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‘This is not normal’ – Wall Street grows wary of stock bubbles

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'This is not normal' - Wall Street grows wary of stock bubbles 1

By Thyagaraju Adinarayan, Lewis Krauskopf and John McCrank

LONDON/NEW YORK (Reuters) – Growing concerns about stock bubbles on Wall Street are sparking fears of a pullback, highlighted by the wild ride for shares such as GameStop Corp.

A flood of money supply, ultra-low or zero interest rates and COVID-19 vaccine rollouts have sparked a “buy everything” rally, helping world stocks add a whopping $33 trillion in value from their lows of last March.

Surges in share prices of some loss-making firms, red-hot public markets and amateur investors chasing stocks have drawn concern as the benchmark S&P 500 has gained more than 70% since March.

Elevated retail participation has contributed to soaring prices.

“For retail traders, the warning signals on this … (are) if you are trading it, you are taking so much of an extra risk compared to normal activity. This is not normal activity,” said JJ Kinahan, chief market strategist at TD Ameritrade.

As a prime example, investors pointed to shares of U.S. videogame retailer GameStop, which, after rising about 250% already this year, more than doubled on Monday before paring back. Traders said short-sellers were quickly buying back in to the stock to cover potential losses while retail investors were piling in to benefit from the surge.

“Retail investors are a huge part of it,” said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group, referring to GameStop.

Early in Monday’s trading session, users of several major retail trading platforms, including those of Charles Schwab Corp and Robinhood, reported operational problems, according to outage monitoring website Downdetector.com.

The problems were the latest in a string of technical glitches among retail brokerages, which have faced a massive surge in volumes over the past year. Overall, around 16.4 billion shares traded hands on Monday, compared with a month-to-date average of around 14.5 billion shares, according to Cboe Global Markets.

The euphoria is also evident in the small-cap Russell 2000 index, whose component companies with a negative operating profit outperformed the wider index by nearly 50 percentage points over the last year, a Reuters analysis of Refinitiv data showed.

“Pockets of the market have recently demonstrated investor behavior consistent with bubble-like sentiment,” Goldman Sachs analysts led by David Kostin wrote in a note.

Goldman noted the outperformance of negative earners was still a far cry from the 140 percentage points clocked during the dotcom boom of 1999-2000 and more in line with that of the immediate aftermath of the 2008 financial crisis.

“You don’t have to reach 1999-2000 levels of frothiness to have the market go down and to go down in a meaningful way,” said Matt Maley, chief market strategist at Miller Tabak.

For examples of these selective bubbles, investors point to electric vehicle-related stocks – Tesla Inc is up 8-fold and electric vehicle charging equipment maker Blink Charging by 2,000% in the last 52 weeks, while an IPO index has surged 200% since last March versus a mere 57% for the benchmark S&P 500 index.

U.S.-listed shares of Canadian tech specialist Blackberry also surged on Monday while the company said it was not aware of a reason.

Deutsche Bank said in a research note that average call volumes over the last three months have hit a new peak with the bulk of the increase driven by small contract issues, reflecting retail buying.

Stocks with the highest call volume as a percentage of the market capitalization were Fubotv, GameStop and Riot Blockchain, said Deutsche.

Ninety percent of the respondents in a recent survey by Deutsche Bank said they saw price bubbles in some parts of markets, with a majority expecting Tesla to halve in value by the end of 2021.

Among the investors that have expressed concern are Jeremy Grantham of money manager GMO, who said earlier this month https://www.gmo.com/americas/research-library/waiting-for-the-last-dance that the long bull market since 2009 has finally matured into an “epic bubble.”

Baupost Group founder Seth Klarman told clients recently that risk “has simply vanished,” according to the Financial Times https://www.ft.com/content/9c3ecb09-c4bd-4066-a462-af496725105d.

However, not all the major banks see bubbles.

“Everyone’s asking us about bubbles … even the frothiest equity indices still lag well behind performance during previous bubbles,” said Robert Buckland, Citi equity strategist.

The S&P trades at 22 times 12-month forward earnings, below the peak of 25 times seen ahead of the dotcom crisis.

Citing premia over rock-bottom bond yields, Citi believes equity markets have a long way to go yet.

A possible rollback of U.S. Federal Reserve easing is seen as a threat to markets.

“Equity bubbles are not delicate,” Buckland added. “They don’t burst on the first hint of tightening from central banks.”

(Reporting by Thyagaraju Adinarayan in London and Lewis Krauskopf, John McCrank and April Joyner in New York; Editing by Kirsten Donovan, Megan Davies and Matthew Lewis)

Business

UK delays review of business rates tax until autumn

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UK delays review of business rates tax until autumn 2

LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.

