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Markets

GICS: Expect volume spike on sector reshuffle, quadruple witching

After the close on Friday, S&P Dow Jones Indices will reorganize several of its sectors and relaunch its telecommunications index as a new communication services sector. The reorganization by S&P and MSCI of the Global Industry Classification Standard is expected to involve S&P 500 heavyweights like Facebook, Amazon, Netflix and Google, which will drastically alter the weightings of some sectors.

The telecom sector .SPLRCL, currently about 2 percent of the entire S&P 500, is expected to have a roughly 11 percent weighting under its new communication services tag. Technology .SPLRCT, with a roughly 26 percent weighting, is expected to fall to about 20 percent. Consumer discretionary is likely to drop from 13 percent to about 11 percent.

Apple, eBay, Comcast and Disney are among stocks that could see the most activity. EBay is being moved from the technology into the consumer discretionary sector, which will result in fund managers needing to buy more than 2.7 million shares in the online marketplace, according to ITG. Apple is expected to remain in the tech sector but will see its share float fall about 5 percent due to Berkshire Hathaway’s growing position in the iPhone maker. ITG expects fund managers will need to sell more than 39 million shares due to the smaller float. R

Stocks: Marijuana Stock Trading Is Dominated by Dudes and Millennials 

Men accounted for 75 percent of all cannabis-related securities trades over the past month, higher than the usual share of male traders, according to data from TD Ameritrade. At the end of last year, baby boomers were more likely to trade marijuana stocks, but now the online broker is seeing more interest among millennials. The younger cohort also trades more actively — about 25 percent more than other groups.

Weed stocks have been caught up in a frenzy of interest that’s produced massive gains and dramatic volatility in recent weeks, with an exchange-traded fund focused on the industry surging 78 percent in just the past five weeks. It may not be surprising that men are the primary traders of weed stocks, since studies show they’re about twice as likely as women to use marijuana.

The hype around pot stocks lit up this week after shares of Tilray Inc. took investors on a wild ride, nearly doubling at one point on Wednesday before losing 18 percent on Thursday. The stock is down another 25 percent in Friday trading. B

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Economics & Trade

Emerging Markets: Ramaphosa unveils stimulus to boost South African economy 

Cyril Ramaphosa made a bold attempt to revive investor confidence in South Africa’s recession-battered economy by unveiling a stimulus plan to shift spending and axing contentious policies. In a package of measures announced on Friday, the South African president said that the state would repeal regulations on mining and tourism that have been hostile to investment to halt a downturn in Africa’s most industrialised economy.

South Africa’s cabinet approved a new charter for the mining industry and will withdraw other mineral legislation that deepened uncertainty, he said. New visa rules will also be drawn up to end onerous paperwork for families visiting the country with their children. Mining companies had warned that thousands of jobs were at stake because of uncertainty surrounding the charter. The regulations set out targets for ownership of the sector by the black majority, which was excluded under apartheid. Mr Ramaphosa also announced that a 10-person advisory panel would look at the country’s contentious land reform programme.

Jabu Mabuza, co-convener of the CEO Initiative, a South African business group, said: “While many challenges remain, these measures would go a long way towards making our economy more competitive compared to our emerging market peers.” FT

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Politics & Policy

Defense: From arms buyer to hi-tech partner – China’s changing military weapons ties with Russia

China has become less of an arms client and more of a cutting-edge defence technology partner with Russia since it started developing more of its own weapons, military observers have said. For many years, China was Russia’s biggest military client, relying on Moscow for advanced weapons and adapting some of the technology for its own systems. But India overtook China as the biggest buyer of Russian weapons in 2005 and today the Chinese military is third on the list, also behind Egypt.

However, Russian engines still power Chinese military aircraft such as Y-20 transport planes and H-6K bombers. And in November 2015, China became the first overseas client to buy Russia’s most advanced fighter jet when it signed a US$2.5 billion contract for 24 Su-35s.

Beijing-based military analyst Zhou Chenming said China still needed Russia’s help to modernise its armed forces. Zhou said the Su-35s and S-400 would save China time in its production of large-scale weapon systems, allowing it to focus on developing more of its own cutting-edge arms.

At the same time, China’s share of international arms sales has grown. A study by the Stockholm International Peace Research Institute (SIPRI) found that China accounted for 5.7 per cent of the world’s arms exports between 2013-17 – up by more than a third from the 4.6 per cent recorded between 2008-12. SCMP

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Finance

Insurance: Strap on the Fitbit: John Hancock to sell only interactive life insurance 

John Hancock, one of the oldest and largest North American life insurers, will stop underwriting traditional life insurance and instead sell only interactive policies that track fitness and health data through wearable devices and smartphones, the company said on Wednesday.

Interactive life insurance, pioneered by John Hancock’s partner the Vitality Group, is already well-established in South Africa and Britain and is becoming more widespread in the United States. Policyholders score premium discounts for hitting exercise targets tracked on wearable devices such as a Fitbit or Apple Watch and get gift cards for retail stores and other perks by logging their workouts and healthy food purchases in an app. In theory, everybody wins, as policyholders are incentivized to adopt healthy habits and insurance companies collect more premiums and pay less in claims if customers live longer.

