Asian stocks rose on Tuesday, reaching their highest levels in more than two-and-a-half years, as a fresh wave of Chinese stimulus measures bolstered market sentiment.

Investors were further encouraged by expectations of additional US interest rate cuts, which continued to pressure the US dollar.

China’s top financial regulators unveiled a comprehensive package of economic measures aimed at reviving growth.

The government announced a 50-basis-point cut in bank reserves and a reduction in mortgage rates, steps designed to tackle the nation’s sluggish economic performance.

Stimulus measures larger than anticipated, markets react

The impact was immediate, as Chinese stocks surged. The blue-chip CSI300 Index opened 1% higher, and the broader Shanghai Composite Index also gained 1%.

Hong Kong’s Hang Seng Index rose by more than 2% in early trading, while the mainland properties index surged 5%.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.41%, reaching 588.43—its highest level since April 2022.

“While there was some anticipation that stimulus measures would be announced after they mentioned there was going to be a press briefing, the package of measures so far, I would say, is probably larger than what the market was expecting,” said Khoon Goh, head of Asia research at ANZ in a Reuters report.

Taken as a whole, this could help support the economy. Whether or not it is sufficient to address some of the underlying issues, particularly around the lack of confidence in the economy, I think still remains to be seen.

Focus on central banks as rate decisions loom

Investors also turned their attention to the Reserve Bank of Australia (RBA), which was expected to maintain its current interest rates during its policy meeting later in the day.

Despite the US Federal Reserve’s recent 50-basis-point cut, expectations of a similar move by Australia were mixed.

“The RBA is likely to stick to its hawkish stance for now, aiming to keep inflation expectations anchored,” said Charu Chanana, head of currency strategy at Saxo in the Reuters report.

A potential pivot may come only at the Nov. 5 meeting, depending on further labour market data and the Q3 CPI report.

Meanwhile, Japan’s Nikkei Index saw the largest early trading movement, jumping 1.4% to hit a near three-week high.

Investors were keenly awaiting a speech by Bank of Japan Governor Kazuo Ueda, which is expected to provide more insights into the central bank’s next steps.

In the US, stocks closed slightly higher on Monday as traders continued to digest the Federal Reserve’s recent decision to cut interest rates.

Markets remain divided on whether the Fed will cut rates by 25 or 50 basis points in its next meeting.

The CME FedWatch tool showed that markets were pricing in 76 basis points of easing by the end of the year.

Brown Brothers Harriman Senior Markets Strategist Elias Haddad, however, expressed caution.

“The market is overestimating the Fed’s capacity to ease,” Haddad said.

However, it will likely take strong US jobs data to trigger a material upward reassessment in Fed funds rate expectations.

The next critical data point will be the US non-farm payrolls report, due on October 4.

Until then, Haddad believes that a dovish Federal Reserve and strong economic fundamentals will maintain market sentiment and continue to weaken the dollar.

Dollar under pressure, oil prices edge higher

The US dollar remained under pressure as global risk sentiment improved.

The dollar index, which tracks the greenback against six major currencies, was at 100.95, hovering near a one-year low of 100.21 reached last week.

The Japanese yen held steady at 143.65 per dollar, while the euro was also little changed at $1.11055.

The euro had dropped 0.5% on Monday after weak business activity data in the eurozone raised expectations for further rate cuts by the European Central Bank.

The Australian dollar dipped 0.15% to $0.6828 but remained close to the nine-month high it had touched on Monday.

In commodities, oil prices saw slight gains in early trading. Brent crude futures rose 0.26% to $74.09 a barrel, and US crude futures were up 0.3% to $70.60.

Oil prices had slipped on Monday due to concerns over weakening demand and poor economic data from Europe, but they stabilized as trading progressed.

Asian stocks are experiencing a surge as China’s economic stimulus measures take effect, though the future remains dependent on upcoming central bank decisions in Australia, Japan, and the US.

The pressure on the US dollar continues as investors navigate the broader economic outlook.

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GE Vernova (NYSE: GEV) stock price has done well as an independently traded company. It has surged for three consecutive weeks, reaching a record high of $254, which is about 122% above the lowest point this year. 

GE Vernova is a top energy company

GE Vernova is a leading company that manufactures some of the most advanced engines in the power industry. In its power division, the company manufactures engines used in the hydro, nuclear, steam, and gas industries. 

