Daily Brief: Investment Banks Are All About Buying Stocks Right Now, And They Might Be Onto Something

Daily Brief: Investment Banks Are All About Buying Stocks Right Now, And They Might Be Onto Something

over 2 years ago3 mins

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Investment bank analysts are the most positive about stocks they’ve been in almost 20 years, and their enthusiasm could prove infectious.

What does this mean?

As things stand, around 56% of analysts’ ratings on US S&P 500 stocks are “buys” – the highest percentage since 2002. In the Stoxx Europe 600 index, meanwhile, some 52% of recommendations are buys. That’s a 10-year high, but it’s nothing compared to Asia: 75% of all analysts’ recommendations there advocate buying as bullishness reaches levels unseen since at least 2010.

Analysts could be forgiven for fancying stocks’ chances: second-quarter company earnings are proving even more positive than expected, governments have extended economic support packages, and low interest rates seem unlikely to disappear anytime soon. That’s feeding through to increased targets for stock markets overall: the average strategist now expects US stocks to sit 11% higher in a year’s time, European stocks 9% higher, and Asian stocks 21% higher.

Buy sell

Why should I care?

For markets: Monday could have been a blip.

After last year’s lockdowns, this year’s second-quarter earnings growth was always going to be historically high. But analysts are also pretty optimistic about the quarters to come. That may be why they didn’t balk at Monday’s slight S&P 500 drop, which came as new data showed weaker-than-expected Chinese retail sales. With the global economy heavily reliant on China for growth, investors would prefer to see the country’s consumers spending on all cylinders.

China slows

For you personally: It doesn’t pay to say “sell” on Wall Street.

Investment bank analysts are famously upbeat in their stock recommendations. While independent, the analysts’ employers do a lot of business with these companies – and an outright unfavorable opinion could see banks lose out on lucrative deals. Some investors therefore treat “neutral” or “hold” recommendations for stocks as “sells”: after all, that may be about as negative as an analyst is willing to go.

Keep reading for our next story...

Mining Giant BHP Is Looking To Sell Its Oil And Gas Business

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The world’s most valuable mining company is closing in on a sale of its oil and gas business – but BHP’s move is unlikely to be a nail in the coffin for fossil fuels.

What does this mean?

While BHP’s main business is extracting raw copper and iron ore, it also has a side hustle getting oil and gas out of the ground. At 9% of last year’s revenue, however, that activity’s classed as “non-core” – and with shareholder pressure mounting on the company to grow greener, selling the business seems like an easy win. It could also net BHP a handy $15 billion.

BHP stock
Source: Google Finance

But not every company is embracing such green-sky thinking. Having recently reaffirmed its commitment to a gloopy black future, Saudi Arabian oil giant Aramco is currently in advanced discussions with India’s Reliance Industries to buy a 20% stake in the latter’s oil refining and chemicals business for $25 billion. After failing to get the deal over the line a year ago, both companies now appear keener than ever to seal some synergies.

Why should I care?

The bigger picture: Aramco is running its own race.

While many of the world’s oil-exposed firms scramble to clean up their acts, Aramco’s getting its hands dirty: the publicly listed company plans to expand its oil production capacity to 13 million barrels a day, up from 12 million currently. That may fly in the face of a recent landmark climate change report calling for immediate action on carbon emissions – but with the Kingdom of Saudi Arabia owning 98.5% of Aramco’s stock, activist investors are unlikely to be a concern.

Climate change report

Zooming out: Greasing the wheels.

French auto part supplier Faurecia agreed to buy Germany’s Hella for $8 billion over the weekend in one of the industry’s biggest-ever deals. With annual sales of $27 billion, the combined company should be well placed to benefit from the future of transportation – whether gas-guzzling, electric, or autonomous.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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