Rolls-Royce (LON: RR) share price has gone parabolic this year, rising by 80%, making it one of the best performers in the FTSE 100 index. It has surged by more than 1,300% from its lowest level in 2020, when it nearly went bankrupt. 

RR shares have jumped under Tufan Erginbilgiç 

Rolls-Royce shares have done well under Tufan Erginbilgiç, the well-compensated executive who took over in January last year. He is probably best known for his description of the company as a burning platform. 

The stock has risen by 440% since he became CEO, which has made him relatively wealthy. Data shows that he was the third best-compensated executive in the FTSE 100 index after AstraZeneca and Relx CEOs.

He has also netted over £32 million in paper profits in the 9.3 million shares he has was awarded. 

However, analysts are unsure whether the ongoing surge can be attributed to Erginbilgiç or whether he is just lucky. I believe that luck and his management style have contributed to the ongoing stock surge.

On luck, the company has done well because of the global macro events that have led to robust civil aviation business. It has also benefited from the ongoing geopolitical events that have led to more demand for military equipment.

Civil aviation is an important part of Rolls-Royce’s business since it generates over 50% of its revenue. It does that by selling engines that power planes like the Airbus A330-neo, A380, and A330. 

RR then makes most of its money by entering long service contracts that it charges for every flight hour. Therefore, its business has benefited as most airlines have seen elevated demand, with their load factors rising to pre-pandemic levels. 

As such, Erginbilgiç was lucky because he became CEO when this recovery happened. It is also worth noting that the stock was already rising before he became CEO. 

Most importantly, other companies in the industry have done well, with the GE Aerospace stock rising by 150% in the last 12 months. Safran, which has an engine manufacturing joint venture with GE, has risen by 45% in the same period. Similarly, RTX, which owns Pratt & Whitney, has jumped by 75% in the last 12 months. 

Increased defense spending

Rolls-Royce share price has also soared because of its defense business, which has benefited from the ongoing spending by governments.

The war in Ukraine is going on while the Middle East is on edge after Israel launched a ground operation in Lebanon.

There are also growing risks that China will invade Taiwan in the next few years, a move that will force the US and its allies to respond. As a result, most Western countries, especially those in NATO, have start making these preparations.

Rolls-Royce is also benefiting from the AUKUS arrangement that unites the United States, UK, and Australia, with Japan expected to join.

Altogether, the defense segment’s revenue rose by 18% in the year’s first half while the civil aerospace jumped by 27% to £4.1 billion.

Cost cuts and new targets

Tufan Erginbilgiç’s actions have also helped the Rolls-Royce share price recover. He has done that by reducing costs, refocusing the company on profitability, changing senior leaders, reduced duplication, and culling middle managers.

At the same time, he has abandoned some of his predecessor’s loss-making ventures and set new profit targets for the company. 

As part of his strategy, he hopes that the operating profits will rise to between £2.5 billion and £2.8 billion in the medium term. He also expects that the operating margin will grow to between 8% and 10% while its free cash flow will be between £2.8 billion and £3.1 billion. 

These actions, together with the return of dividends, have led to more demand for the company’s stock. 

Risks remain

It is still too early for Erginbilgiç to celebrate since a lot can happen. Besides, the civil aviation division that has done so well is highly cyclical.

Also, history shows that stocks that climb so fast can also suffer a sharp reversal. Two good examples of this are Boohoo and Burberry. 

Boohoo was a tech darling during the pandemic when its stock surged to 433p. Today, it has plunged to below 30p. Similarly, Burberry shares surged to 2,458p in 2023 and has dropped to below 800p today.

There is also risk that the stock has become highly overvalued. Most notably, the Relative Strength Index (RSI) and MACD show that the stock has started to form a bearish divergence pattern. In most periods, this pattern is usually followed by a bearish breakout.

Therefore, the stock may continue rising as investors wait for its trading statement in November when it publishes its trading update. It will then start falling towards the end of the year.

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A 25% surge in Chinese stocks, fueled by Beijing’s recent stimulus measures, has left global money managers scrambling to gain exposure to the country’s stock market.

However, despite these attractive gains, there are significant risks for investors looking to benefit through global companies with a presence in China.

Chinese policymakers have introduced a series of initiatives aimed at reviving the country’s ailing economy.

These include interest rate cuts, mechanisms to bolster the onshore stock market, and plans for further fiscal stimulus to boost consumer and business confidence.

The rapid implementation of these measures has fueled optimism in China’s domestic market, but global firms—especially those based in the US and Europe—may not enjoy the same benefits as their Chinese counterparts.

