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Italian Bank Profit Tax Sparks €10 Billion Market Value Slide, FTSE MIB Dips 2.6%

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Italian stocks took a hit as an unexpected new tax on bank profits rattled the nation’s financial institutions, resulting in a considerable decline in the collective market value by up to €10 billion ($11 billion).

The FTSE MIB index in Italy experienced a 2.6% drop, driven by substantial falls in UniCredit SpA, which plummeted 7%, and Intesa Sanpaolo SpA, which sank 8%.

In the broader context of European markets, the Stoxx Europe 600 index also suffered a 0.7% dip as of 12:48 p.m. in London. On a contrasting note, Novo Nordisk’s shares surged to an all-time high following reports that Wegovy had managed to reduce heart risk by 20% in a specific trial.

This Italian tax imposition was discreetly integrated into an extensive range of measures encompassing areas from taxi licensing to foreign investment. The tax is projected to generate over €2 billion ($2.2 billion) in government revenue, according to Ansa newswire.

Italy has sanctioned a “40% appropriation of banks’ multi-billion euro surplus profits” for the year 2023, earmarked for funding tax reductions and facilitating mortgages for first-time homeowners.

Stephanie Niven, a portfolio manager at London-based investment firm Ninety One, said, “Italy’s action is among the numerous indicators of a heightened scrutiny of businesses for the broader consequences of their operations and their societal impact.”

She further commented, “One challenge with banks has been their prioritization of shareholder returns, which is met with reservations considering the assistance they’ve received in the past. Governments are keen on preventing an exclusive distribution of excess capital to shareholders.”

Analysts at Citigroup Inc. calculated that the tax equates to roughly 19% of banks’ net income in 2023, about 3% of their tangible book value for the same year, and approximately 0.5% of their risk-weighted assets in 2023. Bloomberg Intelligence experts projected that the 2023 net income of Italian lenders could face a reduction of about 10%.

“Financials represent over 30% of the Italian stock market, rendering it exposed to the freshly approved levy,” noted Leonardo Pellandini, an equity strategist at Bank Julius Baer. He added, “While banks have enjoyed a strong year due to elevated net interest margins from increased rates, a period of healthy consolidation appears warranted.”

The Italian tax policy contributes a new element of adversity for European stocks. The previous week saw the first surge of volatility in European markets in quite some time, fueled by speculation about forthcoming interest rate hikes impacting economic growth.

Lingering concerns over China’s weak trade data and a cautionary note from Moody’s Investors Service regarding the state of U.S. banks also cast a shadow on investor sentiment on Tuesday.

Among other noteworthy stock movements on Tuesday, Glencore Plc reported a substantial profit decline, causing a dip in its share value. Abrdn Plc also experienced a decline in the wake of first-half results that highlighted significant client withdrawals from the asset manager’s funds.

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Nvidia Stock Falls 13%, Biggest Three-Day Drop Ever Erases $430 Billion

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Nvidia Corp. shares entered correction territory on Monday, the biggest three-day value loss for any company in history.

The AI-focused chipmaker experienced a 6.7% drop, its largest one-day percentage decrease since April.

This marks the third consecutive negative session for Nvidia, culminating in a total three-day loss of approximately $430 billion from its market capitalization.

The stock’s 13% decline over the period surpasses the 10% threshold that typically defines a correction.

This dramatic drop has not only affected Nvidia but also weighed heavily on the semiconductor sector, with the Philadelphia Stock Exchange Semiconductor Index falling 3% on Monday.

Other notable declines included Broadcom Inc. with a 4% drop, Qualcomm Inc. down 5.5%, and ARM Holdings Plc slipping by 5.8%.

US-listed shares of Taiwan Semiconductor Manufacturing Co. also shed 3.5%.

This significant market shift has reduced Nvidia’s valuation below the $3 trillion threshold, positioning it behind both Microsoft Corp. and Apple Inc. in terms of market size.

Nvidia briefly held the title of the world’s largest stock last week before this downturn.

“In the near-term, it is plausible that investors begin suffering from AI-fatigue or become more broadly concerned about index concentration,” said Neville Javeri, portfolio manager and head of the Empiric LT Equity team at Allspring Global Investments.

Despite the recent slump, Nvidia remains one of the top performers of the year, with shares up nearly 140% year-to-date, making it the second-best performer among S&P 500 Index components, just behind Super Micro Computer Inc., another favored AI stock.

Earlier in the year, Nvidia faced a similar drawdown of about 20% but quickly rebounded to achieve all-time highs. The current downturn, however, has amplified concerns about the company’s valuation.

