A Catch-Up Day
After suppressing population growth for decades with fierce mistreatment including enforced abortion when women because pregnant a second time, the totalitarian regime in Beijing has reversed course because China is losing population too fast. Now they can have a third child. This is an example of how dangerous it is to mingle sex with politics. It works also in reverse: ordering women to carry babies to term by denying them the right to an abortion is also totalitarian.
After a 3 day weekend (with the most discouraging weather for late May imaginable in NYC), we have a catch-up day.
A lot of our news is from Canada which was open Monday.
*Bank of Nova Scotia, BNS, or Scotiabank, reported its 6th sequential postive operating leverage level for its Q2 overnight. It is the Canada major the least linked to US banking, which is both a strength and a weakness CEO Brian Porter stressed that many of its business lines are still not back to pre-pandemic earnings, but there is “a clear path”. .Its Q2 net of C$2.456 bn was up 85% from the prior Q2 but only up 2% from its Q1 2021-2 level. Its diluted EPS came in at C$1.88, up 88% y/y but flat sequentially. Its revenues fell 3% from Q1 but were up also from prior year. Its pre-tax pre-provisiaon profits, a key metric for BMS, was C$3.694 bn, down 4% from Q1. Revenues at C$7.766 were down 3% from Q1. However, the core banking margin, another key metric, was in the back at last at 2.26% and adnjsuted net income at C$2.475 bn was up 81%. Return on equity hit 14.9% in the quarter up from 14.4% in Q1 2021-2.
All this at the corporate level was clarificed by the breakdown into categories. Canadain banking was one negative as adjusted net income from the home country was only C$927 mn, down from Q1 because the Bank of Canada (central bank) cut rates and business borrowers were less anxious and there were fewer liquid merger moves. Global wealth management was the real dud. In the previous Q2 BNS was still part of the London gold pool. Its exit cut net income and sales and boosted expenses and impairment, a one-off in my opinion. Its new international banking business was more mixed, the term invented by management to cover the non-gold pool foreign operations, often on behalf of Canadian customers. This part of BNS saw net income up 203% y/y and 12% sequentially, despite higher impariments. The total capital of BNS gained fractionally, to 12.3.% from 12.2%. In US trading today BNS fell 0.33% to $67.04 (US).
*BHP, the Oz materials and mining giant, with capitalization of $122 bn, is in negotiation with Nutrien, NTR, to jointly develop the Jensen Canada potash project that could cost $5.7 bn. One trigger may be the move by Anglo-American to buy Sirius Minerals of the UK, aiming to mine for potash in Yorkshire. Another is sanctions against Belarus. A third is activist investor Elliott Advisors which thinks BHP is getting into a new business line without enough smarts. According to Bloomberg and the Financial Times, BNS predicts the global fertilizer market will grow from its 70 mn metric tonnes/yr now by 2 mn tonnes/yr to 2031. We have owned NTR since the merger of Agrium and Potash of Saskatchewan 3 years ago. In addition to expertise, BHP is seeking access to rail and port facilities. Having just exited our Latin American materials stock Antofagasta of Chile via London over political risk, I want to boost our materials stake, in safer countries, although ANFGF produced metals, not fertilizer.
*Vale shut in its Sudbury Canada nickel mine after workers went on strike We sold VALE over its failure to compensate Brazilians for its tailings dam disasters in a JV with BHP.
Oil patch
*OPEC had a virtual meeting about rising demand for oil and rising demand that oil companies cut their carbon footprint. Another worry to the cartel is Shia Iran's plan to produce more oil at the expense of Sunni Arabs who are doing deals with Israel. And the drop in demand in India has to be addressed. The cartel is something less than totalitarian these days. Pres Biden is ending the drilling for oil in the Arctic Refuge authorized by his predecessor. We are not running out of oil.
*Schlumberger Ltd rose another 5.3% in the premarket today. It is Dutch Antillean. SLB.