Global firms face unique challenges in China

Despite the optimism surrounding Chinese stocks, global companies with exposure to the country have encountered a range of issues in recent quarters.

US and European firms with significant business in China have been hit hard by weaker demand, rising domestic competition, and a shift toward nationalist policies by the Chinese government.

According to a client note from Bank of America strategist Savita Subramanian, US mutual funds are overweight in just 18 of the 50 S&P 500 companies with the highest sales in China.

This positioning reflects caution, as many of these companies are grappling with challenges that are unlikely to be resolved by Beijing’s stimulus.

Key global companies with significant China exposure include chip manufacturers like Nvidia, Broadcom, Applied Materials, and Qualcomm.

Consumer-oriented brands such as Nike, Apple, Starbucks, and Lululemon, along with healthcare firms like Merck and Danaher, are also widely held by US mutual funds.

However, many of these firms have reported difficulties in their China operations, driven by reduced demand and increased competition from domestic rivals.

Impact of Beijing’s stimulus likely to benefit domestic firms

Most analysts expect Beijing’s fiscal stimulus to focus on helping lower-income consumers, which could benefit domestically oriented staples companies rather than global luxury brands that have been struggling in China.

For example, Bank of America analyst Ashley Williams predicts that luxury revenue in mainland China could fall by 15% annually for the next two years.

Williams notes that many Chinese shoppers are choosing to purchase luxury goods abroad, with luxury spending outside mainland China expected to rise to 50% by next year, up from around 33% in the first half of 2024.

This shift in consumer behaviour poses significant risks for global luxury brands such as LVMH, Ermenegildo Zegna, and Kering.

Lower domestic luxury spending could lead to margin pressures and reduced earnings estimates for these companies in the coming years.

As a result, Williams downgraded all three companies from Buy to Neutral.

US-China tensions complicate business for global firms

Another major challenge facing global companies with operations in China is the increasingly strained relationship between the US and China.

Semiconductor giant Nvidia is one such company caught in the crossfire of this geopolitical tension.

As the US tightens its restrictions on China’s access to advanced technology, Chinese data centre and artificial intelligence companies have been encouraged to reduce their reliance on Nvidia’s GPUs.

Experts say Beijing is attempting to push domestic firms toward GPUs produced by Chinese tech company Huawei Technologies.

However, there are questions surrounding Huawei’s ability to meet demand and the quality of its chips, which are produced by the domestic chip maker SMIC.

In addition to the challenges posed by China’s nationalist policies, global businesses must navigate Beijing’s restrictions on data access and limitations on foreign firms conducting due diligence.

These structural issues are unlikely to be addressed by Beijing, further complicating operations for international companies in the region.

Meanwhile, the Biden administration is moving forward with plans for a new package of export controls targeting China, which could exacerbate tensions between the two countries.

Uncertainty remains for global investors

Despite the sharp rise in Chinese stocks, significant uncertainties remain for global investors.

While Beijing’s economic measures have provided a short-term boost, the long-term outlook for foreign companies operating in China is fraught with risks.

Global firms face the dual challenge of weaker demand in China’s market and geopolitical tensions that could hinder their ability to compete with domestic rivals.

Although details are needed for the recent surge in Chinese stocks to sustain momentum, some money managers remain optimistic, believing that Beijing is rethinking its approach to economic stimulus.

However, for now, many are wary of the challenges global companies face in benefiting from China’s economic revival.

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PepsiCo Inc. (PEP.O) is in advanced discussions to purchase Texas-based tortilla-chip maker Siete Foods for more than $1 billion, according to sources cited by the Wall Street Journal.

The Garza family, which owns and operates Siete Foods, has built a popular brand known for its grain-free snacks and tortillas.

While a deal could be announced soon, the sources caution that negotiations could still fall through.

Siete Foods has attracted significant interest from private equity firms and other food companies, making the sale process competitive.

PepsiCo’s strategy amid changing consumer preferences

The potential acquisition aligns with PepsiCo’s strategy to expand its footprint in the growing market for healthier, alternative snacks.

Amid inflation and shifting consumer preferences toward private-label brands, companies in the US packaged food sector are looking to scale up.

Siete Foods’ appeal stems from its focus on health-conscious consumers, with its grain-free, dairy-free products finding a dedicated customer base.

PepsiCo has faced challenges in maintaining its snack and soda demand in its largest market, the United States.

Rising inflation and increased competition from private-label brands have led to declining sales volumes, even as the company raised prices to offset inflationary pressures.

