“It’s a record-breaking day for stocks and shares after two major indices hit new highs. Japan’s Nikkei 225 and Europe’s Stoxx 600 pushed ahead to new record levels,” says Russ Mould, Investment Director at AJ Bell.
“The Nikkei has been rallying since the start of 2023 when Japan was flagged by many investment experts as having multiple attractions. Company valuations are attractive versus the US, there is the potential to get a growing stream of dividends thanks a structural shift in the country for corporates be more shareholder friendly, and it offers an alternative place to obtain Asian exposure for investors fed up with disappointment from China.
“This has become a compelling sales pitch for investors looking to diversify and the strong performance last year has also drawn in more people. The Nikkei beat the S&P 500 in 2023 with a 28.2% return versus 24.2% from the US index and that outperformance has continued in 2024. This year it has returned 16.8% compared with 4.4% from the S&P.
“Growing expectations for central banks to cut interest rates has boosted investors’ risk appetite for equities once again, and we’ve seen strong gains across multiple markets since autumn 2023.
“Nvidia’s better than expected results last night could help to keep investor sentiment high and that positivity has spread to other parts of the market. Futures prices point to a strong session on Wall Street when its markets open later today.”
Nvidia
“Crisis has been averted after Nvidia smashed expectations with its latest results. Markets were braced for potential disappointment given how its shares were weak in the run-up to the numbers, but a large beat on both earnings and sales has put a new rocket under the stock.
“Nvidia last year implied the artificial intelligence boom was a significant moment in tech history and chief executive Jensen Huang now says we are at a tipping point for accelerated computing and generative AI.
“The people who made the most money in the gold rush of the mid-1800s were the ones providing the tools to get the job done, not those hunting for the precious metal. Nvidia is effectively playing the same role today in this tech revolution. It is at the heart of a major structural change in how we use computers so it is no wonder investors want a slice of the pie.
“Companies around the world are exploring ways to use AI to automate simple tasks or to make them easier to complete. These small efficiency gains can make a huge difference across a large business and so it’s an easy investment decision to make.
“With so many businesses wanting the capability and processing power to carry out AI-related tasks, demand has been booming for specialist computer chips and Nvidia is laughing all the way to the bank.
“Nvidia has the lead on the competition and its chips have become industry standard for AI developers. Concerns over long lead times for delivery were addressed in the results – even though it expects demand to exceed supply on next generation products, Nvidia stressed that overall supply is improving for its chips.
“There are two key positives from the results – the business continues to do well and investor interest remains strong for the stock which has a positive read-across for global equities.
“The fact demand is coming from across the spectrum of industries means Nvidia has in-built diversification. It isn’t reliant on a lone sector to drive earnings. That the share price has jumped 9% in after-hours trading also implies investors will still want to retain their exposure to the mega-cap tech space.
“The big fear in recent days was that a disappointing quarter from Nvidia would lead to a loss of investor confidence in the tech space and that could cause contagion on the markets. However, there is still the risk that we get the same fears again in the days leading up to the next quarterly results, causing volatility among equities.”
Rolls-Royce
“From burning platform to booming platform. After a year of convincing the market of the merits of his turnaround plan and using colourful words to describe Rolls-Royce’s predicament, 2024 was time for Tufan Erginbilgiç to start delivering. Its latest full-year results represent a good start.
“Perhaps most significant is the substantial increase in cash flow – patchy cash generation had dogged the company for at least a decade and had been an area of focus, with little success, for Erginbilgiç’s predecessors.
“Erginbilgiç may be a smart general but he’s also a lucky one. A recovery in aviation was always likely to translate into higher revenue, profit and cash flow for Rolls. The amount of time that planes are in the air has a direct impact on the amount Rolls makes on spares and repairs contracts for its large installed base of aircraft engines. This installed base itself is also growing as large engine orders were the highest in more than 15 years.
“Elsewhere, the company’s defence business is benefiting from an improved outlook as countries prioritise military spending thanks to heightened global tensions.
“Combine this with the efficiencies Erginbilgiç is making and you have a powerful driver which helps underpin the robust guidance the company is giving for this year.”
Lloyds
“The latest numbers from Lloyds are relatively solid but they include a nasty detail which may be provoking some nervousness among investors.
“Results were pretty much in line with what the market expected, with profits coming in slightly ahead of forecasts. Though this is what you would probably describe as a low-quality beat, supported as it was by a single large creditor paying back a chunk of debt.
“The outlook both in the short and medium term was broadly unchanged but the fly in the ointment is the provision relating to a regulatory probe into motor finance.
“Anyone with memories of the PPI scandal will have doubts over whether the amount set aside so far will represent the final cost of dealing with this issue. Time will tell if £450 million represents the tip of the iceberg or an appropriately conservative assumption. Lloyds admits there is considerable uncertainty on this front.
“At best it represents an unhelpful distraction from chief executive Charlie Nunn’s strategy for the company of boosting its digital banking footprint and bolstering its wealth and corporate finance arms.”
Indivior
“Indivior could be the next UK stock to pack its bags and set up shop on the US market. The drugs company has signalled its desire to switch its main listing to the US which would mean it no longer qualifies for inclusion in FTSE indices.
“Indivior is currently the forty-seventh largest company on the FTSE 250 index. One would expect it to receive a higher valuation on the US market and that’s a key reason why many companies switch listing location.
“The company has nearly half of its shares owned by US investors and the US is one of its major sales regions so there is logic in having a US stock listing. However, it would be yet another blow to the reputation of the London Stock Exchange as a listing venue. The more companies that follow this path, the harder it will be to attract new names to the UK.”
These articles are for information purposes only and are not a personal recommendation or advice.
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