to securing a £550 million deal for the UK's Telegraph
🎵 Music: Pink Floyd has agreed to sell its music rights to Sony for $400 million
🛢️ Chemicals: Abu Dhabi National Oil Co (Adnoc) has made a €14.7 billion offer for Germany's Covestro - this could be Abu Dhabi's largest-ever foreign takeover
🏦 Banking: UniCredit has built a 21% stake in German rival Commerzbank, sidestepping bank ownership rules
✈️ Airlines: Qatar Airways has agreed to buy a 25% stake in Virgin Australia which would see Australia's second-largest carrier return to long-haul flying as part of the deal
👜 Luxury: Mulberry has rejected an £83 million takeover bid from Mike Ashley's Frasers - they stated that the offer does not recognise the UK luxury brand's "substantial future potential value”
👗 Fashion: LVMH has sold the Off-White streetwear brand - founded by Virgil Abloh - to New York-based Bluestar Alliance
📊 Metering: TPG is nearing a deal to buy German metering company Techem for up to €7 billion - potentially one of Europe's biggest deals between buyout firms
Chart of The Week
This chart offers a valuable snapshot of hedge fund performance compared to major stock market indices.
Let's break it down:
▶️ Hedge funds vs. stock markets
The data shows that most hedge fund strategies underperformed compared to broad stock market indices like the S&P 500 (representing large US companies) and MSCI World (tracking global developed markets).
💡For example - the HFRX Global Hedge Fund index returned 5.0% year-to-date, while the S&P 500 returned 20.9%.
▶️ Diversification lessons
This underperformance highlights that complex, often expensive hedge fund strategies don't always outperform simpler, low-cost index investing approaches. 💡For ETF investors - this reinforces the value of building a core portfolio around broad market index funds.
▶️ Market conditions
The strong performance of stock indices likely reflects factors like AI enthusiasm, economic resilience, and accommodative monetary policy.
For passive investors - this data reinforces the power of simple, low-cost, diversified index investing as a core strategy.
It also reminds us of the importance of understanding broader market trends and how they might impact your portfolio.
This Week in ShortEconomic Indicators
Key economic data points to watch:
Eurozone inflation dropped to 1.8% in September, below the ECB's 2% target.
This strengthens the case for potential interest rate cuts.
Falling Eurozone inflation could lead to earlier-than-expected rate cuts. This might boost European stocks – meaning it might be smart to increase exposure to European ETFs if you're underweight in this region. Lower rates could also reignite the appeal of growth stocks globally.
💡 Learning Point → Central banks often target a specific inflation rate (usually around 2%) because some inflation is considered healthy for an economy. It encourages spending and investment, as the value of money decreases slightly over time. This concept, known as "price stability," is a key factor in monetary policy decisions.
Chinese Stock Market Rally
Chinese markets experienced a significant upturn:
CSI 300 rose 25% over five days, its largest gain ever.
Shanghai Composite up 21%, the biggest increase since 1996.
Hong Kong's Hang Seng Index has risen 30% since the start of 2024.
The rally showcases the potential for rapid shifts in emerging markets. If you're underexposed to China, consider dollar-cost averaging into a China-focused ETF over time. This rally might signal a broader emerging market trend – worth watching if you're looking to diversify globally.
💡 Learning Point → Emerging markets often exhibit higher volatility than developed markets. This is reflected in their beta – a measure of a stock's (or in this case, a market's) volatility in relation to the overall market.
And while this higher beta can lead to sharp rallies like we're seeing now - it also means greater potential for significant downturns.
Energy Sector Movements
The energy sector saw notable developments:
Chevron's acquisition of Hess cleared, but with board restrictions.
Abu Dhabi's state oil company offered $16.2bn for Covestro.
Oil prices rose amid Middle East turmoil, but fell over the quarter.
This energy sector consolidation suggests companies are preparing for long-term shifts.
