Your portfolios in brief
This week, we decided to talk about General Motors (GM), one of the largest automakers in the United States. In recent years, GM has decided to focus on its most profitable segments and thus, try to position itself to become a significant competitor in an electrified and autonomous world. In the third quarter, GM sold 15,156 electric vehicles, marking significant year-on-year growth of 236% and sequential growth of 4.7%.
In 2023, GM would like to launch 10 new models of electric vehicles, which should put the company in a good position against its many competitors. The performance of vehicle sales in recent quarters is also a good indicator for the upcoming quarters.
GM estimates that its electric vehicle sector should generate profits as early as 2025. After several years of development, the company finally believes that it is ready to produce enough electric vehicles—with a new battery—to increase sales and begin to reduce costs. In fact, in 2023, Chevrolet will launch a battery-powered Silverado pickup and a much more affordable Blazer and Equinox electric SUVs.
“The company’s short earnings ratio at 6.16 times earnings is relatively a bargain. With a current dividend of 1%, there is a strong chance that if the good financial performance is maintained over the next few years, the dividend will be increased. The latter, which was cut at the start of the pandemic to preserve cash, was reinvested in the company, which should contribute to the good performance in the coming years, thus increasing the chances of dividend growth over the next few years,” explains our president and portfolio manager Philippe Pratte.
Markets in brief
China ended this week its zero COVID policy that sparked the recent wave of protests. The country’s economic downturn has also weighed on the restrictions put in place that limited production at large factories. According to these new rules, “asymptomatic infected people and mild cases” will no longer be taken to a quarantine centre. The Chinese government also announced on Wednesday that people will no longer need to present negative COVID test to travel between different parts of the country, to enter businesses or to take the bus. In addition, unless an area is designated as high risk, local work and production can no longer be interrupted.
Chinese exports fell 8.7% in November. The fall in demand is due to the rising costs of shipping goods with the skyrocketing cost of containers. “I expect exports to remain weak over the next few months as China goes through a bumpy reopening process,” said Zhang Zhiwei, president and chief economist of Pinpoint Asset Management. “As global demand weakens in 2023, China will need to rely more on domestic demand.”
On Wednesday, the Bank of Canada announced a 50-basis point hike in its key rate, bringing it to 4.25%, a first since 2008. In previous hikes, the Bank had clearly implied that it would continue to raise their rates. However, in Wednesday’s statement that accompanied the rate decision, there was a growing withdrawal from that tone, as the language shifted to a more neutral and wait-and-see approach.
“Looking forward, the Board of Governors will consider whether the policy interest rate needs to increase further to rebalance supply and demand and bring inflation back to target,” the bank said.
“Inflation remains high and widespread across the globe. Global economic growth is slowing, although it is proving to be more resilient than expected,” reads the Bank of Canada statement. “Going forward, Governing Council will assess whether further raising the policy rate is necessary to bring supply and demand into balance and inflation to target. It continues to analyze the effectiveness of monetary policy tightening in slowing demand,” she said.
As for the markets, they once again evolved in a rather volatile environment this week. The three main indexes retreated at the start of the week but rose quietly Thursday morning at the opening and at the close.
“The narrative continues; every good economic news becomes bad news for the markets. Still dependent on the data, investors are looking to gauge where the Fed will stop with its interest rate hikes. This week, we saw the Bank of Canada raise another 50 basis points which could be very close to the top. At the time of writing these lines, investors are possibly anticipating a final rise of 25 basis points around March/April and then starting to lower rates either at the end of the third and fourth quarters of 2023,” estimates our president and portfolio manager, Philippe Pratte.
Investors waited throughout the week for reports on employment, producer prices (Friday) and consumer prices (Monday) in the hope of finding signs on the next meeting of the Fed expected next week.
Indices were down on Friday after the release of producer prices, which rose more than expected, up 0.3%, while economists were expecting a gain of 0.2%. Currently, any data that shows prices remain high and inflation is stiffer than expected becomes a negative for the markets.
Here is the average for the week of the three main indexes at 1 p.m. Friday.
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And here's the average for the week for the TSX in Canada.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
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