The Trouble with Data Centres

Disclaimer: Your capital is at risk. This is not investment advice.

Issue 45;

Past Winners are in trouble, yet past losers are resilient.
Transport finds strength.
Data centre credit woes.

In financial markets, money behaves like water, as it will always find somewhere to go and fill the cracks. That describes relative performance - what is working and what is not. The amount of water in the system describes market performance – are stocks rising or falling?

Global Trends is a deep dive into global equities. The aim of this analysis is to better understand which countries, sectors, industries, and stocks are driving market returns. Not only does it help investors identify opportunities, but it also highlights the risks. We try to condense as much important information as possible, focusing on what really matters each week. Embrace this as a weekly discipline, and you’ll soon have a much better understanding of global financial markets.

The World Index regained a ByteTrend Score of 5 and made a new all-time high. The pace has slowed, but never mock a new high.

World Index – Developed Markets – Daily

Momentum Effect – Daily Past Year

Checking in on the momentum indices, the past winners (blue) have rallied and reversed last week, while the past losers (red) have gained. The momentum line (black) has eased back.

Momentum Effect – Monthly since 1999

Past winners have beaten the losers by 4.8% p.a. over 25 years. The momentum line was recently two standard deviations above the trend and is starting to retreat. We do not know how this will play out, just that it will. It has the potential to be disruptive and potentially painful for markets. A momentum retreat will favour value over growth.

Market Breadth

Market breadth has been declining in recent weeks, as the red bars have risen. There are fewer strong blue trends in comparison. This is not yet serious, but it suggests a soft patch lies ahead.

Global Winners

The world’s strongest stocks comprise 15% of all stocks, which are in trends that are beating the market. Not shown is that 41% are “going up” in local currency terms, but they are not necessarily beating the market. Basic materials, financial services, and industrials are stronger than last week, but the overall list remains similar.

Global Losers

In contrast, a portfolio of the weakest relative trends comprises 37% of all stocks, yet only 13% in local currency terms. It means lots of stocks are lagging the market, but few are actually going down. When more stocks go down, a problem for the market will follow. Energy has pulled back, while most other areas, such as Consumer Defensives and Healthcare, are less weak than previously. That reflects the market rotation that is underway.

Industry Groups Relative Performance

Mining, Auto, and Banks have been strong in recent reports.

Transport

Shipping, Air Freight, and Logistics have lagged in recent years, just as they did in the late 1990s. They are picking up, and that is another sign of the great rotation. We highlight FedEx among the Emerging Trends below.

Insurance

The insurance industry has been thriving thanks to higher interest rates. These have allowed pension plans to re-attain a stable funding position, allowing them to “sell” management of the assets and liabilities to insurance firms. The growth of these “Pension Risk Transfers” has driven sales growth for the industry. It’s early days, but the sector has started to pick up.

Globally, during the 2010s, low rates hurt the life insurers who profited from the spread between the premiums they charged and the interest they could earn. Worse-than-expected natural disaster damage and the growth of cyber have also challenged the industry.

Remember to refer to our GTI: User Guide for an overview of the key concepts and terminology used in this report. These concepts may take a little bit of getting used to, but they are very powerful once you do.

The Value Composite Score (Value) is measured against the company’s own financial history and not in absolute terms. The columns are Cheap (Chp), Value (Val), Fair Value (FV), Overvalued (OV), and Expensive (Exp). The Growth Composite Score (Growth) is measured by sales, earnings cash flow, dividends, and book value on a per share basis. The columns are High, Good, Medium (Med), Low, and Negative (Neg).

Leading Trends with New Highs

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5. All charts shown are CAPR rebased to 100.