The company is also a big player in the wind industry, where it makes offshore and onshore wind turbines. In this division, it competes with companies like Siemens, Suzlon Energy and Inox Wind. 

GE Vernova is also involved in other areas in the energy industry like software, consulting, solar and power, and grid solutions. Altogether, its solutions are used worldwide, and the rising infrastructure spending is a positive thing. 

In addition to selling the units, GEV makes substantial sums of money in servicing contracts by most utility companies.

For a long time, GE Vernova was General Electric’s top laggard, especially because of the wind business. Most wind turbine companies struggled as central banks hiked interest rates, leading to some big project cancellations.

GEV earnings download

GE Vernova published its financial results, which showed that its business was doing well. Its power orders jumped by $5 billion in the last quarter, bringing its total backlog to about $70 billion. As a result, its EBITDA jumped from $466 million to over $613 million.

The wind division was the biggest disappointment because of the recent project cancellations and weak investments in the industry. Its orders stood at $2.2 billion in the second quarter, lower than the $3.9 billion it made in the same period in 2023. 

The wind’s division revenue was $2.1 billion, down from the $2.6 billion it made in Q2’23. On the positive side, the company narrowed its EBITDA loss from over $259 million to $117 million. 

GE’s electrification business is doing well even after its orders slipped slightly to $4.8 billion. Its total backlog rose from $15.4 billion to $20.7 billion. 

The company expects that its power business will have an organic growth of mid-single-digits while the wind business will be flat. Its electrification business will have mid to high-teens. 

Altogether, the company’s revenue for the year will be between $34 billion and $35 billion while its adjusted EBITDA margin will be between 5% and 7%.  GE Vernova’s free cash flow is expected to grow to between $1.3 billion and $1.7 billion. 

GEV valuation metrics

A key concern about GE Vernova is that its business has become highly overvalued as its market cap has jumped to almost $70 billion. 

Looking at its balance sheet, the company has over $5.7 billion in cash and short-term investments and over $30.7 billion in inventories.

On the other hand, the company has over $16.53 billion in unearned revenue,  capital leases of about $979 million. Its other non-current liabilities have risen to over $7.2 billion. These numbers mean that the company has a good balance sheet. 

However, there are signs that the firm is quite overvalued because it trades at a forward price-to-earnings ratio of 37, which is higher that the industry average of 22.7. This valuation metric is also higher than other comparable companies like Siemens Energy, Schneider Electric, and Mitsubishi Heavy Industries. 

Regarding the free cash flow, which is the most important figure in a company, GE Vernova has a multiple of 30, double the industry’s average.

These valuation multiples are likely because analysts expect the firm to continue growing its margins and benefit from low interest rates in the US and other countries. Most importantly, it is nearing profitability in its wind power business.

The company also has demand tailwinds as most countries go through substantial infrastructure buildup. 

Analysts have become highly optimistic about the company, with Bank of America upgrading it from neutral to buy. RBC Capital, Jefferies, and Barclays. 

Nonetheless, the average stock target among analysts is $236, lower than the current $251, implying a 6% pullback.

GE Vernova stock price analysis

The GE Vernova share price has been in a strong bull run after its spin-off, soaring from $114.95 to over $251. It has outperformed popular companies like Siemens Energy, ABB, and Mitsubishi Heavy. 

GEV’s performance has also mirrored that of GE Aviation and GE Healthcare Technologies.

The stock has remained above the 50-day moving average, while the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards. 

Therefore, I suspect that the stock will pull back slightly, potentially to $200, and then resume the bullish trend later this year. 

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Byju’s, the embattled Indian education technology company, suffered another significant setback on September 23 when the Delaware Supreme Court upheld a ruling that declared the company in default on its $1.2 billion Term Loan B.

This decision hands control of Byju’s American subsidiary, Byju’s Alpha Inc., to its lenders, represented by Glas Trust LLC.

The ruling follows an earlier decision by the Delaware Court of Chancery, which found that Byju’s had failed to meet its financial obligations and allowed the lenders to enforce their rights by taking control of the subsidiary pledged as collateral.

Byju’s appeal to overturn the ruling was dismissed by the Delaware Supreme Court, marking another blow to the company, which has faced increasing financial and legal pressures in recent months.

A complex loan default case

The $1.2 billion loan was originally provided to Byju’s by a syndicate of 37 financial institutions.