Privacy and consumer advocates have raised questions about whether insurers may eventually use data to select the most profitable customers, while hiking rates for those who do not participate. The insurance industry has said that it is heavily regulated and must justify, in actuarial terms, its reasons for any rate increases or policy changes. R

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Services

AgTech: Indigo’s $250M round puts agtech startups on pace for banner year

Indigo Agriculture has announced that it’s raised a $250 million Series E, which will be used in part to operate a new digital platform for buying and selling grain. Indigo’s confirmation of the deal comes two months after PitchBook learned that the company had authorized the sale of up to $300 million in new shares.

The new funding values the agtech business at $3.45 billion, per a PitchBook estimate. Indigo, which reached a $1.4 billion valuation with a $203 million round in December 2017, was already the most valuable VC-backed agtech company in the US. With the new capital, its valuation is more than double that of runner-up Ginkgo Bioworks, which is valued at roughly $1.38 billion.

Indigo’s fundraise is also the largest of the year by far for agtech companies in the US, followed by PrecisionHawk, which raised $75 million in January. With Indigo’s latest round, agtech startups in the country have brought in more than $1.2 billion so far in 2018, per PitchBook data. The transaction also pushes the total number of deals in the agtech space to more than 100, and puts the year on pace for a decade-high record in terms of venture capital invested and deal count. PB

Cannabis: Legal Weed Sales Could Top C$1 Billion in Canada’s Opening Quarter

Canadians are projected to spend C$1 billion ($775 million) on legal marijuana in the final three months of this year after the market opens next month.

Statistics Canada used census data to estimate that 5.4 million people will buy cannabis in the legal market that opens Oct. 17, and another 1.7 million will keep making illicit purchases.

Spending in the legal market will range between C$816 million and C$1.02 billion in the fourth quarter, the Ottawa-based agency said on Friday. Illegal sales will make up 24 percent of the market with a range of C$254 million to C$317 million.

Share prices of marijuana companies are soaring this year, after Prime Minister Justin Trudeau’s government passed legislation to make Canada the first Group of Seven nation to make smoking up legal for adults. Statistics Canada is also preparing to incorporate marijuana sales into its economic growth figures, something Toronto-Dominion Bank says could add as much as C$8 billion to gross domestic product. B

Esports: The wild west of gaming that investors can’t ignore           

Until now, the esports theme has only somewhat moved the needle for mainstream stock investors. Industry forecasts for the size of the esports market may see $869m by the end of this year and $1.52bn by the end of 2020, but for most that does not yet translate into a change in portfolio strategy.

Historically, esports has been the Wild West of sports. It has lacked the organisation, structure and revenues of established sports leagues. But this underestimates the scale of what is happening and esports annual revenues could eclipse those of all major US sports within the next five years. The smart investor should see beyond the still limited opportunities to play the esports theme through particular stocks and instead focus on the more tectonic shift in media distribution, IP monetisation and advertising that their emergence represents. At the moment, sponsorship represent the largest percentage of esports global revenues; by 2022, say analysts, that is likely to be overtaken by media rights sales.

A focus on esports for investors in US, European and Japanese games companies also hones attention on China, with the largest gamer base in the world – around 440m active players – and what will by the end of 2018 be one third of the global game industry’s total revenue. Asia in general represents about half of the global esports audience.

Esports are also leading venture capital investment in the games industry: some $3.3bn since 2013, says Goldman and $1.4bn as of the end of June this year. FT

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Manufacturing & Logistics

Plastic Ban: California just became the first US state to ban plastic straws in restaurants — unless customers ask

California just became the first US state to go strawless: banning the sippers at sit-down eateries in the state, starting in 2019. On Thursday, California Governor Jerry Brown signed into law Assembly Bill 1884, a rule that “prohibits dine-in restaurants from automatically providing plastic straws” to customers. Violating the law can cost a restaurant $25 a day. Starting in January, if you really want a straw when you sit down in a restaurant in the Golden State, you’ll have to ask for it, or get your drink to go.

A ban on all plastic utensils is already in place in Seattle, while San Francisco’s straw ban should take effect next year. Huge companies, from Starbucks to Aramark and American Airlines, have either vowed to start banning straws or drastically reduce their use. It’s part of a global movement that’s quickly gaining momentum as people re-think their single-use plastic habits.

More than 79% of all plastic waste ends up sitting in landfills, or ends up floating out to sea or littering the land. Another 12% gets burned up in incinerators, adding to particulate matter to the atmosphere. Only a remaining 9% of the plastic we use is actually recycled. BI

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Technology

Quantum: The World’s First Practical Quantum Computer May Be Just Five Years Away

The National Science Foundation has plans to pluck quantum computers from the realm of the fantastic and drop them squarely in its research labs. And it’s willing to pay an awful lot to do so. In August, the federal agency announced the Software-Tailored Architecture for Quantum co-design (STAQ) project. Physicists, engineers, computer scientists, and other researchers from Duke and six other universities (including MIT and University of California-Berkeley) will band together to embark on the five-year, $15 million mission.

The goal is to create the world’s first practical quantum computer — one that goes beyond a proof-of-concept and actually outperforms the best classical computers out there — from the ground up.

In order to develop quantum computers that are actually useful, scientists need to figure out how to improve both hardware we use to build the physical devices, and the software we run on them. That means figuring out how to build systems with more qubits that are less error-prone, and determining how to sort out the correct responses to our queries when we get lots of noise back with them. Futurism

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