Before the bell: timing the markets is difficult, so is timing the end of wars
A strong week for Wall Street and technology, but investors remain strict when it comes to corporate results.
On Friday, investors briefly believed that Iran had reopened the Strait of Hormuz. Shortly afterwards, the country walked that back, stating it would not do so “as long as the US does not lift the blockade on Iranian waterways.” Investors have consistently assumed a short-lived conflict, but experienced market participants know that timing is extremely difficult. As a result, equity markets may continue to move up and down. Oil prices are rising by a relatively modest 3 dollar this morning, and European equity markets do not appear to be panicking at the start of the week. The past week was particularly strong for Wall Street, with gains of 4.6% and even 6.8% for the Nasdaq. Recently lagging technology stocks led the rally. Oracle (+28.5%), ServiceNow and Tesla (both +16.7%), Microsoft (+15.5%), and PayPal (+12.5%) all posted an excellent week. The Bel20 (+2.1%) was, like the rest of Europe, somewhat less euphoric, but still stands at a gain of 9.7% since the start of the year—well ahead of Wall Street. In Brussels, Melexis (+11.4%) stood out, alongside D’Ieteren Group (+10.4%), which is looking to list Belron on Euronext Amsterdam.
Asian markets remain calm this morning. Tokyo is up around half a percent, as are Chinese markets. The earnings season continues to gather pace this week. Be aware: even when indices move higher, investors remain critical of individual companies, as seen last week with US banks, ASML, Hermès, Netflix, Alstom, and others.
UCB puts its capital to work
UCB fell 4.8% last week but announced, after Friday’s close, the acquisition of US biotech firm NeuroPharma. The company is developing a treatment for a specific form of epilepsy. Epilepsy treatments have been a core focus for UCB for more than 30 years. NeuroPharma’s most advanced drug is still only in phase I/II, yet UCB is paying 650 million dollar upfront, potentially rising to 1.15 billion dollar. However, the Belgian group has an excellent track record in acquisitions. Many years ago, UCB gained a foothold in biotech through the acquisition of Celltech, where the drug Cimzia has more than repaid the purchase price. For large companies, smart capital allocation—including well-judged acquisitions—is critical, as also highlighted in my recent analysis of “marathon companies.”
Bonds more attractive than equities?
The US bond specialist PIMCO argued during a press day that bonds currently offer more value than equities. The firm, owned by insurance giant Allianz, likely believes this sincerely. Their main argument—high equity valuations—can also be addressed by investing in cheaper stocks. That does not require buying structurally weak, low-quality names, but rather companies that are undervalued for other reasons. Belgian REITs (GVVs), for example. Last Monday, Wereldhave Belgium paid a generous dividend of 4.15 euro, while the share price closed Friday at 55.6 euro, only 1.8 euro lower. The dividend yield of more than 7% has therefore almost already been recouped. Wereldhave Belgium trades at just 10 times earnings and at a roughly 25% discount to the value of its real estate. Liquidity is limited, but that is compensated by the valuation.
Did you know…
that the European Union plans to significantly relax its rules on mergers and acquisitions, with the aim of creating more European companies that can compete on a global scale?
This article was translated from Dutch and was originally published on Spaarvarkens.be.
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