Stock Markets
Analysis-Global trade rift widening as Ukraine war passes two-year mark
© Reuters.
By Philip Blenkinsop
BRUSSELS (Reuters) – Two years after Russia’s invasion of Ukraine, there are clear signs that the global economy is fragmenting into two separate blocs and that multilateral trade rules that have underpinned commerce for nearly 30 years are under threat.
Rising geopolitical tensions, including in the Middle East, and concerns over economic security are leading to sanctions, trade curbs and signs of a widening split between countries supporting Russia and those backing Ukraine.
The World Trade Organization, which hosts its biennial ministerial conference to debate global trade rules next week, has warned that an outright fragmentation into two rival blocs would shrink the global economy by 5%, with developing countries suffering the most.
In this extreme scenario, the United States and China and their allies would be engaged in a bipolar trade war and the respective blocs would set their own rules, disregarding multilateral agreements.
We are not yet at that point, but WTO economists have shown that since Russia’s invasion in February 2022, the two blocs are pulling apart.
“We find early evidence of a trend towards a stronger alignment between trade flows and geopolitical affinities since the onset of the war in Ukraine,” they said in a report.
“Our findings point to the first signs of fragmentation in global trade.”
They split the world based on different United Nations voting patterns, including but not limited to resolutions on the Ukraine war. They exclude Ukraine, Russia and Russian ally Belarus to remove the impact of sanctions and the war itself.
Their finding is that trade in goods between the blocs has grown 4% slower than trade within blocs.
While the economists showed signs of ‘friend-shoring’, they did not find evidence of extensive near-shoring, with no pick-up of trade within regions, although they did not assess whether countries are bringing parts of value chains back to their own territory. ‘Friend-shoring’ is a term used by U.S. Treasury Secretary Janet Yellen and others to encourage countries to diversify supply chains away from China to market-oriented democracies such as India.
US-CHINA TRADE
Looking at the United States and China alone, the WTO economists find that trade tensions, which jacked up when former U.S. President Donald Trump imposed tariffs on about two-thirds of Chinese goods imports, have been compounded by the Ukraine war.
Paradoxically, trade flows between the two spiked to a record high in 2022 as U.S. demand for Chinese consumer goods rose and Beijing’s demand for U.S. farm products and energy grew. However, relative to each country’s goods trade with other partners, their bilateral trade has slowed, WTO research shows.
It concludes that the initial increase in trade tensions and the subsequent war in Ukraine resulted in bilateral trade that was 31% slower from July 2018.
Geopolitical tensions are partly the cause of downbeat estimates for global goods trade growth, particularly for last year. The WTO has said it will cut its 0.8% estimate, while the World Bank puts the figure at 0.2%, the lowest growth rate of the past 50 years outside global recessions.
World Bank deputy chief economist Ayhan Kose told Reuters this weakness was occurring against a backdrop of dramatic changes to trade policy following a previous embrace of trade integration.
“That era basically disappeared. Now we have a new era characterised by countries not signing agreements… And then if you look at the number of trade restrictions introduced worldwide, that number has sky-rocketed.”
Swiss-based monitoring service Global Trade Alert has found a massive build-up of distortive measures since the start of 2020, from Argentina’s plan to raise an export tax on soy to India’s increased import duty on palm oil and U.S. state aid for on-shoring of a semiconductor supply chain.
And while policies have at times eased earlier import and export curbs, the ramp-up of subsidies – typically making domestic goods look cheaper against imported ones – outweighed these.
The figure below shows the situation for critical raw materials, such as lithium and cobalt, to which countries are desperately seeking access to brace for a green transition and increasingly subsidising local industries to process.
A similar subsidies ramp-up is seen in other sectors Global Trade Alert monitors – food, medicines and global value chains. Not only are there more measures, but more countries are taking them, its data shows.
Trade restrictions and distortions reflect a push towards protectionism, undermining global rules that promote open trade and limit the extent to which countries can support domestic industry with subsidies and other measures.
The Institute of International Finance sees risks for global debt, with higher government spending to mitigate the adverse effects on supply chains of growing trade protection and geopolitical conflicts.
WTO Director-General Ngozi Okonjo-Iweala, who will chair the WTO’s Feb. 26-29 meetings in Abu Dhabi, stresses the costs of fragmentation and advocates “re-globalisation”, a revival of multilateralism that could boost the world economy by some 3%.
Georg Riekeles, associate director of the European Policy Centre think tank, said that for trade-reliant Europe in particular the best one could hope for was a shift to a new equilibrium that maintained open trade, at least with friendly partners.
“A retreat of globalisation due to more caution over China and over disruptions to value chains, such as the Red Sea, could be compensated by greater diversification and open trade elsewhere,” he said.
CFRA has downgraded Equinix (NASDAQ:EQIX), a global data center company, from a Buy to a Hold rating, setting a price target of $900.00. The adjustment was made due to the stock’s current price nearing what CFRA considers its fair value. The firm’s analyst cited a forward Price/Funds From Operations (P/FFO) multiple of 34.0x, which is higher than that of Equinix’s direct peers, as a reason for the downgrade.
