Weekly Brief: Three Big Economies, Three Different Directions

Weekly Brief: Three Big Economies, Three Different Directions

11 months ago3 mins

The world’s biggest economies aren’t about to win any synchronized swimming medals: the US, Europe, and China are each doing their own thing. But that unchoreographed routine might work out quite nicely for some industries.

🕰 Recap

  • Tesla's stock plunged more than 12% on Tuesday on the back of missed delivery expectations, dashing hopes of any fresh starts
  • But the EV maker’s woes aren’t distracting chipmakers from the auto opportunity: Softbank’s Arm announced on Wednesday that it has big plans for the industry
  • Meanwhile, China's raced out the blocks this year, and that could bode well for the auto industry

✍️ Connecting The Dots

It used to be that when America sneezed, the world caught a cold. Globalization meant that the economic fate of the world was intrinsically tied to its biggest economy. So when the US of A headed for tough times, you expected the rest of the world to head for even tougher ones.

But the pandemic – and each country’s response to it – plus a war-induced energy crisis have set the three biggest economic geographies (that’s the US, Europe, and China) on separate trajectories. So while the US might be preparing to tuck itself into bed with a hot water bottle, China seems to be emerging (finally) from lockdown hibernation. And sure, it’s only January, but spring might be in the air in Europe too. The unseasonably warm weather’s seen gas usage and prices plunge, easing worries about bleak winter shortages and lightening the cost burden for households.

So while the US stock market has spent much of the past year stuck in a groundhog-day cycle of bad news, Europe's stock markets are doing alright – the UK's FTSE 100, for one, is flirting with an all-time high. Now, it remains to be seen how long the world’s biggest economies and stock markets will stay on their own paths. So far, though, sunnier skies in China and Europe have brightened up the share prices of Nike, Estée Lauder, Yum! Brands, and Starbucks – firms that rely on consumers outside of the States. And if those positive-looking green shoots spread to bigger-ticket items like autos, it would give the likes of Tesla – and its chip-making suppliers – a much-needed tonic. China’s the world’s biggest car market, after all.

🥡 Takeaways

EVs set to charge.

Tesla’s troubles aren’t reflective of any long-term EV health issues. If anything, they’re because of its vibrant outlook. See, such is the confidence of the world's car makers in the decarbonization theme that they’re falling over themselves to get their EVs to market, and Tesla’s losing share. And it doesn’t help that global car sales slipped last year, dragged down by economic weakness in Europe and the US. But with China’s economy revving back up, sales might be poised to recover, and that could supercharge EVs. Tesla’s not the only car in the race, and there are other firms exposed to the theme – chipmakers, for example. The point is this: long-term themes ebb and flow, but when they emerge from a short-term ebb, the flow can be powerful.

Bright view of cloud.

It’s not just the EV theme that could emerge stronger on the other side. This is the first “recession” the cloud services industry has had to face – excluding the pandemic one. Right now, most investors are focused on the extent to which cloud customers are scaling back their technology budgets, but at some point those purse strings will loosen again. And when that happens, it's usually the hot technology trends that get prioritized.

🎯 Also On Our Radar

If you overindulged over the holiday season, you might be sick of the sight of wine. But it hasn’t escaped our attention that wine's proved to be a top-shelf opportunity: the investment-grade wine index is up 44.5% over the past five years. That would soothe any wine investor’s new year’s hangover.



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