Siete Foods: a family-owned success story

Founded by the Garza family, Siete Foods has grown into a major player in the better-for-you snack space.

All seven members of the Garza family are actively involved in running the business.

Their dedication to health-focused and culturally inspired products has resonated with consumers, positioning Siete as a highly attractive acquisition target.

The acquisition talks with PepsiCo come amid heightened dealmaking activity in the US packaged food sector, where companies are striving to meet evolving consumer demand while grappling with cost pressures.

PepsiCo faces pressures on North American sales

Despite the potential growth opportunities from this acquisition, PepsiCo is facing headwinds in its North American operations.

The Quaker Foods North America (QFNA) segment, in particular, has struggled with product recalls and soft demand.

Contamination issues, such as a Salmonella recall in some cereal and snack products, have negatively impacted PepsiCo’s organic sales, reducing them by 60 basis points in the second quarter of 2024.

Additionally, PepsiCo’s aggressive price hikes to combat rising inflation have led to lower sales volumes, as cost-conscious consumers shift their spending toward more affordable alternatives.

These trends have weighed on PepsiCo’s North American top-line performance, though the company continues to hold strong investor expectations.

PepsiCo stock performance

In the last three months, PepsiCo’s shares have gained 4.3%, trailing the broader industry’s 8.2% growth and the Consumer Staples sector’s 9.6% return.

Despite these challenges, PepsiCo’s stock performance has matched the S&P 500 during the same period, reflecting ongoing investor confidence in the company’s long-term growth prospects.

If the Siete Foods acquisition materializes, it would mark a significant move for PepsiCo as it navigates a shifting marketplace, aiming to bolster its portfolio with healthier, alternative snack options.

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Futu Holdings (NASDAQ: FUTU) stock price has gone parabolic, rising for three straight weeks, reaching a high of $102.97, its highest point since September 2021.

It has soared by over 75% this year, making it one of the best-performing companies in Wall Street.

Futu and China comeback

Futu Holdings’ share price has done well in the past few days, helped by the recent actions by the Chinese and American officials.

In the United States, the Federal Reserve started cutting interest rates, citing concerns about the labor market and hopes that inflation was moving to the 2% target rate.

The Fed decision marked a major shift among global central banks as they started to abandon their post-Covid restrictions. 

In most cases, global stocks do well when the Fed and other central banks are cutting interest rates as we saw during the Covid-19 pandemic.

Futu shares have also surged because of Beijing’s recent actions, which have propelled Chinese stocks to their highest levels this year.

The People’s Bank of China (PBoC) decided to cut interest rates and also reduce its reserve requirements, a move that will unlock over $100 billion in funds.

It is also encouraging pension funds and other companies to increase their stock purchases.

Meanwhile, China’s politburo led to more stimulus by Beijing in its attempt to engineer an economic boom. Altogether, the Hang Seng index rose to $21,482, a 45% increase from the lowest level this year. 

Most Chinese technology companies like PDD Holdings, Nio, and Alibaba have also surged hard in the past few days.

This also explains why the Futu share price has gone parabolic.

Futu’s growth is continuing

Futu Holdings is a company that most Americans have never heard about.

Yet, it is one of the biggest fintech firms in China valued at over $14 billion.

It is a company similar to Robinhood in that it helps people invest in Chinese and global stocks, especially American ones.

It runs applications like Futubull and MooMoo.

Futubull is an online brokerage and wealth management tool that lets people buy assets like stocks and options.

It also has a platform where people can grow their wealth well.

Futubull is mostly used by people in China. 

Moomoo, on the other hand, is an application similar to Futubull, with the only difference being that it is designed for overseas customers.

It lets these customers buy and trade stocks, options, ETFs, and ADRs. 

Futu, therefore, has a business model similar to that of Robinhood, an online brokerage that has revolutionised the US industry by introducing commission-free trades. 

It has also benefited from the ongoing demand for American stocks as Chinese ones crashed in the past few months.

Many people in China also want an exposure to well-known American brands like Nvidia and Amazon.

Futu’s products have become highly popular in China and other countries, which explains why its revenues have surged recently.

Its annual revenue has risen from $124 million in 2019 to over $1.165 billion in the last financial year. 

Futu makes its money in two main ways: interest rates and capital markets. In interest, it invests its cash in low-cost government bonds.

It also earns money from brokerage commissions. 

Earnings download

Futu Holdings released relatively encouraging financial results in August.

The number of paying clients rose by 28% in the second quarter to 2.04 million, while those registered in its platforms rose by 19% to 4.04 million.

