Dynex Capital Inc (DX) Stock Review: High-Yield Dividend or Risky Bet?

Economic

Summary:

Unveiling the risks and rewards of Dynex Capital (DX). Is the high dividend yield worth the potential downside?

Dynex Capital Inc (DX) beckons income investors with its enticing dividend yield. But before diving in, it's crucial to understand the intricate dance between risk and reward that defines this mortgage real estate investment trust (mREIT). Let's dissect DX's investment strategy, analyze expert opinions, and assess its suitability for your portfolio.

Under the Hood: Leverage and MBS

DX operates by investing in mortgage-backed securities (MBS), essentially bundles of residential and commercial mortgages. This allows them to generate income through interest payments on these underlying mortgages. However, DX takes it a step further. They employ leverage, meaning they borrow money to amplify their investment power. While this strategy can magnify returns, it also magnifies losses if interest rates or property values take a tumble.

Analyst Whispers: A Mixed Bag of Opinions

The analyst community offers a somewhat mixed perspective on DX. The consensus rating leans towards a "Moderate Buy," with an average price target suggesting potential upside of 16.89% in the next year. However, some analysts, focusing on technical indicators, raise red flags with "Sell" signals, hinting at a possible near-term price decline.

Dividend Allure with a Question Mark

The current dividend yield of DX is a juicy 13.1%, a siren song for income-hungry investors. However, a closer look reveals a concerning trend. The company's dividend growth rate has been negative over the past five years. This raises a critical question: can DX sustain this high payout if earnings decline?

Financial Performance: A Glimpse into the Future

While DX has a track record of exceeding sales estimates, upcoming sales forecasts paint a less optimistic picture, dipping into negative territory. This could be a harbinger of challenging economic times for mREITs in general. Staying informed about DX's financial performance and future forecasts is essential.

Investing in DX: Are You Ready for the Ride?

Before hitching your wagon to DX, consider these crucial factors:

Risk Tolerance: DX's leveraged strategy and potential for negative earnings growth make it a riskier proposition. Be honest about your risk tolerance before investing.

Income Needs: The high dividend yield can be a lifesaver for income investors. But remember, dividends are not guaranteed, and can be cut if earnings dry up.

Investment Horizon: If you're a long-term investor, potential price appreciation alongside dividends can be a compelling combination. However, for shorter timeframes, price fluctuations could lead to significant losses.

Beyond DX: Exploring Alternatives

If you're drawn to mREITs but prefer a smoother ride, consider companies with lower leverage ratios and a more stable dividend history. Additionally, explore other income-generating assets like utility stocks or preferred shares, which may offer a more balanced risk-reward profile.

Digging Deeper: Resources for Informed Decisions

Don't take the plunge solely based on this review. Here are some resources to equip yourself for informed decision-making:

Financial News Websites: Stay current on the latest news and financial performance of DX.

Investor Relations: Dive into DX's annual reports and presentations to gain a deeper understanding of their investment strategy and future plans.

Analyst Reports: While not a crystal ball, analyst reports can offer valuable insights and price targets. However, remember, they are just one piece of the puzzle.

The Final Word: Weighing the Odds

DX presents a tempting proposition with its high dividend yield. But this allure comes with inherent risks. Carefully consider your risk tolerance, investment goals, and explore alternative income-generating assets. By conducting thorough research and staying informed about the market, you can make a well-rounded investment decision.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Cohen

Economic

Is the success of far-right politics threatening the European economy and its appeal to international investors?

That is the question investors seem to be asking in the wake of a landslide European election victory for Marine Le Pen’s far-right Rassemblement National, French President Emmanuel Macron’s surprise call for a snap election, and shock news of an unlikely alliance between parties of the French left.

The Cac 40 plunged to its worst week in two years after the election was called and erased much of the gains for the year, while bond yields jumped. The spread between French and German bond yields has widened to levels not seen in not seen in the past seven years. Meanwhile, the French finance minister warned that France was headed for a financial crisis.

It would be extreme to conclude that France is on the cusp of an economic disaster, and wrong to assume severe ripple effects across the continent. Yet, there are risks at both a national and EU level that could have longer- term consequences for companies and markets.

France has experienced a knee-jerk reaction. In the immediate aftermath of the surprise political decision, investors switched to risk-off mode while they digested the ramifications. If the election shows a strong performance for the left, however, we will probably see more selling of French assets. The far-right and far-left platforms both call for undoing Macron’s reforms and contain populist promises that are hard to reconcile with EU fiscal rules. A strong left would also signal an especially concerning anti-business and anti-growth Eurosceptic shift. This is where the real risks lie for France.