Glas Trust LLC, acting on behalf of the lenders, was tasked with overseeing the enforcement of the loan agreement.

Under the terms of the agreement, the lenders were allowed to take control of the collateralized subsidiary if Byju’s defaulted on its obligations.

In March 2023, Glas Trust issued a notice of default after Byju’s failed to renegotiate the terms of the loan, triggering a legal dispute.

By August 2023, the Delaware Court of Chancery ruled in favour of the lenders, affirming that Byju’s was in breach of the loan agreement and allowing Glas Trust to seize control of Byju’s Alpha Inc. through written consent.

Byju’s sought to challenge this ruling in the Delaware Supreme Court, arguing that the case should be dismissed due to an ongoing lawsuit in a New York court.

The Supreme Court, however, rejected this argument, citing that Byju’s had missed its opportunity to raise the issue during the initial case proceedings.

Delaware Supreme Court ruling

In its September 23 ruling, the Delaware Supreme Court affirmed the decision of the lower court, emphasizing that Byju’s had ample opportunities to address its concerns earlier in the legal process but failed to do so.

The court ruled that new arguments cannot be introduced for the first time on appeal unless the interests of justice require it, which was not the case in this instance.

The court’s ruling highlighted the importance of judicial finality, stating,

We find it difficult to see how judicial economy and finality can square with requiring the parties to retry the case, merely because the Appellants failed to address an issue which they now claim is vital to this case.

With this ruling, the lenders, represented by Glas Trust, retain control of Byju’s Alpha Inc, marking a significant step in enforcing their claims against the edtech giant.

Lenders express satisfaction

The lenders, who have been locked in a legal battle with Byju’s for months, expressed satisfaction with the court’s decision.

In a statement, they noted that the ruling affirmed their rights under the loan agreement and held Byju’s accountable for its actions.

“We are pleased the Delaware Supreme Court affirmed what we’ve known: Byju’s knowingly breached the credit agreement and defaulted. Both Byju (co-founder Byju Raveendran) and Riju (Byju’s board member Riju Raveendran) acknowledged this when signing the amendments between October 2022 and January 2023. The ruling confirms our right to accelerate the loan and take control of Byju’s Alpha Inc,” the lenders stated.

The lenders also criticized Byju’s co-founder, Byju Raveendran, for misrepresenting the default and attempting to shift blame.

Byju has falsely portrayed the default and tried to shift blame instead of repaying what is owed, including explaining the missing $533 million. Today’s ruling confirms that our actions have been proper, and Byju’s statements are nothing but lies.

Byju’s financial woes deepen

This latest ruling comes as Byju’s faces increasing scrutiny over its financial management and loan obligations.

The company’s troubles began to escalate earlier this year when it failed to renegotiate the terms of its $1.2 billion loan, prompting the lenders to issue a default notice.

Since then, Byju’s has struggled to maintain investor confidence and avoid further legal complications.

Adding to its woes, Glas Trust was recently removed from the Committee of Creditors (CoC) in an ongoing insolvency case against Byju’s.

This decision was made by Insolvency Resolution Professional (IRP) Pankaj Srivastava, who determined that Glas Trust no longer met the requirement of representing at least 51 percent of the lenders.

Glas Trust is contesting this decision in the Indian Supreme Court.

Implications for Byju’s future

The Delaware Supreme Court’s ruling represents a significant challenge for Byju’s as it continues to grapple with financial instability and legal battles.

With control of its American subsidiary now firmly in the hands of its lenders, the company’s ability to recover and maintain its international presence may be severely hindered.

Byju’s, once hailed as one of India’s most successful startups, has seen its fortunes decline in recent years.

The company, which rose to prominence by offering online education services, has faced difficulties in scaling its business and managing its financial obligations amid changing market conditions.

As the legal disputes continue, Byju’s faces mounting pressure to find a resolution with its lenders and restore confidence among investors.

The company’s future remains uncertain, particularly as it deals with multiple lawsuits and financial challenges on both domestic and international fronts.

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In a significant move to address mounting financial pressures, China has announced plans to recapitalize its largest commercial banks for the first time in over a decade.

The initiative is aimed at bolstering a banking sector struggling with record-low margins, shrinking profits, and growing bad debt.

