US stocks fail to push S&P to new highs-for now
The US stocks trended lower as concerns about the possible impeachment of the US president and worries about a negative outcome of China trade talks next month left the S&P unable to breakout above its previous highs once again. The Trump administration’s latest proposals of potentially delisting China-based companies from US exchanges added yet another layer of uncertainty that the markets now need to grapple with and one that does not bode well for a positive outcome for coming trade negotiations.
Impeachment proceedings could prove a political trap for Democrats
Although the impeachment proceedings look likely to get under way and the House of Representatives look poised to vote for it, at this stage we find it highly unlikely that the crucial two-third majority of senate votes needed to impeach Trump will be achieved given the GOP majority in the US Senate. It is difficult to gauge if this is a political trap and the decision to go ahead with the impeachment process is forced upon the Democrats by the latest findings at such a critical time with just over a year left before the US presidential election.
The senior members of the party had until now tried to avoid impeaching the president for his previous alleged misdeeds in order not to muddy the waters going into next year. Or whether this will be a calculated move to put the Republican senators and indeed the ruling party itself under the spotlight if the impeachment process reaches the senate? It certainly feels like a big gamble given that the end result is likely to fall short in removing the president from the White House and could only prove a big distraction for the opposition party in the run-up to the election in November of next year.
We retain our positive stance on Japanese stocks
Come what may, we continue to think that markets have become increasingly insensitive to geopolitical ramblings and trade issues and Japanese stocks looks well placed for more outperformance against other major markets and retain our positive stance on our own market which we adopted in late August. With Topix having cleared the crucial Y1600 level, we think the broader market is likely to advance further as signs of cyclicals bottoming out is becoming increasingly evident.
Semiconductors, factory automation and financial names among our top long picks
Despite Micron’s more cautionary outlook on uncertain geopolitical climate which disappointed many bulls on Friday, our own recent Japan company visits and channel checks leave us with little doubt now about the gradual recovery trend trend forming in the semiconductor market led by hyperscaling of data centres, 5G-related growth and the crucial migration to EUV lithography which has been one of the key themes behind our long stock picks throughout this year. We also continue to believe that factory automation orders are likely to come roaring back, especially given migration of export bases out of China. These along with BOJ’s more assertive QE policy of steepening the yield curve and helping the financial firms leave us bullish on the direction of the overall market.
Softbank remains among our top short sell candidates
Although we tend to avoid addressing our individual stock picks in this publication, we do want to touch on Softbank (9984) which has been in our recommended short sell list since mid February after its big share buy back announcement pushed its share price towards Y5500 level. This is because we see the group as a poster child of private equity excesses and its much revered chief, Masayoshi Son’s seemingly ‘shoot-from-the-hip’ approach in investing Vision Fund’s money on large unprofitable unicorns coming home to roost as the US IPO market is finally balking at the outrageous valuations that Softy has been depending on to further grow its assets.
Although WeWork’s issues are now well documented, concerns about building owners potentially shunning the office sharing giant as a tenant and given its current cash-burn, its existential risks have risen greatly. Softy’s reported decision to put more money into WeWork to avoid a possible cash crunch does not sound too encouraging either. With the latest labour ruling in California also likely to hurt Uber’s (UBER) business model and the temporary two months extension of its taxi license in London leaving much uncertainties there, we see a potential for heavy losses from this stake also exposing Softbank’s investment methods. With Slack’s (WORK) value also down by over 40% since its listing, its yet to be re-listed ARM unit reportedly failing to make much inroads into the IOT market despite its heavy investments while the Sprint’s (S) merger with T-Mobile (TMUS) also looking in jeopardy, Softbank’s debt-laden house of cards is in danger of coming tumbling down.