SPEAKER: Edmund Shing
Hello and welcome to a new podcast from BNP Paribas Wealth Management. I'm Edmond Shing, chief investment officer. In this podcast, I want to discuss the unfolding mini correction in global stock markets and why I think it's a good thing for the health of the bull market in the longer term.
So why can correcting over-optimism prolong a bull market? The starting point? Since April, global stocks have shown strong momentum, led once again by tech stocks both in the US and in Asia. Clearly, there have been rising concerns more recently over the elevated valuations that tech stocks such as Palantir have reached, not to mention question marks over the outperformance of zero or near zero revenue stocks in emerging themes such as quantum computing space and crypto treasury companies.
So, the mini correction that is unfolding in the last week or so in these momentum stocks is perhaps, then, reassuring. The classic measure of liquidity and investor optimism, namely Bitcoin has fallen 33% from peak to under $85,000 at present. The Bitcoin Treasury company strategy, formerly MicroStrategy, has even anticipated this fall in Bitcoin, tumbling a full 61% from its July peak. Turning to the tech sector amongst technology giants, Oracle has corrected 36% from its September high as investors now begin to question the ultimate profitability to result from its projected massive debt fuelled investment in data centers.
But we should not get too concerned at this stage by this setback for US and global stocks. So far, the Nasdaq 100 index is merely returned to the level it reached in early October and shows no obvious signs of breaking the current uptrend. However, we should note that there is a change of stock market leadership. While these more speculative names and the tech sector stumble, other sectors are instead taking over leadership of the global stock market. Pharmaceuticals are a case in point. The US pharmaceutical sector has outperformed the Nasdaq by 14% so far in November, breaking out to a new historic high in the process. Similar can be said for the biotech sector, which has also outperformed the Nasdaq but for longer since August, boosted by the electricity infrastructure investment theme and rising electricity prices.
Another sector, utilities, has been one also to lead in November. And perhaps a more surprising outperforming industry in November is oil and gas. While crude oil prices language close to the year lows with WTI crude oil under $60 a barrel, this is to ignore the steady rise in US natural gas prices from $3 per million BTU in late October to $4.30 today. Oil refiners equally have profited from a sizable jump in refining margins. And remember, refining margins are the profit made from refining crude oil into finished products like petrol and diesel, and this has led US refiners to new year high. In Europe, The Stoxx Europe oil and gas sector has returned to its highest level since 2009. At that point, crude oil prices were close to $140 a barrel rather than 60. We believe that correcting investor exuberance is good for long term stock market health. Valuations remain high versus history for the US market indices. The debate over whether we are in an AI stock bubble rages on,even if we are at the creation of an investment bubble today, we do not know how far developed the bubble is. Elsewhere, were there looking to us smaller mid-caps or to the rest of the world? It is difficult to say that these markets are also overvalued. They are reasonably valued. While some stock markets like the UK and indeed many emerging markets, remain cheap by historical standards. All in all, we remain positive in terms of our 12 month view on global stocks and would suggest that now is a good time to look at sectors and stocks displaying relative strength outside of technology, commodity and energy producers, healthcare and utilities are interesting places to look as our European banks.
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Thank you and goodbye.