GIULIETTA TALEVI: The bankers are still dancing
But perhaps the pandemic pageant winners have had their moment in the sun, and are now due for a fall
If you want a reminder that 2020 has been one horrible year for most of us, but another entirely for stock market traders, take a gander at Goldman Sachs’s third-quarter results.
It might not be the “great vampire squid” of old (a classic term, coined by Rolling Stone magazine in this vintage 2010 article) but Goldman has clearly not lost the ability to wring out money from a good old crisis.
Consider some of the figures: a return on equity of 17.5% (its highest quarterly return in a decade); net income almost doubled to $3.6bn; a 139% jump in the value of the equities it owns; and asset management earnings up a cool 71%.
Not too shabby.
The Wall Street Journal calls it Goldman’s pandemic “hot streak”, which you can read about here.
The thing is, according to a few hedge fund managers, perhaps the pandemic pageant winners have had their moment in the sun, and are now due for a fall.
As the Financial Times writes, shares in companies related to “home computing and gym equipment, grocery retail and health care soared when the pandemic forced countries into lockdown earlier this year”.
Some hedge fund managers are now betting against those stocks.
Andrew Sheets, a strategist at Morgan Stanley, says: “This year will be the peak year for working from home, so it will be the peak year for relative growth and earnings for companies that benefit from that. We have begun shorting some of the Covid overearners, companies where we feel the current trajectory of earnings is just not sustainable.”
You can read all about it right here.
Still – tell that to the Chinese.
The combined value of all shares listed on the Shanghai and Shenzhen markets hit a record $10.08-trillion on Wednesday, according to figures compiled by Bloomberg.
Traders with long(ish) memories might remember that China’s stock markets were similarly exuberant in 2015 – and then collapsed in a heap after authorities went on a blitz against leveraged trading.
But, according to the FT, analysts say that despite this year’s rally, “stocks are less frothy than during the bubble of 2015, when retail traders drove valuations to eye-watering heights”.
For more about the differences between then and now, read this Bloomberg article.
Either way, the very fact that share prices are as high as they are is a surprise. In March, when pretty much every stock market was plunging, no-one would have bet on it.
*Talevi is the FM's Money & Investing editor.
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