During a rare press conference on Tuesday, Chinese financial regulators outlined a series of measures to support the country’s six major commercial banks, including increasing their core tier 1 capital.

This marks the first capital injection into these banks since they became public companies, and the first recapitalization by authorities since the 2008 financial crisis.

Core capital boost for six major banks

Li Yunze, Minister of the National Financial Regulatory Administration, announced the recapitalization plans, stating that capital will be injected into different banks at different times, though further details were not provided.

The goal, according to Li, is to enhance capital management capabilities and strengthen the banks’ operations so they can better support China’s real economy.

“The recapitalization process will involve a combination of internal and external capital-raising channels,” Li said.

The move comes as part of a broader strategy to ensure the stability of China’s banking sector, which plays a critical role in managing economic risk and driving growth.

Among the six banks targeted for recapitalization are the Industrial & Commercial Bank of China Ltd. (ICBC), Agricultural Bank of China Ltd., China Construction Bank Corp., Bank of Communications Co., Bank of China Ltd., and Postal Savings Bank of China Co.

These state-owned commercial lenders have traditionally relied on retained profits to bolster their capital bases, but declining margins and fee reductions have increasingly put pressure on their balance sheets.

Declining margins and profitability prompt action

The recapitalization comes at a time when the profitability of China’s commercial banking sector is under significant strain.

Combined profits at the country’s commercial lenders increased by just 0.4% in the first half of 2023, marking the slowest growth since 2020.

This slow growth has been exacerbated by sliding net interest margins, which dropped to a record low of 1.54% by the end of June—well below the 1.8% threshold considered necessary for maintaining sustainable profitability.

The six major banks’ core tier 1 capital adequacy ratio, a critical measure of financial stability, averaged 11.77% at the end of June.

While this figure remains above the 8.5% minimum requirement for China’s systemically important banks, it has edged downward, prompting concerns that further declines could endanger the stability of the broader financial system.

Li Yunze’s comments echoed these concerns, noting that without additional capital, the banks could struggle to continue offering the same level of support to China’s economy.

The recapitalization plan is intended to mitigate these risks by ensuring the banks have sufficient capital to absorb losses and support lending activities.

Broad economic measures to support recovery

The recapitalization announcement was part of a broader stimulus package unveiled by Chinese authorities aimed at stabilizing the real estate market and boosting economic growth.

Among the key measures was a broad-based cut to existing mortgage rates, a move expected to lower annual interest expenses by approximately 150 billion yuan ($21 billion).

However, the mortgage rate cut also adds pressure on the banks by reducing their income from loans.

To counterbalance the impact of the mortgage rate cuts, regulators also announced reductions in the amount of reserves banks are required to hold, as well as a cut to the key policy rate.

These adjustments are expected to free up additional capital for lending, helping to offset some of the revenue lost due to lower mortgage rates.

People’s Bank of China Governor Pan Gongsheng addressed concerns about the effect of the interest rate adjustments on bank profitability, stating that the changes would have a neutral impact.

The freeing up of additional funding and the alignment of deposit rates will offset the effect of lower loan rates, preventing significant harm to bank profits and margins.

Banks look to recover amid tough conditions

Despite the challenges, some of China’s major banks saw a positive reaction in the stock market following the recapitalization announcement.

Shares of ICBC, the largest of China’s commercial banks, rose by 5.2% in Hong Kong, while Bank of China saw its stock climb by 4.2%.

Analysts suggest that the recapitalization signals a clear intent from Chinese regulators to stabilize the banking sector and send a positive message to the market.

“This recapitalization plan shows that regulators are taking decisive action to address the pressures facing the banks and ensure they remain a reliable force in serving the real economy,” said Liao Zhiming, an analyst at Huayuan Securities Co.

However, challenges remain. In addition to declining margins, China’s banks are contending with a rising volume of non-performing loans (NPLs), particularly in the struggling real estate sector.

The financial health of many developers has deteriorated in recent years, leading to a surge in bad debt.

This has forced banks to take on increasing provisions for loan losses, further cutting into profits.

Recapitalization process could take several years

As China’s commercial banks prepare for a recapitalization process that could play out over several years, the sector remains under significant pressure.

The combination of declining profitability, rising bad debt, and economic uncertainty is likely to keep China’s banks on a cautious path as they navigate an increasingly challenging financial landscape.

At the same time, the recapitalization plan underscores the central role that China’s state-owned commercial banks play in the country’s economy.