Name	Mkt Cap Bn USD	360-Day Vol	Value	Growth
Walmart Inc.	20	930	Exp	Med
Wells Fargo & Company	28	302	OV	Good
Morgan Stanley	21	284	OV	Good
The Goldman Sachs Group, Inc.	22	279	OV	Good
American Express Company	27	267	OV	Good
HSBC Holdings plc	21	256	OV	High
Royal Bank of Canada	11	233	OV	Good
Citigroup Inc.	24	208	FV	Med
Industria de Diseño Textil, S.A.	31	204	OV	Good
Banco Santander, S.A.	24	167	OV	High
Banco Bilbao Vizcaya Argentaria	26	130	Exp	High
Sumitomo Mitsui Financial Group	26	123	OV	High
Southern Copper Corporation	34	116	OV	Low
Parker-Hannifin Corporation	22	113	Exp	Good
Siemens Energy AG	36	110	Exp	High
Newmont Corporation	37	107	OV	Neg
Mizuho Financial Group, Inc.	27	91	OV	High
Canadian Imperial Bank	13	86	OV	Good
Mitsui & Co., Ltd.	22	85	OV	Med
CRH plc	31	85	Exp	Med
Barclays PLC	25	83	OV	Good
CaixaBank, S.A.	17	82	OV	High
The Bank of New York Mellon	16	82	OV	High
ING Groep N.V.	22	80	OV	High
General Motors Company	33	75	FV	Good
Grupo México, S.A.B. de C.V.	32	75	OV	Neg
Barrick Gold Corporation	36	74	OV	Good
Oversea-Chinese Banking	15	67	OV	High
Mitsubishi Electric Corporation	23	64	OV	Good
Nordea Bank Abp	17	62	FV	High
Western Digital Corporation	54	61	Exp	Neg
Seagate Technology Holdings plc	49	61	Exp	Neg
Ross Stores, Inc.	27	59	FV	Med
PACCAR Inc	25	59	OV	High
Société Générale S.A.	25	57	OV	Good
Wheaton Precious Metals Corp.	31	53	Exp	Low
Standard Chartered PLC	28	53	OV	High
National Bank of Canada	13	49	OV	Good
Marubeni Corporation	24	48	Exp	Good
Galderma Group N	27	48	OV	High
Ferrovial SE	17	48	OV	High
Delta Air Lines, Inc.	35	46	FV	High
Rockwell Automation, Inc.	18	46	OV	Med
Great-West Lifeco Inc.	14	45	OV	Neg
Erste Group Bank AG	24	44	OV	High
AngloGold Ashanti Plc	45	43	Exp	High
Sumitomo Corporation	20	42	OV	High
Gold Fields Limited	45	40	Exp	Good
Skandinaviska Enskilda Banken	13	40	FV	High

World Banks

Banks are strong on this week’s list. It’s easy to forget that the banks are in a privileged position in the economy, where they sit at the top of the food chain, with the ability to not only print money but also get a slice of all transactions. They have lagged the world since 2007, and although they have had a great year, this recent outperformance still has a long way to go.

Gold Fields

South Africa’s Gold Fields has been outperforming the gold sector since 2016. With operations in Australia, South Africa, Ghana, Chile, and Peru, and a development project in Canada, it has become a major force in the sector. The analysts still see more upside.

New Leading Trends

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5, except they are new trends this week, having previously had a score below 5. All charts shown are CAPR rebased to 100.

Name	Mkt Cap Bn USD	360-Day Vol	Value	Growth
Investor AB (publ)	16	106	OV	Good
Carvana Co.	54	99	Exp	Med
Ryanair Holdings plc	26	37	FV	High

Ryanair (RYA)

Led by the charismatic Michael O’Leary, Ryanair is Europe’s lowest-cost and most punctual airline. While its average ticket price is two-thirds lower than its main peers, it still generates double their margins. O’Leary leaves no stone unturned when it comes to cutting costs for Ryanair’s customers and buys planes when the rest of the industry is panicking, to get the best prices. Free cash flow per share has grown to record highs recently, driven by double-digit sales growth, while the valuation is undemanding.

Emerging Trends

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of less than 5. They don’t have to be in an uptrend, just emerging. All charts shown are CAPR rebased to 100.

The Trouble with Data Centres