*Brazilian Cosan CSAN rose 11% today. It uses bagasse (sugar cane waste) in its gas stations in its homeland and Argentina run jointly with Shell. They may spin it out in Brazil or as an ADR and it has already made plans for an IPO for preferred stock in Brazil which the bolsa has yet to authorize.
*NIO rose 6.62% today to $41.27 after it was upgraded to buy from neutral today by Citi analyst Jeff Chung. It reported its May car sales which were down from April's because of battery shortages but near double the prior year leave, up 95%. NIO reiterated its guidance for 21-22,000 in care sales in the current quarter Barron's noted that it is rated buy by 68% of the analysts covering it, whereas the rnormal level of buys is only 55%.
*BP plc via its Lightsource sub got half 9 gigaWatt solar project from US 7XEnergy for $220 mn as part of its target of green energy for 2025. The partnership deal will close this month. BP gained 3.1% at the opening.
*Royal Dutch Shell RDS-B is up either over the Brazil IPO or because BP is greener or over OPEC. Or because it signed a deal with CGI, a tech firm, to improve its fleet's efficiency in Canada.
*Mauritanian Azure Power which builds rooftop solar power for Indian railways rose sharply after being tipped by Simply Wall Street today as a high return on capital employed for solar power. AZRE.
*Atlantica Sustainable Infrastructure plc jumped at the opening but now is down 0.24%. Its price target is now $43.6 vs a current price of $36.25. Algonquin Power & Ute owns nearly 20% of AY. AQN is up 0.85% today.
*After I sold Höegh LNG HMLP it today decided to hold an investor conference for owners of its preference shares, too late for me. I sold because the parent company, now delisted, will compete for charters for the LNG burning vessels against its former sub. It is Norwegian but listed in Bermuda which is not very kind to retail investors. I am for green energy but not in favor of being undercut by insiders.
Submerging markets
*I hold no-load Morgan Stanley Institutional Fund Frontier Markets, a savvy investor in emerging markets trying to get me to sign off on a complex change of mandate to reduce its holdings in banks to under 25%. It will change its name to NextGen Emerging Markets Portfolio and its benchmark from the MSCI Frontier Markets Index to the MSCI Frontier Emerging Markets Index. All complicated. Frontier markets are the ones most EMF's do not cover. It will also begin investing in ADRs and GDRs as well as using derivatives. I sent a blank ballot back to the fund as I have no idea what the right course would be. But I think based on their history they know what they're doing.
*Orbia International, the stock I would like to buy for its drip feed prowess, is being quoted on TD Ameritrade at a $3.19 bid, $22.32 ask. I asked my broker to see if he can get a better handle on MXCHF.
*Cemex of Mexico rose with the peso today. CX is a normal Mexican ADR unlike MXCHF. Grupo Bimbo is up 5.4%. GRBMF. is also a normal Mexican share.
*Guangshen Railway sold last year fell 3.3% on Hong Kong crackdowns keeping the locals away from the Motherland. GSHHY.
Tech and tel
*Trefis analysts forecast that Nokia's Networks revenues will increase modestly from euro 20.5 bn in 2020 to about euro 21.1 bn in 2021 and 21.5 bn in 2022. It wrote: “While the expansion of 5G and IoT will drive demand for the wireless networking business, competition is also strong, with rival Ericsson making more headway in recent years.” We own both NOK, up fractionally today, and ERIC, which fell to $13.18 today.
*Mercado Libre is up 0.8% to $1369.38. MELI.
*South Africa's Naspers rose 1.11% to $45. We are ahead 83% from our basis. Prosus gained 1.7%. PROSY is the Dutch close of NPSNY.
Drugs
*Swiss Novartis NVS is negotiating to invest in fellow- Swiss Celleys which is developing a mulitple sclerosis drug now in phase II trials but the terms are not known. This may harm Teva whose Copaxone is a best-seller. TEVA fell a fraction to $10.4.
*Bioline, BLRX, fell 1.72% Monday. Compugen, CGEN, fell 1.17%. Both are Israeli small caps. however, is up 165% from my basis. The shekel is up.
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