UBS named Robert Karofsky as sole president of its investment banking arm on Monday.
His current co-president, Piero Novelli, is to retire from the banking industry, effective March 31. Novelli will move to the Euronet NV stock exchange, serving as chairman.
Karofsky joined UBS in 2014, leading the equities business globally. Both he and Novelli were named co-presidents of the investment bank in 2018.
The pair reorganized the unit and last year delivered its strongest results since 2012, the bank said in a statement.
Karofsky and Novelli have also pushed ways of boosting the business by linking closer with other UBS services.
Wealth management, for example, has been a big priority for UBS since the global financial crisis. Linking its $2.75 trillion wealth management business with investment banking has proven an effective strategy amid the boom in SPACs.
Traders working on the floor of the New York Stock Exchange are blur in this time exposure, just before the opening bell, 11 May, 2004.
Stan Honda/AFP/Getty Images
UBS’s Mark Haefele said in a Friday note that while cryptocurrencies and SPACs show signs of “irrational exuberance,” investors shouldn’t worry that the whole stock market is in a bubble.
Within the IPO and SPAC market and cryptocurrencies, prices are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, said Haefele.
But large parts of the stock market are not expensively valued by historical comparison, the chief investment officer of global wealth management said.
While many parts of the market are showing signs of “irrational exuberance” that should alarm some investors, UBS’s Mark Haefele says there are still some risk assets outside of bubble territory.
“All of the bubble preconditions are in place,” he explained in a Friday note, citing record low financing costs, new participants entering into the market, and a combination of historically low interest rates and high savings rates from government stimulus that’s left investors who are searching for returns with no alternative but equities.
However, Haefele said that while parts of the market seem speculative, investors shouldn’t worry that the whole market is in a bubble.
“The cryptocurrency markets are exhibiting signs of excessive speculation and the IPO/SPAC markets are the hottest in two decades. But these markets do not yet pose a broader systemic risk,” the chief investment officer of global wealth management said.
Within the IPO and SPAC market, as well as crypto, prices are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, said Haefele.
Speculation is pushing up prices for bitcoin, especially as major investors raise their long-term price targets for the coin, like Guggenheim’s Scott Minerd who sees bitcoin hitting $400,000 in the future.
First-day IPO performance is also the strongest in around two decades. Airbnb leaped 115% on its first day of trading, while DoorDash opened 78% higher than its offer price. SPACs raised more than $70 billion in 2020, more than the entire prior decade combined, he said.
But equities as a whole are not in a bubble, said Haefele. For one, he explained that large parts of the market are not expensively valued by historical comparison. Removing Facebook, Amazon, Apple, Microsoft, Netflix, and Google, the S&P 500 only rose 6% in 2020.
He also said that valuations of indices look reasonable against the backdrop of low interest rates, and used an equity risk premium approach to explain why stocks still look cheap relative to bonds.
Against that backdrop, he recommends investors “think beyond the bubbles.”
“One reason that bubbles can be so deceptive is that there is often a grain of truth behind their narratives. The dotcom bubble, for example, correctly anticipated the impact of the internet,” said Haefele. “Many of the narratives linked to today’s bubbles may also prove to be correct. Investors may be able to capture some upside but reduce the risk associated with bubbles by identifying the narrative, yet investing in a more diversified way.”
Tesla China-made Model 3 vehicles are seen during a delivery event at its factory in Shanghai
Reuters
Tesla’s held a comfortable lead on electric-vehicle manufacturing and sales for years, after virtually inventing the industry on its own.
But now it’s not the only player in town, and competitors are quickly catching up, according to UBS.
To understand manufacturing costs and technology, analysts at the bank tore down seven battery models used by various competitors.
They found Tesla still has a comfortable lead and continues to out-innovate, but said companies like Volkswagen stand a decent chance of catching up soon.
The competition in electric vehicles comes down to one thing: batteries.
To better understand who’s using the best batteries in their cars – and how much they’re spending to do it – analysts at the investment bank UBS compared seven cells from all major manufacturers, including Tesla and its suppliers, as well as those for Volkswagen, General Motors, Toyota, BMW, and more.
Perhaps unsurprisingly based on pasts tests, Tesla once again came out on top by most measures. But because it relies on suppliers like CATL, LG Chem, and Panasonic who also supply other automakers, the lead is only slim, UBS says.
“While Tesla continues to lead with the best overall powertrain technology,” the analysts wrote in an October note, “the cost lead in battery cells is minor by now and will depend on its new proprietary cell design in the future.”
And after Tesla posted record profits in October, UBS says the company has likely lowered its battery costs even further since it completed its study. That was a charge issued by Elon Musk at Tesla’s “Battery Day,” when he outlined a plan to in-source battery production and further drive down costs.
“We’ve got to get the cost of batteries down,” Musk told investors in September. “We’ve got to make – and we’ve got to be better at manufacturing, and we need to do something about this curve.”
That’s not just a Tesla problem, even if competitors try to copy things like its cylindrical cell design, as UBS predicts. Allied Market Research predicts the market for the lithium-ion batteries used in EVs will grow more than three-fold by 2027, from $36.7 billion in 2019 to $129.3 billion.
And the only way for anyone to catch up, in UBS’ eyes, will be to go all-in like Volkswagen.
“A steep cost reduction curve in combination with an ever-improving regulatory environment in favor of EVs makes it a necessity for auto companies to pursue an ‘all-in’ EV strategy, meaning that purely CO2-compliance strategies are likely to fail,” UBS said.
“Tesla will likely remain the cost and technology benchmark for several more years, and Volkswagen is the fastest follower on a global scale. Its €33bn committed EV investments of over a 5-year period are still unmatched.”