Nvidia trades at 21 times its estimated sales over the next 12 months, making it the most expensive stock in the S&P 500 by this measure.

Nevertheless, it continues to be well-regarded on Wall Street, with nearly 90% of analysts tracked by Bloomberg recommending a buy and an average price target suggesting about a 12% upside from current levels.

“The momentum in Nvidia and AI stocks in general has been staggering,” said Charlie Ashley, portfolio manager at Catalyst Funds. “In terms of investing, I would not be a contrarian right now.”

Nvidia’s rapid ascent, driven by high demand for its AI processing chips, has been a double-edged sword, fueling both optimism and apprehension among investors.

The stock’s recent performance underscores the volatile nature of the tech market and the ongoing debate about the sustainability of its high valuations amidst economic uncertainties.

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Nigerian Exchange Limited

Nigerian Equities Market Sheds N103 Billion in Three-Day Trading of Last Week

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In a brief yet impactful trading week marked by Eid-el-Kabir celebrations, Nigeria’s equities market closed in the red as the market shed a total of N103 billion in market capitalization.

Investors navigated through a condensed trading schedule that spanned just three days, with profit-taking activities predominantly affecting key sectors despite selective bargain hunting in others.

The Nigerian Exchange Limited (NGX) All-Share Index (ASI) closed the week at 99,743.05 points, reflecting a decline from the previous week’s high of 99,925.29 points.

Similarly, market capitalization dipped to N56.423 trillion, down from N56.526 trillion recorded in the preceding trading period.

Throughout the truncated trading sessions, the market experienced two days of negative closes, contrasting with one day of flat performance.

Analysts attributed the decline primarily to profit-taking activities across critical sectors such as insurance and banking, which overshadowed gains observed in oil & gas, consumer goods, and industrial stocks.

The NGX Oil & Gas Index saw a marginal decrease of 0.21 percent, while the NGX Banking Index dipped by 0.04 percent.

The NGX Insurance Index recorded the steepest decline, falling by 1.41 percent during the week.

On the other hand, the NGX Consumer Goods Index rose by 0.29 percent, and the NGX Industrial Index saw a modest increase of 0.10 percent.

Despite the downturn in market performance for the week, the year-to-date (YtD) return moderated to 33.39 percent, indicating a resilient overall performance in 2024.

Month-to-date (MtD), the market managed a slight uptick of 0.43 percent, underscoring the mixed sentiment and cautious trading observed among investors.

Market analysts and stakeholders emphasized the impact of profit-taking in driving the market’s decline and suggested that the upcoming weeks could see renewed activity depending on economic indicators and investor sentiment.

As Nigeria’s equities market continues to navigate various economic dynamics, stakeholders remain optimistic about potential recovery and growth opportunities amid evolving market conditions.

The holiday-shortened trading week underscored the volatility and resilience of Nigeria’s equities market, highlighting both challenges and opportunities for investors in the coming sessions.

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Nigerian Exchange Limited

FBN Holdings, Fidelity Bank Lead Trades as Nigerian Stock Market Closes Flat

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For the first time in weeks, Nigeria’s equities market closed flat on Thursday as investors adopted a cautious approach, taking a “wait-and-see” stance.

Despite active trading in major stocks such as FBN Holdings, Fidelity Bank, Transcorp, Access Holdings, and AIICO, the market showed no significant movement.

On Thursday, investors exchanged 1,299,961,984 shares worth N25.326 billion in 8,364 deals on the Exchange.

However, the trading activity did not translate into a market shift.

The NGX All-Share Index (ASI) and Market Capitalisation, which stood at 99,842.19 points and N56.478 trillion on the preceding trading day, closed Thursday at 99,842.94 points and N56.479 trillion, respectively.

This static closure occurred despite notable performances from stocks like Champion Breweries and Chams, which rallied.

Conversely, Transcorp Hotels Plc, NEM Insurance, and Fidelity Bank topped the list of laggards.

“We anticipate a mixed trading session with potential buy-side pressure in key names that could steer the market to a green close,” stated analysts from Lagos-based Vetiva Research in their post-trading note. “Investors are expected to monitor movements in high-performing stocks as well.”

Related developments highlighted the challenges facing investors. Rising diesel prices have surged by 66%, hitting the Northeast hardest.

The Naira remains weak at the official market despite rising external reserves, and prime office tenants face dilemmas with dollar-rents surging 200% in Naira value.

The flat close on Thursday underscores the cautious sentiment prevailing among investors in Nigeria’s equities market.

The market’s performance continues to reflect broader economic uncertainties and investor strategies focusing on stability and risk management.

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