😨 Tencent vs. China

Tencent's a paranoid android | Intel wants to be a big dog again |

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Hi Reader, here's what you need to know for March 25th in 3:14 minutes.

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Today's big stories

  1. Tencent posted better-than-expected earnings, but investors are still worried about tighter regulation
  2. There are a few stocks that just won't drop even if the US Federal Reserve raises interest rates – Read Now
  3. Intel unveiled a new strategy and a $20 billion budget to take back its lead in the microchip industry

Mistrust Fund

Mistrust Fund

What’s Going On Here?

Tencent posted better-than-expected earnings on Wednesday, but investors refused to be distracted: they’re sure regulators are plotting something.

What Does This Mean?

You’re probably used to hearing that 2020 was a bumper year for tech firms, so these latest results from Tencent – which beat expectations for a fourth-straight quarter – were more or less par for the course. Most notable were the company’s sales, which topped forecasts thanks to 29% growth in its main business – online gaming – compared to the same time in 2019. Trouble is, it’s a big slowdown from the quarter before, as well as the segment’s slowest growth in a year. That might leave investors wondering if the gaming boom won’t just peter out once this whole pandemic thing clears up…

Why Should I Care?

For markets: No one knows how far Chinese regulators will go.
Investors had bigger fish to fry than Tencent’s latest numbers, mind you: China’s regulators are digging into the company’s online ads and fintech businesses, as well as an investment portfolio that spans hundreds of startups. All that scrutiny hasn’t done its stock any favors, which has dropped 18% since its peak in January (tweet this). It’s still not clear how far China intends to go to rein in Tencent’s power, but some more optimistic analysts have pointed out that the company’s biggest business – which accounts for almost 70% of its profit – has escaped the crackdown so far.

The bigger picture: Tech companies have high standards to hit.
One of Tencent’s investments is in Chinese video app Kuaishou, whose share price surged 160% on its first day of public trading last month – the biggest tech initial public offering since Uber’s in 2019. Shame, then, that its maiden results as a listed company on Wednesday were less of a hit: the company reported a drop in its live-streaming revenue, and investors – eyeing up the ever-growing competition from Bilibili and Joyy – sent its shares down 12%.

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2. Analyst Take

Pick Stocks That Can’t Drop, Won’t Drop

What’s Going On Here?

There’s a lot of concern among investors about when the US Federal Reserve will raise interest rates – not to mention the harm it might do to stock prices.

So here’s an idea: find stocks that won’t drop even if rates climb.

That sounds easier said than done, but there’s one particular measure – usually applied to bonds – that shows how sensitive a stock is to tweaks in interest rates.

The measure’s known as “duration”, and stocks with high duration fall the most when rates rise.

That might worry you because some of last year’s best-performing stocks – think speculative tech stocks with low or no dividends – have some of the highest duration out there.

But there are stocks with low duration: those whose prices won’t fall as much when investors next worry about interest rates rising, or when they actually do.

That’s today’s Insight: which stocks won’t drop when interest rates rise, and how to find them.

Read or listen to the Insight here

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Ego Chip

Ego Chip

What’s Going On Here?

Intel unveiled a whole new strategy and a $20 billion investment plan late on Tuesday, which it’s confident will help it regain the coveted title of world’s biggest chipmaker.

What Does This Mean?

Intel’s gone a little off track in the last few years: its manufacturing has slipped behind schedule, it’s lost its grip on the market, and some unimpressed investors even started pushing the company to sell off its chip production altogether to focus on designing them.

Now, though, it’s back with a new CEO and a new grand plan. Intel hasn’t just not ditched manufacturing, it’s actually doubled down on it: the company announced it’ll be investing $20 billion in two new factories, and launching a new unit that makes chips for other companies too. As for those pesky manufacturing delays, it’ll outsource what it needs to in order to stay competitive, but it still thinks it can manage the lion’s share itself.

Why Should I Care?

For markets: Intel’s gain might be TSMC’s pain. 
Rival TSMC’s neck might be sore from whiplash: one moment the world’s biggest contract chip manufacturer thinks it’s about to pick up business from Intel, and the next it’s facing even stiffer competition from the American chipmaker – especially now Intel’s making chips for other companies. Still, that sore neck should go well with its sore tush: TSMC’s shares dropped 3% when investors heard the news.

The bigger picture: The real winners are upstream.
There’s a global shortage of chips right now, which Intel reckons could last for the next couple of years. That could spell bad news for carmakers that have had to halt operations until they’re all chipped up – a delay that could lose the auto industry $61 billion in sales this year. Still, at least those that build chipmaking equipment are bound to have good days ahead, which might be why shares of chip-quipment supplier ASML jumped 6% after Intel’s announcement.

You might also like: Are carmakers still a good bet?

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💬 Quote of the day

“We’re all born naked and the rest is drag.”

– RuPaul (an American drag queen, actor, singer, and television personality)
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📚 What we're reading

  • When meditation goes wrong (Harper’s)
  • Fast, simple, and hassle-free term life insurance (Bestow)*
  • Poop testing: a load of sh*t (Mashable)
  • Facebook says death threats are a-okay (Hot Press)

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🤑 A Guide To Crypto In 2021: 6pm UK time, March 25th
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