The worst may be past for managed-care stocks


Investors are growing fed up with the political rhetoric in Washington
Chief Investment Office16 Oct 2019
Photo credit: AFP Photo


US

The worst may be past for managed-care stocks this year, barring any major surprises, as investors are growing fed up with the political rhetoric in Washington, according to Wall Street analysts.

UnitedHealth Group Inc’s solid third-quarter earnings on Tuesday (15 October) sparked the sector’s biggest rally in a decade as it helped ease concerns about rising medical costs. While expectations were low heading into the report, the magnitude of the move illustrates just how negative sentiment has gotten. Also roiled by fears of a single-payer system, health insurers appear to have found their footing as investors turned more optimistic about the industry’s business outlook, according to an analyst.

The S&P 500 Managed Care Index, which has plunged into two corrections this year, has rebounded to its highest level since August. The gauge jumped as much as 7.5% on Tuesday, the most since November 2009. It is still trading down 4.7% for the year.

Tuesday’s Democratic presidential primary debate will serve as a key test for investors’ renewed optimism. Observers are looking to see whether Senator Elizabeth Warren, who polls show is tied for the lead with former Vice President Joe Biden, will elaborate on her plans for health care. She supports “Medicare-for-All” and has blasted insurers in previous debates, but has remained notably vague on the specifics.

US stocks touched four-week highs, led by health care and financial shares, as earnings season began in earnest. The Nasdaq Composite Index jumped 1.24% to 8,148.71, while the S&P 500 topped 3,000 on an intraday basis for the first time in three weeks. The benchmark pared gains to finish 1.00% higher at 2,995.68. The Dow Jones Industrial Average added 0.89% to 27,024.80. Treasury yields rose amid the risk-on backdrop. – Bloomberg News.

 

EUROPE

Never mind the dwindling no-deal odds and the almost desperate political optimism of recent days: For investors who remember the vortex that sucked in markets from Tokyo to Toronto three years ago, a hard Brexit remains a tail risk which is simply too big to ignore.

The hope is still that Britain can strike a divorce agreement with the European Union (EU) which preserves trade ties and averts the kind of global market crash that accompanied the 2016 UK referendum. But the political dramas since then underscore the uphill battle facing negotiators, especially given UK Prime Minister Boris Johnson’s precarious hold on power.

Among the low probability but high impact risks cited by investment banks and investors: Europe tipped into recession, a Scandinavian currency selloff, and a rout of Emerging Markets (EM).

After the two sides agreed on Friday (11 October) to begin a more detailed phase of talks, betting odds of a no-deal scenario playing out at all this year dropped below 15%.

Yet Brexit has already been spurring a quiet kind of global contagion. Real-money foreign investors keep snubbing European stocks thanks in part to political risk in the region, including dramas emanating from the UK.

If Britain does crash out, the first-order effect would be on the pound. The chairman of a French bank described a hard Brexit as a “systemic event” with the potential to push the global economy into recession.

Should a European downturn take hold, it would threaten to wake up credit premiums which have long been depressed by monetary stimulus. That would echo the 2016 breakout, when spreads of euro-denominated company bonds tracked sterling peers higher. Knock-on effects would likely be seen in the markets for hard-to-trade private debt and alternative assets, and funds that have gorged on such investments could be stuck with holdings they cannot shift.

And the shock waves would spread further afield. Investors putting a premium on safety would likely penalise EM equities most vulnerable to a global slowdown, according to an asset manager. – Bloomberg News.

The Stoxx Europe 600 Index finished 1.11% higher at 394.02 on Tuesday.

 

JAPAN

Japan took the unusual step of issuing a statement to deny its policy was in any way influenced by modern monetary theory (MMT) on a day when senior government officials hinted that extra public spending could be in the works.

“As a government, we don’t implement policy based on the idea that Japan is a successful case of MMT because its inflation and interest rates are not rising despite massive debt,” the statement says. “We are working to restore fiscal health,” it added.

The statement was issued in response to a lawmaker’s written request to clarify the government’s views on the theory.

Earlier in the day, Japan Prime Minister Shinzo Abe indicated he was ready to put together an extra budget to address economic damage caused by the typhoon Hagibis over the weekend. Abe was already expected to compile an extra budget to reduce the economic impact of a sales tax increase that is expected to cause the economy to shrink in the last three months of this year.

Some economists say the size of an extra stimulus package could be as large as JPY5t (USD46b) given the damage caused by the natural disaster to buildings, roads, and bridges. That scale of spending would likely require the issuing of new bonds, some of them added. – Bloomberg News.

The benchmark Nikkei 225 Index rose 1.64% to 22,572.41 in early-Wednesday (16 October) trading, extending the previous session’s 1.87% climb to 22,207.21.

The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.