Additionally, the total amount of client assets in Futu jumped by 24.3% to over HK579 billion, equivalent to over $72 billion. Most importantly, the volume of transactions in the platforms surged by 69% to H$1.62 trillion. 

Therefore, these numbers led to higher revenues, which rose by 25.9% to $400 million while its net income rose to $154 million, meaning that Futu is a high-margin company. 

Futu is not followed closely by American analysts.

Those analysts expect its revenue to grow by 12.9% this year to $1.45 billion, followed by 12% to $1.62 billion.

Futu is relatively undervalued company, likely because of its China-exposure risks.

Its forward price-to-earnings ratio stands at 18.2, much lower than Robinhood’s 33. 

The other big risk is that the industry is highly competitive, with most of this competition coming from WeBull, one of the most popular companies in the industry.

Read more: Here’s why Futu, AMD, and LiveRamp stocks are rising

Futu Holdings stock price analysis

FUTU chart by TradingView

The weekly chart shows that the Futu share price made a strong bullish comeback in the past few days.

It jumped above the upper side of the ascending red channel. 

The stock has also moved above the 50-week Exponential Moving Averages (EMA) while the MACD and the Relative Strength Index (RSI) have drifted upwards.

Therefore, Futu Holdings seems like a cheap contrarian company to invest in as global stocks continues their recovery.

If this happens, the next point to watch will be at $100.

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Robinhood has officially announced the expansion of its cryptocurrency services in the European Union, allowing customers to transfer cryptocurrencies in and out of its app.

This move marks a significant step in the company’s international growth strategy, as it offers European users the ability to self-custody their digital assets.

Robinhood’s decision to broaden its product capabilities aligns with the growing demand for digital currency services across Europe, where favourable regulations, such as the Markets in Crypto-Assets (MiCA) law, are being adopted.

This development comes at a time when US crypto firms are facing increasing scrutiny from regulators at home.

Robinhood expands crypto capabilities in Europe

Robinhood’s new feature allows EU users to deposit and withdraw over 20 digital currencies, including popular tokens such as bitcoin (BTC), ethereum (ETH), and solana (SOL).

The platform had previously restricted users from transferring their cryptocurrencies out of the app, limiting the scope of its crypto trading services.

With this latest feature, European users can now fully control their digital assets by transferring them to self-custodial wallets.

This expansion reflects the growing interest in decentralised finance (DeFi) solutions across the continent, particularly as the MiCA regulation creates a more unified regulatory environment for the cryptocurrency industry in the EU’s 27 member states.

The decision to introduce these self-custody capabilities follows Robinhood’s belief in the EU’s market potential for digital currencies.

According to Johann Kerbrat, Robinhood’s crypto general manager, the EU market is just as large as the US in terms of total addressable market size.

Kerbrat pointed to the MiCA regulation as a critical factor, suggesting that the EU’s consistent regulatory framework will be a game changer for the digital currency sector, making it an attractive market for crypto firms.

Robinhood’s $200 million Bitstamp acquisition set to boost international presence by 2025

Robinhood’s acquisition of Luxembourg-based crypto exchange Bitstamp, valued at $200 million, further underscores its commitment to expanding internationally.

Bitstamp, which holds over 50 licenses and registrations globally, will provide Robinhood with access to additional markets and regulatory permissions, including in key regions like Singapore, the UK, and across the EU.

The Bitstamp deal, expected to close by 2025, will not only help Robinhood enter new territories but also diversify its offerings by catering to institutional investors.

Bitstamp’s “crypto-as-a-service” solution is particularly geared towards banks and financial institutions looking to integrate crypto capabilities into their existing services.

Robinhood’s global push amid US regulatory headwinds

While Robinhood is scaling its operations in Europe, the company faces significant challenges in the US, where regulatory authorities like the Securities and Exchange Commission (SEC) are intensifying their scrutiny of the crypto sector.

Several US-based crypto companies, including Coinbase and Binance, are currently battling lawsuits from the SEC over allegations of trading unregistered securities.

Robinhood, which is regulated by both the SEC and the Financial Industry Regulatory Authority (FINRA), has expressed frustration over the US regulatory landscape, stating that the “regulation by enforcement” approach creates uncertainty in the market.

Currently, Robinhood’s expanded crypto services are only available to EU customers, with the UK still awaiting access.

Despite launching its stock trading service in the UK last November, Robinhood has yet to offer cryptocurrency trading or self-custody options to British users.

With the Bitstamp acquisition and continued growth in Europe, it is likely that UK customers could see expanded crypto services in the near future.

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