Since the results of the European elections, many have drawn parallels between France and Italy under Prime Minister Giorgia Meloni, arguing that her right-wing party has not been overly negative for Italian business and the economy. Yet, this isn’t the most apt comparison.

The situation is more analogous in Italy in 2018, when elections delivered an unlikely coalition of two populist parties. The 2018 Italian government was held together by mutual dislike of Brussels, and it collapsed after barely one year. Yet, it lived long enough to open a spat with the European Commission on the national budget, which led to a rise in the spread on Italian government debt.

Financial markets are effective at being the judge, jury and executioner of governments with reckless spending plans and can apply the brakes. The UK under Prime Minister Liz Truss is another great example, and market movements over the past week suggest investors may be starting to price the risk of a similar scenario in France.

At the EU level, the risk of a Eurosceptic France is compounded by that of a weak Germany. Chancellor Olaf Scholz’s dismal electoral result will weaken the German government for the rest of its term, at home and on the European stage. The powerful “Franco-German engine” of integration could therefore lose steam, leaving space for the right to set the agenda.

While the right has abandoned calls for exiting the bloc after Brexit, its idea of Europe is different. Europe-wide polling indicates that climate policies are not priorities for right-wing voters, who favour more focus on defence. An emboldened European right could seize the opportunity of the revision clauses in the Green Deal to delay or water down some provisions. Aside from being obviously bad for the planet, this could make Europe less attractive as a destination for green investments.

From an investor perspective, the key fights to watch in the short term will be those on the next EU budget, including the rollover of the “Next Generation” EU spending plan and on the EU’s own resources. Given this uncertainty, global investors may be less inclined to take on European risk.

In a recent speech, Macron warned that Europe is mortal, and its survival depends on our choices. His choice so far has put France under pressure. I don’t think the rise of populism necessarily represents a lethal economic threat either to the EU or to France, though history suggests that it does promise volatility and could discourage investment.

The risk for Europe is more subtle. The European elections have revived he narrative of a fractured Europe where socio-economic views seem to be shifting against the EU’s stated policy priorities. It is the choices that Europe will make to reconcile this deeper fracture and address the root cause of the far-right’s success that will really shape its future.

Source：Financial Times

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Cohen

Economic

Southeast Asia has emerged as a top choice for firms looking to diversify production away from China, including Chinese companies, amid escalating tensions between Washington and Beijing.

"Southeast Asia is well-placed to benefit significantly from the China+1 phenomenon as both foreign and Chinese companies diversify their supply chains and operations," said Kuo-Yi Lim, co-founder and managing partner of Southeast Asian venture capital firm Monk's Hill Ventures.

"Geopolitical [tensions have] accelerated these activities, which started during the Covid lockdowns," Lim added.

The "China Plus One" strategy seeks to reduce the risks associated with total reliance on China's market or supply chain through diversifying manufacturing operations, expanding into other countries even as companies' maintain a presence in China.

This has spurred greater investments into the ASEAN bloc. Foreign direct investments into the ASEAN economies of Indonesia, Malaysia, Philippines, Thailand, Singapore and Vietnam rose to $236 billion in 2023 compared with an annual average of $190 billion between 2020 and 2022, OCBC economists said in a May report.

The inflows mostly came from the U.S., Japan, European Union as well as Mainland China & Hong Kong.

"The ASEAN-6 region has benefited from a diversification of global and regional supply chain as well as the adoption of 'China+1' strategies. FDI inflows from Mainland China and Hong Kong SAR into the region have risen, with manufacturing and certain services receiving the bulk of inflows," the OCBC economists said.

Vietnam

Vietnam has become a key manufacturing location for Apple as the U.S. tech giant seeks to diversify the assembly of its products away from China.

Beijing's tough Covid-19 measures and worker unrest at Foxconn's flagship iPhone factory had majorly disrupted production.

MacBooks, iPads and Apple Watches are reportedly being manufactured in Vietnam.

"Vietnam's proximity to China has long made it a preferred destination for supply chains to offshore processes that could drastically reduce costs of production," said Yinglan Tan, founding managing partner at Insignia Ventures Partners.

Vietnam is already a major research and development hub for Samsung, as well as a manufacturing and export base for Samsung's smartphones, according to local reports.

