ETF Express: Week Ending 28 July 2023

ETF Express is Global X’s weekly coverage of the latest ETF Market Moves, Thematic Spotlight and Commodity Calls.

 

 

  • China-focused ETFs (CETF, ASIA, IAA, IZZ) topped the performance charts last week as Beijing released a wide-range of economic stimuli aimed at boosting consumer spending. Investors welcomed the initiatives as low growth and weakening sales weighed on market sentiment in the first half of the year.
  • Short US-equity funds (SNAS, BBUS) performed poorly as traders digested the Federal Reserve’s expected rate-hike of 25bps. Markets were unconcerned as employment figures remained positive, and company earnings reports pointed to a better-than-expected economic recovery.
  • There were $358.7 million in reported inflows for the week, and only $159.4 million in outflows, marking yet another week of net inflows for the Australian ETF industry.

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Upbeat Big Tech Earnings Justify AI Frenzy

Artificial Intelligence and Technology

Tech giants are once again centre stage at US earnings season, as investors eagerly await to see whether big bets on artificial intelligence (AI) are paying off.

Microsoft’s revenue grew 8.34% year over year (YoY) and net income grew 19.9% YoY, beating analyst estimates.1 Much of Microsoft’s outperformance was driven by a 21% YoY gain in operating income in its ‘intelligent cloud’ department – which features much of their new AI offerings.

Google’s parent company Alphabet also beat on both revenue and net income, increasing more than 7% and 14% respectively.2 As expected, AI was a major focus in the earnings call, with CEO Sundar Pichai repeatedly highlighting the company’s longstanding leadership in the space, along with promises to invest heavily into new AI tools for their fast-growing cloud service business.

Meta, parent to Instagram, Facebook, and the recently birthed Threads, also surpassed estimates as revenue improved 2.64% YoY.3 While the majority of positivity surrounding Meta this earnings is due to the success of its TikTok competitor product ‘Reels’, investor enthusiasm can also be attributed to the launch of the company’s new large language model AI, Llama 2, which the company intends to implement across their entire product suite.

Tellingly, the results that have rolled-in over the initial weeks of this earnings season have so far been upbeat as AI seems to be delivering on its promises. While there will no doubt be losers amongst the crowd of reports to come, the strong results that AI has achieved over this half-year may be an indicator that the new technology is here to stay, rather than a fad that will quickly dissipate.

 

Green Metals

Bullish

  • Benchmark Minerals Intelligence’s (BMI) latest nickel forecast projects batteries will become the largest source of nickel demand by 2036, surpassing the stainless-steel industry which currently accounts for 60% of demand.4 BMI forecasts that most demand growth over the coming years will be from nickel cobalt manganese (NCM) battery cells.5
  • The US Federal Energy Regulatory Commission’s latest report finds that utility-scale wind and solar power could provide 25% of the US’s electricity generating capacity by mid-2026, driving transitional metal demand.6 Currently, wind power accounts for just under 12% of installed generating capacity, and solar power just under 7%. By mid-2026, wind and solar could each account for about 12.5%.7

Bearish

  • China’s weak growth figures weighs on near-term prospects for transition metals. With over 50% of China’s total energy generation capacity coming from non-fossil fuel sources, China is by far the largest market for renewable technology and resources.8

Lithium

Bullish

  • India’s Tata Group (owner of Jaguar) plans to build a 40 GWh EV battery plant in Somerset, England through its new venture ‘Agratas’.9 The new gigafactory will be Britain’s largest cell project ever and would more than double the country’s EV battery pipeline capacity. Slated to begin producing by 2026, the site will become Britain’s second EV cell project, joining Envision and Nissan’s 35 GWh Sunderland gigafactory that is currently under construction.10 Today Britain’s sole operating cell plant, which is also located in Sunderland, only has a capacity of 1.9 GWh.

Bearish

  • Chinese EV giant BYD and industry leading battery producer, CATL, have both expressed interest in sodium-ion battery solutions for electric vehicle production.11 The advantage of sodium-ion batteries lies in its low cost when compared to lithium options, however the technology is currently limited by its lower energy density. Analysts forecast sodium-ion batteries may reach 9% of global EV sales by 2033.12

Copper

Bullish

  • The US Government plans to allocate $20 billion USD to support clean energy projects, contributing to the expansion of investments in pollution-reducing initiatives across the country.13
  • LME Copper inventories have declined despite China’s fragile recovery, highlighting heightened supply-side constraints.14

Bearish

  • China, the largest consumer of copper, is facing trading pressure as foreign shipments decrease and domestic demand remains weak, with a bleak global growth outlook and geopolitical tensions further complicating the situation.

 

Forecasts are not guaranteed, and undue reliance should not be placed on them. This information is based on views held by Global X or referenced sources as at 28th July 2023.