Capital markets must pivot, Tencent halted by Trump and … could Elixir Energy rise further?

This week, FIS (NYSE: FIS) released new research looking at how institutional investors, fund managers and capital markets executives, on both the buy-side and sell-side, are responding to the challenges of COVID-19.

FIS is a Fortune 500® company and is a member of Standard & Poor’s 500® Index.

It is the world’s largest fintech (IDC fintech rankings ’19) and processes over $75 billion of transactions.

Its findings, in these difficult times go to the heart of the problems many companies are now facing and give insight into current developments in the investment world, with a specific focus on their technology exploits.

Just to make point of the problems facing global markets, this week the UK’s GDP figures came out confirming they were in a recession. The 21.7% slump is the worst ever compared to the same period last year and dwarfs Germany’s decline of -10.8% also for the same period. Spain's figure of -18.5% was also high. The UK picked up 8.7% as lockdown ended, however these figures illustrate the road to recovery is a fair way off. Market reaction to the news was muted, but it does illustrate the issues investors and fund managers face as they deal with economic volatility.

With that in mind, here are the highlights of the FIS survey:

Trading from home exposes investment banks and asset managers to cyber risk

• 56% of Australian CM execs say trading was extremely challenging to adapt to in response to COVID-19.
• 51% of sell-side firms say trading was most challenging to adapt in response to COVID-19. In comparison, only 42% of buy-side firms said the same.
• Despite this, only 26% of buy-side firms plan to let employees continue working from home after COVID-19, while 42% of sell-side firms are prepared to do this.
• To address the challenges of trading from home, 92% of Australian firms said they would prioritise investment in core operation upgrades over the next 12-months.
• 46% of businesses reported they may need to cut tech spending in a post-pandemic environment.

Pandemic sees ‘slowbalisation’ of capital markets transformation projects, except for cyber and cloud

• 64% of Australian respondents will pause or delay major organisational transformation projects over the next 12 months, though 28% plan to accelerate these plans.
• This is higher than our global counterparts, where 56% of respondents said they will pause or delay major organisational transformation projects over the next 12 months, with 33% planning to accelerate these plans.
• 62% say disruption from Covid-19 has increased their appetite for cloud systems overall, and 50% cite risk management and post-trade processing as key contenders
• Firms will seek overseas growth despigreater complexity — 45% says it’s a critical strategy.

The takeaway is, as reported by the FIS Readiness Report is that “Amid market turbulence, rock-bottom interest rates and a workforce in lockdown limbo, capital markets executives must adapt to new demands and rebuild more resilient operating models in order to sustain long-term growth.”

International stocks to watch

eToro’s Adam Vitesse looks at three international stocks to watch. Here’s his take:

Tencent (HKG: 0700)

“Chinese tech conglomerate Tencent, which offers products including instant messaging services, video games, streaming and more, reported quarterly earnings on Wednesday. The earnings release came shortly after President Trump suggested the firm’s WeChat app poses a threat to US national security, and banned American companies from doing business with it – with a lack of clarity around whether the ban is limited to the app itself or the whole company. The company’s US listing has added 36.8% year-to-date, but its share price fell back 7.1% last week on the Trump announcement. Currently, 44 Wall Street analysts rate the stock as a buy or overweight, and four as a hold.”

Cisco (NASDAQ: CSCO)

“IT and communications tech firm Cisco is down 1.6% year-to-date. While it offers services and products that can help firms shift to virtual operations, a big chunk of its business is in hardware for offices that aren’t being used right now and face an uncertain future. The company has exposure to cloud data centres, online video conferencing tools and other components that are in demand right now, but investors will be watching closely for how that balances out the firm’s huge on-site network services. Currently, analysts are split between a buy and hold rating on the stock.”

Lyft (NASDAQ: LYFT)

“Ride hailing app Lyft reported its Q2 earnings this week, days after a California court ruled that the firm’s drivers are employees, rather than the contract worker status Lyft and rival Uber have been fighting for. Analysts are certain to probe the implications of that ruling for the company’s business, and whether it can still see a route to profitability if it has to treat its drivers as full-blown employees. The damage the pandemic, which has suppressed demand for Lyft’s services, has had on the company’s profitability prospects will also be a likely focus on the earnings call. Unlike Uber, Lyft does not have a food delivery service in its repertoire to fall back on. As such, it is down close to 30% year-to-date, while Uber is up 4.9%.”

Aussie small cap to watch

Elixir Energy (ASX:EXR)

Elixir Energy started the week at 8.8 cents this week and finished at 0.115. Elixir has continued its steady climb since it announced highly promising news in 29 July regarding its much anticipated Nomgon-2 appraisal well being drilled in Mongolia.

Shares more than doubled in July from 3.7 cents to reach a then record high of 9.5 cents, before closing the month at 8.4 cents. There is clearly still interest in the stock as we move through August and with drilling results due any day now, the company could again see a significant lift in its share price.

The best and worst performing sectors this week

The All Ordinaries Index was slightly bullish this week, but far from convincing. Some sectors rose strongly while others failed to perform. Consumer Staples was up over 4 per cent followed by Financials up over 3 per cent and Consumer Discretionary up almost 2 per cent.

The worst performing sectors were Communication Services, down nearly 5 per cent followed by Utilities down around 2 per cent and Information Technology down over 1 per cent.

Of the ASX top 100 stocks, Treasury Wines Estates was up over 17 per cent, Flight Centre up over 15 per cent and Scentre Group and Unibail-Rodamco-Westfield were up over 10 per cent.

At the other end of the spectrum, Northern Star Resources was down over 11 per cent, Seel Limited and AGL Energy were down over 8 per cent and Telstra and Challenger were both down over 7 per cent.

So what's next for the Australian share market?

According to Wealth Within’s Dale Gillham, “On Monday, the All Ordinaries Index rose 1.66 per cent and it looked like the market would finally break out of the protracted sideways move it has been in over the past few months. However, being patient has paid off given that over the past two days the market has experienced some weakness yet again.

“Last week, I indicated that the big end of town did not seem to be overly bullish and the events of this week have done nothing to change my view. For the Australian market to prove it is bullish, it needs to close strongly for the week, preferably above 6,200 points. Failure to do this continues to indicate that the market is weak and will fall away some time soon.”