"Vietnam has added advantages. Its competitive labor costs, market access – it has a whole slew of free-trade agreements – so that makes it a lot easier to export to other markets, for example, the EU," Kai Wei Ang, ASEAN economist at BofA Securities, told CNBC's "Squawk Box Asia" earlier this month.

Malaysia

Malaysia has seen semiconductor firms including Intel, GlobalFoundries and Infineon setting up or expanding operations in the country over the last few years amid U.S.-China tensions.

"Malaysia has seen a revival in its longstanding semiconductor sector, attracting renewed investments from companies such as Intel," said Lim of Monk's Hill Ventures.

Industry observers said that Malaysia's edge has always been its skilled labor in chip packaging, assembly and testing, and relatively lower operating costs.

"It's not just the semiconductor stories in Malaysia that's taking off. You do see a lot more investments into data centers that have come into play, especially the last couple of months, and perhaps there's other sectors, like solar, EV related components as well. So Malaysia is getting that breadth of investments into the country," said Ang of BofA Securities.

Indonesia

The archipelago has vast resources of copper, nickel, cobalt and bauxite — crucial for the manufacturing of electric vehicle batteries.

"Indonesia – that's another interesting country as well – where they are hoping to emerge as an integrated EV hub," Ang said. "It's probably still at a very early stage, but they are looking to scale up capacity across the whole supply chain."

The Indonesian government has been luring EV companies with incentives to set up local manufacturing bases.

"China+1 is not only for foreign companies in China. Geopolitics and international trade developments also push Chinese manufacturers to diversify their production geographically," said Anders C. Johansson, director of Stockholm China Economic Research Institute under Stockholm School of Economics, in a LinkedIn post last week.

The industry ministry said earlier this month that it had entered an agreement with four Chinese companies – Neta, Wuling, Chery, and Sokon – to establish Indonesia as an EV production hub.

Chinese electric vehicle maker BYD plans to start commercial production of EVs in Indonesia in 2026, according to local reports.

Singapore

Singapore has been "a preeminent destination" for firms looking to set up regional headquarters as well as expand across the region, according to a report by ASEAN Briefing.

"Today, this diversification has extended not just to global businesses like Apple and supply chains but also entrepreneurs and startups looking to build global businesses in the Asia-Pacific region," said Tan of Insignia Ventures Partners.

"Singapore in particular has become a destination for these entrepreneurs to headquarter global businesses, while still being able to, for example, raise money from the U.S. and employ engineers in China," Tan added.

Chinese companies including TikTok and Shein have set up regional headquarters in Singapore, which is seen as a stable base amid geopolitical headwinds.

"Singapore, with its trusted hub status in finance and regulatory infrastructure, will continue to attract companies seeking an Asian base in these uncertain times," said Lim of Monk's Hill Ventures.

Source:CNBC

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Cohen

Economic

Total revenues, which include the general public budget and the government funds budget, fell 4.1% during January-May from last year to 11.36 trillion yuan ($1.6 trillion). That’s the steepest drop since February 2023, according to Bloomberg calculations based on data from the Ministry of Finance.

The combined spending under the two accounts fell 2.2% on-year to 13.61 trillion yuan in the first five months. That leaves a fiscal shortfall of 2.25 trillion yuan, widening from January-May last year but below the level recorded during the same period in 2022.

China’s Fiscal Income Drops at Quickest Pace in More Than a Year_1

The government’s budget has been under strain as slowing economic growth weighed on tax income, while a multiyear property market downturn slashed its income from land sales. Local officials have become more aggressive in chasing companies for taxes dating back decades as they try to plug a hole in their finances caused by the housing crisis.

Authorities have expedited bond sales in recent months to raise funds, as Beijing looks to provide more support to the economy when businesses and households are reluctant to spend. Economists are increasingly calling on Beijing to increase the budget deficit and sell additional sovereign debt to maintain the recovery momentum.

“The budgeted deficit-to-GDP ratio announced during the NPC was actually lower than expected,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc, referring to the National People’s Congress meeting in March. “It is possible that the number could be raised in the coming months.”

China’s Fiscal Income Drops at Quickest Pace in More Than a Year_2

Beijing in October last year took a rare move of adjusting its budget mid-year, raising last year’s fiscal deficit to 3.8% of gross domestic product through the issuance of an additional 1 trillion yuan of sovereign bonds to aid the economy.

In March, the government set its fiscal deficit target this year at 3% of GDP, which was to be filled in part by 3.34 trillion yuan in sovereign bond issuance. Separately, it also planned to sell 1 trillion yuan in special sovereign debt to fund investment in key projects.

