Date Issued – 20th November 2024

Stocks Drift as Investors Await Nvidia Earnings

Asian stocks dipped and European futures pointed to a muted session as traders awaited Nvidia’s earnings report. The MSCI Asia Pacific Index fell 0.5%, while Euro Stoxx 50 futures rose 0.4%. US stock futures also inched higher after Wall Street closed with modest gains on Tuesday, despite escalating tensions in Ukraine. Nvidia, which has been a key driver of market sentiment due to its leadership in AI hardware, surged 4.9% ahead of its earnings release, with investors expecting another strong quarter.

In other developments, Tokyo Gas shares soared after Elliott Investment Management disclosed a major stake, and Seven & I shares rallied on rumors of a potential privatization deal. Meanwhile, US 10-year Treasury yields remained steady, and Bitcoin hit another record high, buoyed by the growing embrace of digital assets under President-elect Donald Trump. Gold also continued its rise amid geopolitical tensions.

Investment Insight: Nvidia’s earnings report could significantly influence tech sector momentum heading into year-end. A strong performance may sustain the current rally, but any disappointment could trigger a broader market pullback. Investors should monitor Nvidia’s results closely, as they will likely set the tone for the final weeks of 2024.
Market price: NVDA: $147.01

Hong Kong Property Tycoons Back IPO Market Revival

Hong Kong’s property magnates are returning to the IPO scene, fueling optimism for a revival in the city’s listing market. Billionaire Robert Ng’s Sino Land and a vehicle tied to Henry Cheng’s New World Development have invested heavily in the $793 million IPO of SF Holding, China’s leading courier service. This marks the first time in years that local tycoons have participated as cornerstone investors, signaling renewed confidence in Hong Kong’s financial markets. After a slow 2023, IPO fundraising has surged 92% this year to $9.1 billion, with SF Holding eyeing one of the largest offerings of 2024.

Investment Insight: The involvement of Hong Kong’s property tycoons in IPOs signals confidence in the city’s market recovery. Investors should watch SF Holding’s performance closely, as it may set the tone for upcoming listings and broader sentiment towards Chinese issuers.

US LNG Exports to China Surge, But Trade Tensions Loom

US liquefied natural gas (LNG) exports to China have soared this year, with imports rising 63% in the first 10 months of 2024 compared to 2023. This jump has moved the US to fifth place among China’s LNG suppliers. However, the surge could be short-lived as the incoming Trump administration may reignite trade tensions with Beijing. If a 60% tariff on Chinese goods is imposed, retaliatory measures could target US gas exports, echoing the last trade war when US LNG shipments to China plummeted in 2019.

Investment Insight: While US LNG exports to China are booming, geopolitical risks could disrupt future growth. Investors in US energy and LNG sectors should remain cautious, as a renewed trade war could significantly impact demand from one of the world’s largest gas importers.

Volkswagen Faces Rising Labor Costs Amid Union Negotiations

Volkswagen is grappling with high labor costs as it prepares for wage negotiations with unions representing 120,000 German workers. Data shows VW spends a higher percentage of revenue on labor than competitors like BMW, Mercedes-Benz, and Stellantis. While VW’s global labor cost ratio fell to 15.4% in 2023, it still exceeds the 9.5%-11% seen at rival firms. With unions demanding a 7% pay hike and VW proposing a 10% cut, tensions are rising. High wages, compounded by Germany’s costly labor market, are straining the company’s competitiveness, particularly as cheaper Chinese models flood the market.

Investment Insight: Volkswagen’s rising labor costs, especially in Germany, could pressure its margins and profitability. Investors should closely monitor the outcome of wage negotiations, as significant cost reductions may be necessary to maintain market leadership and compete with lower-cost rivals.
Market Price: Volkswagen Group (VOW3): EUR 82.98

Hon Hai Secures $1.1 Billion Loan Amid AI Server Demand Surge

Taiwan’s Hon Hai Precision Industry, better known as Foxconn, has secured a $1.1 billion three-year loan from 17 banks, including both local and international lenders. The funds, designated for general corporate purposes, come as the company rides a wave of booming demand for AI servers. Foxconn, which partners with Nvidia, is forecasting continued growth in its AI server business into 2025, with cloud products expected to rival its mobile phone sales. The company is also constructing the world’s largest Nvidia server assembly plant in Mexico.

Investment Insight: Hon Hai’s significant investment in AI infrastructure underscores the sector’s growth potential. Investors should monitor the AI server market closely, as it could become a key revenue driver for both Foxconn and Nvidia, potentially sustaining their stock momentum into 2025.
Market price: Hon Hai 2317.TW: TWD 206.00

Conclusion

As 2024 draws to a close, investors are keeping a close eye on key developments across various sectors. Nvidia’s earnings report will likely set the tone for the tech sector, while Hong Kong’s IPO market revival hinges on the performance of SF Holding. Geopolitical risks threaten to disrupt US LNG exports to China, and the AI server market’s growth potential is underscored by Hon Hai’s significant investments. Meanwhile, Volkswagen’s rising labor costs in Germany could strain its competitiveness and profitability. As the year concludes, these crucial factors will shape investment strategies and market sentiment heading into 2025.

Upcoming Dates to Watch

• November 20, 2024: U.S. Federal Open Market Committee (FOMC) meeting minutes
• November 22, 2024: Japan National CPI release
• November 28, 2024: Eurozone Economic Sentiment Indicator release

Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.

Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.