📉 Aramco can't get a break

Travel can't come back soon enough | So lira, yet so far-a |

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Hi Reader, here's what you need to know for March 23rd in 3:11 minutes.

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Today's big stories

  1. Oil giant Saudi Aramco kept its promise to pay out $75 billion worth of dividends despite a plunge in profits
  2. There might be a better way to buy into Volkswagen if you think it'll overtake Tesla – Read Now
  3. The Turkish lira fell to a near-record low after the head of the country’s central bank was fired

Slippery Customer

Slippery Customer

What’s Going On Here?

Saudi Aramco – the world’s biggest oil company – reported a massive drop in profit for 2020 on Monday, as it continues to grapple with a problem hiding in plain sight.

What Does This Mean?

Just like its international rivals, Aramco had a hard time in 2020 when demand for and the price of oil went into freefall. Little wonder, then, that its profit for the year plunged 44% compared to the year before. Still, at least the oil giant has kept its word: Aramco announced it’ll pay investors $75 billion in dividends just like it promised it would, and even borrowed money to make sure it could afford it. That might be because the company’s feeling upbeat about the future: it reckons oil production levels will be back to normal by the end of the year.

Why Should I Care?

For markets: The pick of the oil titans?
Aramco’s bottom line is actually a lot more resilient than the average oil company’s: it has less debt than its rivals, as well as the lowest production cost for a barrel of oil (tweet this). And since 98% of its shares are owned by Saudi Arabia, it hasn’t fallen victim to the same wild price swings either: its home country doesn’t buy and sell the stock, but instead just fills its coffers with its dividends. That steady income is a big draw for other investors too – as long as they can get past the country's environmental, social, and governance issues.

The bigger picture: Everyone guesses.
For all Aramco’s optimistism, a travel rebound isn’t a sure thing. In fact, investors sold off shares in European airlines and other travel companies on Monday, amid fears that rising coronavirus cases across the continent will end vacation season before it’s even begun. And to think, it was only last week that they were sending those stocks to all-time highs in hopes they’d benefit most from the economic recovery…

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2. Analyst Take

There Might Be A Better Way To Invest In Volkswagen

What’s Going On Here?

Volkswagen made headlines last week when it doubled down on its shift towards electric vehicles in a bid to dethrone market-leader Tesla.

And investors, for their part, seemed pretty optimistic about its chances, sending the carmaker’s shares to their highest level since 2015.

But there’s actually more than one way to buy VW’s stock, and only one type of share has seen those gains.

See, Volkswagen offers “ordinary” shares and “preferred” shares, and their prices have diverged recently: the latter gained about 15%, compared to the former’s 30%.

That divergence might be down to the fact that people don’t know there’s a difference. But if you do, you’ll be able to capitalize when the gap between them closes.

So that’s what we’re taking a closer look at in today’s insight.

Read or listen to the Insight here

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Hold Me Tender

Hold Me Tender

What’s Going On Here?

The Turkish lira plunged to a near-record low on Monday after the government fired the chief of the country’s central bank over the weekend.

What Does This Mean?

The prices of goods and services have been rising rapidly in Turkey for a while now, with the country’s latest inflation rate sitting just above 15%. To fix that, the central bank’s chief has been hiking interest rates in an effort to discourage spending and cool off the country’s overheated economy. And even though that thinking is in line with almost all modern economic theories, the government disagrees: it says higher interest rates will actually lead to higher inflation.

So after another bigger-than-expected rate hike on Thursday, the Turkish government finally decided enough was enough: it replaced the central bank’s chief for the third time since 2019.

Why Should I Care?

For markets: This crash will be felt across Europe.
Any confidence investors might’ve had in Turkey is all but gone: they’ve been selling off the country’s bonds and stocks, and they sent the lira down 15% versus the US dollar. In fact, investors seem to think another currency crisis – like the one in 2018, when the lira fell 34% against the dollar – could be on the cards. And Turkey’s not the only one feeling edgy: European banks like BBVA, UniCredit, and BNP Paribas might struggle to get repaid by their Turkish clients, and investors sent their stocks down by as much as 6%.

The bigger picture: Will emerging markets follow?
Turkey is considered an emerging market (EM), and what affects one often affects them all. That might be why other EM currencies fell in value during Turkey’s 2018 currency crisis, and why there are concerns that history will repeat itself now. But that’s not necessarily likely: 2018’s crisis was at least in part down to globally significant US sanctions, while this time the government’s actions were – *looks up technical term* – nuts.

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💬 Quote of the day

“There is nothing so useless as doing efficiently that which should not be done at all.”

– Peter Drucker (an Austrian consultant, educator, and author)
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🤔 Q&A · RE: Risky Business

Q: “Since special-purpose acquisition companies (SPACs) are shell companies, why do their share prices sometimes rise before they’ve found a company to merge with?”

– Maxi in Berlin, Germany

A: “Before a SPAC agrees to merge with another company, it’ll negotiate a discount on the target company’s valuation. And if – when that deal’s announced – analysts think the target company is worth more than the agreed-upon valuation, the SPAC’s shares should be worth more when the deal is finished. That means other investors are more likely to buy in and send its price up. It’s that future price jump that early investors are betting on when they buy a SPAC’s shares ahead of any deal.”

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SPACs have raised $87.9 billion so far in 2021 – already more than the whole of last year. And there must be something to the fanfare around these blank check companies, right? Join us for The Wonderful World Of SPACs this Friday, and find out what all the fuss is about.

👩‍💻 The Possibilities of a She-covery: 1pm UK time, March 23rd
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🎙 Finimize Monthly Town Hall: 1.30pm UK time, March 26th
🔥 The Wonderful World Of SPACs: 2.30pm NYC time, March 26th
😎 Crowdfund Club: 6pm UK time, March 30th
😡 The Influence of Behavior on Investing: 5pm UK time, March 31st
♻️ ESG: The Environmental Perspective: 6pm UK time, March 31st
Is It Too Late to Invest in Bitcoin?: 1pm UK time, April 1st
🥕 Crafting a Vegan Portfolio: 6pm UK time, April 6th
🚀 The Rise Of The Retail Investor: 9pm Hong Kong time, April 6th
👀 How to Spot the Next Bitcoin: 12pm NYC time, April 7th
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