The analyst provided financial forecasts, estimating Equinix’s FFO at $24.70 for 2024, which is slightly below the consensus of $24.74, and at $26.50 for 2025, compared to the consensus of $26.74. Revenue projections were also offered, with expectations of $8.75 billion in 2024 and $9.5 billion in 2025. The analyst’s outlook reflects confidence in Equinix’s market position and strategic initiatives.
Equinix is recognized for its unique market position, strategic locations, and a customer ecosystem that is considered “sticky” due to the difficulty of switching providers. The company’s sales expertise and the presence of leading global networks within its facilities also contribute to its strong market presence. CFRA highlighted Equinix’s cloud-based global platform and distributed infrastructure as key differentiators that make it a preferred partner for many large technology companies.
The industry fundamentals for data centers remain favorable, according to CFRA, with significant supply constraints in various major data center markets. The analyst noted Equinix’s customer churn rate, which remains low at less than 2.0%-2.5%. This indicates a strong customer retention rate for the company.
In terms of capital expenditures, Equinix reported a total outlay of $648 million in the second quarter of 2024. This spending is focused on major projects across eight markets, with 80% of the capital expenditures tied to long-term ground leases. This level of investment reflects Equinix’s commitment to expanding and maintaining its market-leading position in the data center industry.
In other recent news, Equinix Inc (NASDAQ:). announced the departure of Scott Crenshaw, the company’s Executive Vice President and General Manager of Digital Services. The terms of Crenshaw’s separation are still under negotiation, with further details expected in an upcoming report.
On the financial front, Equinix reported a robust 8% year-over-year increase in second-quarter revenues, totaling $2.2 billion, primarily attributed to its xScale program and focus on artificial intelligence.
The company has also issued over $750 million in green bonds, bolstering its commitment to sustainability and placing it among the top ten largest U.S. corporate issuers in the investment-grade green bond market. Analyst firms Mizuho and Evercore ISI have maintained their Outperform ratings for Equinix, with Mizuho raising its price target from $873.00 to $971.00 based on improved Q2 performance and earnings estimates.
Equinix has also issued €600 million in 3.650% Senior Notes due 2033 and priced CHF 100 million in bonds to fund Eligible Green Projects, aligning with its Green Finance Framework. These financial maneuvers underscore the company’s strategic approach to funding its sustainability initiatives.
Despite facing macroeconomic challenges and ongoing investigations by regulatory authorities, Equinix remains confident in its strategic direction and ability to deliver value to shareholders.
InvestingPro Insights
Equinix’s financial health and market performance can be further illuminated by real-time data from InvestingPro. With a robust market capitalization of $83.55 billion, the company stands out as a significant player in the data center space. Its Price to Earnings (P/E) ratio, as of the last twelve months leading up to Q2 2024, sits at a high 124.15, indicating a premium market valuation compared to earnings. However, investors may also consider the PEG ratio of 3.1, which could suggest the stock’s price is high relative to its earnings growth potential.
InvestingPro Tips point to the company’s solid revenue growth, with an increase of 8.05% over the last twelve months leading up to Q2 2024. This growth is complemented by a gross profit margin of 45.99%, showcasing the company’s ability to maintain profitability. Additionally, Equinix has demonstrated a strong dividend growth rate of 24.93%, a factor that could be attractive to income-focused investors.
For those considering an investment in Equinix, it’s worth noting that the InvestingPro platform offers a wealth of additional tips – there are 15 more tips currently available that can provide deeper insights into Equinix’s financials and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
By David Shepardson and Ben Klayman
WASHINGTON/DETROIT (Reuters) -Top White House economic adviser Lael Brainard laid out on Monday the Biden administration’s broad approach to safeguarding the U.S. auto sector from what it considers China’s unfair trade actions.
“China is flooding global markets with a wave of auto exports on the back of their own overcapacity. We saw a similar playbook in the China shock of the early 2000s that harmed our manufacturing communities, and this administration is determined we will not see a second China shock,” Brainard said to the Detroit Economic Club.
“That means putting safeguards in place now before a flood of unfairly, underpriced autos undercuts the ability of the U.S. auto sector to compete fairly on a global stage,” she added at the Detroit event.
Relatively few Chinese-made cars and trucks are imported into the United States.
The U.S. Commerce Department on Monday proposed prohibiting key Chinese software and hardware in connected vehicles on American roads due to national security concerns, a move that would effectively bar nearly all Chinese cars from entering the U.S. market.
“Americans should drive whatever car they choose – whether gas powered, hybrid, or electric,” Brainard said. “But, if they choose to drive an EV, we want to make sure it was made in America, and not in China.”
Brainard’s appearance comes as the fate of the auto industry and pressure from China has become a major theme in the 2024 presidential election with the Republican nominee Donald Trump suggesting China could dominate future auto production.
Earlier this month, the Biden administration locked in steep tariff hikes on Chinese imports, including a 100% duty on electric vehicles, to boost protections for strategic industries from China’s state-driven industrial practices.