Many companies are demanding reductions in their business rates to help them compete with online retailers.

“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.

Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.

($1 = 0.7152 pounds)

(Writing by William Schomberg, editing by David Milliken)

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Discounter Pepco has all of Europe in its sights

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Discounter Pepco has all of Europe in its sights 3

By James Davey

LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.

The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.

Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.

“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.

To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.

The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.

Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.

Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.

That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.

“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.

Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.

Sales rose 3% to 3.5 billion euros, reflecting new store openings.

($1 = 0.8279 euros)

(Reporting by James Davey; Editing by David Goodman)

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Fashion-focused livery launch reveals new colours for Gasly, Tsunoda in 2021

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Fashion-focused livery launch reveals new colours for Gasly, Tsunoda in 2021 4

Scuderia AlphaTauri debuted their colours for the 2021 Formula 1 season as drivers Pierre Gasly and Yuki Tsunoda unveiled the team’s new look with the livery for their AT02 racecars. The setting was a fashion-forward launch in the all-new showroom of AlphaTauri, Red Bull’s premium fashion brand.

Salzburg (AUSTRIA) – Formula 1 team Scuderia AlphaTauri served up a stylish preview of the new F1 season with a presentation of its 2021 livery alongside key looks from the upcoming Autumn/Winter 2021 collection of Red Bull’s premium fashion brand, AlphaTauri. The launch – held at AlphaTauri’s new showroom in Salzburg, Austria and presented digitally – marked the first time that drivers Pierre Gasly of France and Yuki Tsunoda of Japan have appeared together as teammates.

After a successful first season racing in AlphaTauri colours, the Italian outfit is looking to challenge the top of the ultra-competitive midfield in 2021, and the two young drivers have been assigned clear-cut roles. Gasly is Team Leader. The 25-year-old, who made his Formula One debut with the team in 2017 under its former name, Scuderia Toro Rosso, has earned two F1 podiums. During the 2020 campaign, Gasly’s maiden win at Monza was a defining moment for him and the team under its new name.

Tsunoda, 20, is the first Japanese driver to race in F1 since 2014, his promotion coming off the back of a fast, four-season trajectory from winning the 2018 F4 Japanese Championship and finishing third in the 2020 FIA F2 Championship to entering the top-level ranks this year. Expectations are high for his rapid style of learning to complement the experience of Gasly.

“The decision to go for Pierre and Yuki in 2021 was taken because Scuderia AlphaTauri’s philosophy is still to give talented young drivers from the Red Bull Junior Program the opportunity to step up to F1 and to educate them – this is why Yuki now gets his chance,” explained Team Principal Franz Tost. “With Pierre on Yuki’s side we have an experienced driver, who can help our Japanese rookie to develop faster, but at the same time we can aim for good results. I think this pair is the best possible scenario to achieve both our targets, and I’m also confident this will be a successful one.”

In 2020, Scuderia AlphaTauri won best livery by a landslide, and the team’s all-new, matte blue and white racecar livery took center stage with the drivers at the fashion event, anticipating the 2021 model that will debut at pre-season testing in Bahrain on 12 March. The test is the precursor to an unprecedented 23-race schedule, and in preparation for the demanding calendar both drivers have spent time at Red Bull’s Athlete Performance Center for intense fitness testing.

“I’m ready to take on the role of team leader. Yuki is a very quick driver, and he will help us move the team forward – we will work together to achieve that,” said Gasly, the team’s all-time top points scorer. “I really believe last year was the team’s best in terms of the way it worked, the development, the performance and the way it managed the race weekends. I’m always hungry for more, and I’m sure we can achieve great things in 2021.”

Tsunoda, who was honored with the Anthoine Hubert Award for best Formula 2 rookie in 2020, added, “I’ve been lucky enough to spend some time with Scuderia AlphaTauri ahead of the season, so I’m already developing strong relationships and learning a lot from them – including Pierre, who is an incredible talent. My main goal is to learn quickly and deliver results as soon as possible, and I’m really excited to get started.”

The launch at the AlphaTauri Showroom not only gave Gasly and Tsunoda a preview of the AlphaTauri Autumn/Winter 2021 fashion collection, but the drivers had the chance to select their new off-grid looks ahead of the season start.

Ahmet Mercan, CEO AlphaTauri, summarized: “This is a triple reveal at a unique point of time: a new AlphaTauri Showroom where fashion meets F1, a first look at the AW21 AlphaTauri collection and the unveiling of the new Scuderia AlphaTauri F1 livery and driver pairing.”

Scuderia AlphaTauri fans don’t have long to wait for racing action: The FIA Formula 1 season kicks off at the Bahrain Test on 12-14 March, in preparation for the Bahrain Grand Prix on 28 March.

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