By injecting fresh capital into these institutions, regulators are signaling their commitment to maintaining stability in the financial system, even as broader economic risks continue to mount.

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The energy industry has come into the spotlight recently as crude oil and natural gas prices have retreated. 

Most oil stocks have pulled back as investors have embraced the new normal of lower prices as demand concerns have remained.

This performance also explains why many companies in the oil services industry have not done well this year. SLB, formerly known as Schlumberger, has retreated by over 17.5% this year, while Halliburton, Weatherford, and Tenaris are all in the red. 

This article explains why I’d select Weatherford International instead of Baker Hughes and SLB.

Oil and gas service industry

Most people know oil and gas companies like ExxonMobil, Chevron, Shell, and BP. These are popular names because of their retail outlets worldwide. 

However, the oil and gas industry is much bigger than these. As I have written before, there are master limited partnerships (MLPs) like Energy Transfer, Williams, and Enterprise Product Partners that do the hard work of gathering, processing, storing, and transporting oil and gas, through pipelines.

The other important industry in the sector is known as service. These giant companies provide services, equipment, and technology for drilling and processing oil. 

SLB is the biggest company in the industry with a market cap of over $70 billion and a presence in most countries with these resources. It does services like well construction, interventions, abandonment, training, and reservoir characterisation. 

SLB is known for its defiance of Russia, a country that most Western companies have abandoned in the past few years following its invasion of Ukraine. The firm’s annual revenue have jumped from over $23 billion in 2020 to over $35 billion in the trailing twelve months (TTM).

Baker Hughes, which was acquired and then spun-off by General Electric, is another large player in the industry. Its oilfield services include project evaluation, drilling, completions, processing, subsea solutions, and well interventions. 

It also provides software and analytics, measurement and testing solutions. Its annual revenue has soared from over $20 billion in 2020 to $27 billion in the TTM.

Weatherford International is a smaller rival to these companies. Its solutions include well construction and completion, cementing, pressure control, and rig management. Its annual revenue has also jumped from over $3.6 billion to $5.4 billion in the same period.

To a large extent, Weatherford is not a well-known company outside of its industry. Yet it provides its solutions to some of the leading firms in the sector, like Aramco, Exxon, Shell, and Petrobras.

Weatherford has better metrics

A closer look at the three companies shows that Weatherford is a better one to invest in. First, a look at the total return in the last five years shows that the Weatherford stock price has jumped by over 83% while SLB and Baker Hughes have risen by 30% and 77%, respectively. 

Most of Weatherford’s growth happened in the last three years as the total return rose by 451% while the other two rose by 57% and 64%, respectively.

The most recent results showed that its revenue for the second quarter rose by 10% to $1.45 billion. This growth happened after securing several large deals from companies like Bapco Upstream, Equinor, CPOC, and ENI. 

SLB also had a good quarter as its revenue rose by 13% YoY to $91.4 billion, while Baker Hughes grew by 13% to $7.5 billion.

While BKR and SLB are doing better in terms of revenue, Weatherford is beating them in terms of profitability. It has a forward EBITDA growth of 24.40%, better than SLB’s 17% and BKR’s 19%. Its CAGR EBITDA growth of 44% is higher than the other twp’s 27% and 18%.

Additionally, Weatherford has a higher EBITDA margin of 23%. It also has a lower short interest at 1.4%, which is lower than SLB’s 2.74% and BKR’s 1.8%.

Weatherford stock is cheap

Additionally, there are signs that Weatherford is a relatively cheap company. It has a trailing twelve-month price-to-earnings ratio of 14, lower than the S&P 500 index’s average of 21. 

Its forward P/E ratio of 13 is also lower than the other two companies. Most importantly, the forward EV-to-EBITDA ratio of 5.59 is also lower than that of Baker Hughes and SLB.

Most importantly, the company has restructured its balance sheet after going bankrupt in 2019. It has become a leaner and more profitable company, regularly beating analyst estimates. Just recently, S&P Global upgraded its credit rating to BB- from B+.

On the weekly chart, we see that the Weatherford stock has pulled back by about 30% from its highest point this year. It has also moved below the 50-week moving average. 

In the near term, I expect the stock to have some volatility as traders eye the changes in price movements. In the long-term, I suspect that it will bounce back and retest the highest point on record at around $140.

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