💡 Learning Point →The energy sector is particularly sensitive to geopolitical events - a concept known as "geopolitical risk premium." This premium is the additional price factored into oil costs due to potential supply disruptions from political instability or conflicts. Understanding this can help you anticipate energy market movements during global events.
Automotive Industry Challenges
Major automakers are facing headwinds, with implications for the broader economy:
General Motors and Toyota report declining U.S. sales.
Stellantis cut its full-year guidance, causing a 13% stock drop.
Volkswagen issued its second profit warning in three months.
Aston Martin's stock fell 25% after lowering profit expectations.
Tesla, however, bucked the trend with a 6.4% year-on-year increase in deliveries.
The auto industry's woes signal a potential shift in consumer spending patterns.
If you're heavily invested in broad market ETFs, you're likely exposed here - you could consider balancing with ETFs focused on electric vehicles or future mobility to hedge against traditional auto industry decline.
💡Learning Point → Understanding cyclical versus secular trends is crucial in investing. The auto industry is cyclical, meaning it follows economic cycles. However, the shift to electric vehicles represents a secular trend – a fundamental, long-term change in the industry.
AI Developments and Regulation
The AI sector continues to evolve rapidly, with significant developments:
OpenAI raised $6.6bn, reaching a valuation of $157bn.
SoftBank reportedly invested $500m, signaling renewed interest in AI.
California's governor vetoed a bill for strict AI safety requirements.
AI's momentum is undeniable, but regulatory uncertainty looms. Instead of chasing individual AI stocks, look into broad tech ETFs that give you exposure without concentrating risk.
💡Learning Point → When investing in emerging technologies like AI, it's important to understand the concept of Total Addressable Market (TAM). TAM represents the total market demand for a product or service, calculated in annual revenue or unit sales if 100% market share was achieved. AI's massive valuations are often based on its potentially enormous TAM across multiple industries.
East and Gulf Coast Dockworkers Strike
America's east and Gulf coasts face their first dockworker strike since 1977.
It is affecting major ports including New York, New Jersey, Savannah, and Houston. The situation is complex:
Workers' union rejected a 50% pay rise over six years.
White House is pressuring employers to improve their offer.
Potential economic impact estimated at $3.8bn to $4.5bn per day.
This strike could be the canary in the coal mine for broader labor issues. Watch for potential impacts on your consumer goods ETFs – they might dip short-term but could present a buying opportunity. Keep an eye on inflation data - supply chain disruptions often lead to price hikes.
💡Learning Point → Supply chain disruptions can have a domino effect on the economy. For instance - the 2021 Suez Canal blockage, which lasted just 6 days, was estimated to hold up $9.6 billion of trade each day.
Entertainment Industry Deal
Pink Floyd reportedly sold its recorded music rights to Sony for $400m.
💡 Learning Point → This deal is an example of how intangible assets can be extremely valuable. In accounting terms, intangible assets are non-physical assets like patents, trademarks, and copyrights. In today's knowledge-based economy, these intangible assets often make up a significant portion of a company's value - sometimes even exceeding their tangible assets.
Stocks - Performance Recap
📈 WINNERS:
Palantir Technologies Inc. (PLTR, +8.61%)
Pinduoduo Inc. (PDD, +8.12%)
Chevron Corporation (CVX, +7.16%)
XOM Mobil Corp (XOM, +7.78%)
Baidu Inc. (BABA, +7.61%)
Air Products & Chemicals, Inc. (APD, +5.46%)
Meta Platforms Inc. (META, +5.04%)
📉 LOSERS:
Intel Corporation (INTC, -5.52%)
Novo Nordisk A/S (NVO, -4.67%)
Schneider National, Inc. (SNPS, -4.37%)
Moderna Inc. (MRNA, -4.34%)
Nike Inc. (NKE, -8.04%)
Pfizer Inc. (PFE, -3.78%)
Tesla Inc. (TSLA, -3.98%)
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