Market Quote: Legacy Automakers Rev Up, Biotech Stocks Hit a High
Author: The editor's desk
March 13, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
Laggard Takes the Lead
Since late 2023, there’s been a change in leadership within the Automobile Manufacturers Industry. Legacy original equipment manufacturers (OEMs) that many deem the “laggards” in electrification have meaningfully outperformed OEMs that are considered pureplay manufacturers of battery electric vehicles (BEVs) and others that promised an aggressive transition to BEVs. This is primarily driven by moderating growth of BEVs in key markets, while in some markets, sales of hybrid vehicles have accelerated.
Several factors come into play, which include the premium price points of BEVs when consumers are still under pressure from high interest rates and inflation, range anxiety related to battery life, the pull back of government subsidies and aggressive price actions in some markets that may be causing some consumers to postpone their purchase in anticipation of better deals to come and to avoid an immediate drop in residual value of newly purchased vehicles.
How are the OEMs responding to this? Several have announced a more phased out approach in their BEV transition and related investments within their respective regulatory framework and have chosen to enhance shareholder returns. Others have reinforced their market leadership in hybrids or have strived to keep their factories powertrain-agnostic. The market expects more collaborations among the OEMs and their supply chain to share technology and leverage development costs in the foreseeable future. Investors have so far welcomed these announcements, and we anticipate this change in industry leadership to continue over the medium term.
Responding to Treatment(s)
The S&P Biotechnology Select Industry Index recently reached a two-year high, reflecting market expectations of central bank rate cuts, positive clinical data, improving fundamentals and M&A opportunities in 2024. We are also seeing continued improvement in biotech funding, which is up more than 80% year-over-year, with secondary U.S. market offerings amounting to US$9.7 billion year-to-date. This figure is the second highest since the first quarter of 2021 and more than twice the average of the previous eleven quarters.
The resurgence of initial public offerings (IPOs) in biotech also indicates an improving market environment, as investors seem willing to take on more risk with new issuances.
Meanwhile, GLP-1 drugs remain an area of focus for investors in healthcare stocks, with small to medium sized biotech companies receiving increasing attention for efforts to develop new treatments for use in managing other diseases beyond obesity and diabetes such as non-alcoholic steatohepatitis (NASH), kidney disease, muscle-preserving combinations, sleep apnea and even Alzheimer’s. Larger pharmaceutical companies who don’t have a pipeline yet are also eager to tap into this market and now have more differentiated assets to gain shares with.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of March 13, 2024 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
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