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Good morning,
Markets are called to open higher this morning. This is what's happening today:
Today its all about the US elections. Yesterday Christine Lagarde said that 'time is of the essence' for the US to avert its fiscal cliff. Like I said yesterday, the markets would like Romney to win but because policies take years to be put into place and start influencing the economy, whoever wins the presidential elections shouldn't have an impact on the markets. So far, Obama seems to be in the lead.
Traders have been watching sectors that reflect the views of the presidential candidates for clues to today's too-close-to-call election. Yesterday, there was selling in some sectors that could be especially hurt if President Barack Obama stays in office. That includes banks, presumably because he’s viewed as tougher on financial regulation, and dividend-paying REITs and utilities because he favors higher taxes.
A study was carried out by Jeff Kleintop of LPL Financial who created a relative strength index showing which stocks will do best under each president. Romney stocks, such as coal, specialty retail, managed care and telecommunications services, versus Democrat favored stocks like healthcare services, homebuilding and food and staples retailing.
Food for thought – a very interesting observation before China has a new Communist Leader
Bloomberg – Savvy investors eyeing the next big thing in China should consider cigarettes, nicotine gum and cancer-treatment providers. That is the upshot of a new Brookings Institution report that raises burning questions about the family of Li Keqiang. He is expected to be named China’s next premier at a Communist Party congress that begins on Thursday. Li’s brother, Li Keming, is deputy director at China’s State Tobacco Monopoly Administration, which dominates an industry that some health officials estimate will kill 3.5 million people each year in the country by 2030.
The conflicts of interest Li may carry to the top of Chinese power is a microcosm of what is wrong with the most- populous nation. They are endemic to almost every challenge facing China’s next leaders as they confront the weakest economy in 30 years.
Is it really plausible to think China’s No. 2 official, the man charged with public-health affairs, will clamp down on an industry in which his brother plays such a pivotal role? To answer “yes” ignores the all-in-the-family dynamic imperiling China’s future. One place where there is a different response is the blogosphere, which keeps referring to China’s “$2.7 billion problem,” or “2.7B” to get around government censors frantically trying to prevent people from reading an Oct. 25 New York Times article about Li Keqiang’s predecessor, Wen Jiabao.
Stock to watch: Inditex (E100, Citi's Price Target E115)
Citigroup comments – The group’s ‘GDP-plus’ revenue characteristic has sharply improved, 2010-12 — Over the last 9 years the Inditex LFL has grown c.+200bp faster than real GDP growth (sales weighted for its markets). So far in FY13 the c.+7% Inditex group LFL is significantly more than our c.+1% real GDP growth forecast for their markets. We argue that a major cause of this sales growth acceleration has been the group’s recently successful online launches in Europe, the US and China.
Buy rating, Target price €115 — This target (raised from €100 to reflect earnings forecast increase and modest valuation re-rating) is based on 16x January 2015E target EV/EBIT (recent average), equating to 23.5x P/E and a 4.2% free cash flow yield.
For further information on Inditex or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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