The White House aims to ensure that Chinese automakers cannot set up factories in Mexico to get around high tariffs.
“We’re going to need to work our partners Canada and Mexico, to address China’s overcapacity in the EVs as we look to the mid-term review of the USMCA in 2026,” Brainard said of the U.S.-Mexico-Canada trade agreement.
She said U.S. officials are already in talks with Mexico officials and they share U.S. concerns about China using Mexico as a platform to ship into the U.S. at artificially low prices, she said.
Asked about the possibility of a Chinese automaker building plants in the U.S., Brainard said it would happen “with a set of safeguards that we are putting in place now before we confront these problems.”
In response to a question referring to comments about Trump saying he was against the administration’s “EV mandate,” Brainard called that idea “complete nonsense.” She said the U.S. needs to invest in EVs or Americans will have less choice.
ST. LOUIS – Centene Corporation (NYSE: NYSE:), a prominent healthcare enterprise, announced today that its subsidiary, Health Net Community Solutions, has been selected by the California Department of Health Care Services to provide managed dental health care services to Medi-Cal beneficiaries in Los Angeles and Sacramento counties starting July 1, 2025. The contract spans 54 months and marks the continuation of Health Net’s role as a provider of both medical and dental coverage in these regions.
Health Net, currently the sole Medi-Cal plan in the aforementioned counties that offers integrated medical and dental care, manages a network of over 1,000 dental providers. The company serves nearly 385,000 dental members and supports the health care needs of approximately 2.2 million Californians, including more than 1.5 million Medi-Cal members.
Centene CEO Sarah M. London expressed gratitude for the opportunity to support Medi-Cal members’ dental health needs through Health Net’s new contract. Health Net Plan President and CEO Brian Ternan also conveyed the organization’s commitment to improving community health and providing essential dental services.
The selection of Health Net is part of a broader strategy to address social determinants of health, aiming to reduce health disparities, enhance outcomes, and improve access to quality care. Health Net’s whole-person care model is designed to meet the comprehensive needs of its members.
Centene Corporation, a Fortune 500 company, focuses on serving under-insured and uninsured individuals through a variety of government-sponsored and commercial healthcare programs. The company’s approach emphasizes local brands and teams to deliver integrated, high-quality, and cost-effective services.
The information in this article is based on a press release statement.
In other recent news, Centene Corporation reported strong second-quarter earnings, with an adjusted diluted earnings per share (EPS) of $2.42, marking a 15% increase from the previous year. The company also raised its full-year premium and service revenue expectations to between $141 billion and $143 billion, indicating optimism about future growth.
In terms of analyst interactions, Jefferies maintained a Hold rating on Centene but lowered its price target to $72.00 from the previous $74.00, reflecting adjustments to the earnings forecasts for the next two years. Wells Fargo, on the other hand, upgraded its price target for Centene from $81.00 to $93.00, maintaining an Overweight rating on the stock. Similarly, TD Cowen increased Centene’s price target from $80.00 to $89.00, also reaffirming a Buy rating on the stock.
In other company news, Centene expanded its Board of Directors with the appointment of Thomas R. Greco, a seasoned leader with over 40 years of experience in public companies. This appointment is expected to enhance Centene’s consumer marketing expertise, aiding the company’s mission to improve the health of its members. These developments highlight Centene’s commitment to its growth strategy, focusing on improving Medicaid operations and marketplace innovation.
InvestingPro Insights
As Centene Corporation (NYSE: CNC) secures a new contract to provide managed dental health care services in California, the company’s financial health remains a key focus for investors. Centene’s aggressive share buyback program indicates strong confidence from management in the company’s value, which is an important consideration for shareholders.
Moreover, Centene’s position as a prominent player in the Healthcare Providers & Services industry is bolstered by its high shareholder yield, a metric that combines dividend payments and share repurchases to show the total payout to shareholders. Although Centene does not pay a dividend, the share repurchases contribute to this yield, rewarding investors and potentially signaling undervalued stock. With a market capitalization of $39.64 billion and a price-to-earnings (P/E) ratio of 14.26, the company is trading at a valuation that reflects its profitability over the last twelve months.
InvestingPro data provides additional context, showing that Centene is trading at a low revenue valuation multiple, with a price-to-book ratio in the last twelve months as of Q2 2024 at 1.45. This ratio suggests that the stock may be reasonably priced relative to the company’s book value. Additionally, Centene has demonstrated a revenue growth of 4.32% in the same period, showcasing its ability to increase earnings over time.
Investors interested in Centene’s future performance should note that 7 analysts have revised their earnings estimates downwards for the upcoming period, which could impact the stock’s near-term trajectory. Nonetheless, Centene’s fundamental strength is evident in its recent profitability and the expectation of analysts for the company to remain profitable this year.
For those seeking deeper financial analysis and more InvestingPro Tips, there are 11 additional tips available on Centene Corporation at https://www.investing.com/pro/CNC, providing valuable insights for making informed investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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