Yu Yongding, a former adviser to China’s central bank, wrote in an article last week that China may need to sell additional sovereign debt this year to ensure that its full-year growth target of around 5% can be achieved.

Data on Monday also showed persistent weakness in the property market. Local governments earned 227.4 billion yuan from selling land, down from 238.9 billion in April and remaining at the lowest level since May 2016.

Source:Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Economic

The dollar was slightly weaker on Monday but remained close to an almost eight-week high, while the yen languished near the 160 level, drawing verbal warnings from Japanese authorities as intervention fears grip markets.

The yen weakened to 159.94 per dollar in early trade, its lowest since April 29, when the yen touched a 34-year low of 160.245, leading to Japanese authorities spending roughly 9.8 trillion yen to support the currency.

The yen was last slightly firmer at 159.75 per dollar after Japan's top currency diplomat Masato Kanda said on Monday authorities will take appropriate steps if there is excessive foreign exchange movement, and that the addition of Japan to the U.S. Treasury's monitoring list would not restrict their actions.

"We will firmly respond to moves that are too rapid or driven by speculators," Kanda said, but noted authorities had no specific levels in mind on when to intervene.

The yen has come under renewed pressure after the Bank of Japan's (BOJ) decision this month to hold off on reducing bond-buying stimulus until its July meeting. It is down 1.5% in June.

"I don't necessarily think that the act of breaking the psychological level is enough (for intervention) any more," said Simon Harvey, head of FX analysis at Monex.

"Authorities have told us that they care more about the pace and disorderly moves as opposed to individual levels."

A summary of opinions at the BOJ's June policy meeting on Monday showed some policymakers called for raising interest rates in a timely fashion as they saw a risk of inflation overshooting expectations.

The yen, which is highly sensitive to U.S. Treasury yields, is down over 10% against the dollar so far this year, weighed down by the wide difference between interest rates in Japan and the United States.

Demand for carry trades, borrowing yen at low rates to buy higher yielding currencies, has also taken both the Australian and New Zealand dollars to 17-year peaks on the yen.

INFLATION TEST AHEAD

The spotlight this week will be on the U.S. personal consumption expenditures (PCE) price index - the Federal Reserve's favoured gauge of inflation - due on Friday.

Economists polled by Reuters expect annual growth in the index to slow to 2.6% in May. A soft reading is likely to bolster bets on a rate cut as early as September, which futures currently price as a 70% prospect, CME FedWatch tool showed.

The dollar index , which measures the U.S. unit against six peers, was last at 105.66, edging back from a nearly eight-week high of 105.91 it touched last week.

The focus through the week will also be on geopolitics, with the first U.S. presidential debate on Thursday and the first round of voting in the French election at the weekend.

"You're going to see a lot of defensive positioning going into the first round of the French election and U.S. presidential debate," said Monex's Harvey.

"While there is a sense of calm which is weighing on the dollar this morning, political risk is still a decent source of strength for the dollar and we expect the dollar index to finish the week higher."

The euro , which has been under pressure since French President Emmanuel Macron called a snap election earlier this month, was up 0.2% at $1.07125 but was still down 1.2% in June.

France's far right National Rally (RN) party and its allies were leading the first round of the country's elections with 35.5% of the expected vote, an opinion poll published on Sunday showed.

RN lawmaker Jean-Philippe Tanguy, who is widely seen as the most likely candidate to head the finance ministry if the party wins and forms a government, told Reuters an RN government would stick to the European Union's fiscal rules.

Meanwhile, spot yuan was trading at 7.2609 per dollar, within a very narrow range and close to its lowest in seven months, weighed by broad strength in the dollar and worries about weakness in the world's second-largest economy.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Alex

Economic

Commodity

India’s gold reserves parked overseas dropped to a six-year low at the end of March 2024 to 47 per cent of the total. This is the lowest since the Reserve Bank of India (RBI) started accumulating the yellow metal in December 2017.

The RBI started to transfer gold from the UK to its vaults in India from May this year when it moved over 100 tonnes (1 lakh kilograms) of the precious metal.

The movement of gold last month was one of India’s largest since 1991, when part of the gold reserves was pledged to address a foreign exchange crisis.

Why RBI bringing back its gold from the UK?

A report by The Economic Times quoted data saying that the RBI started bringing the gold to India in March 2022, coinciding with Russia’s full-scale invasion of Ukraine.

The RBI, along with central banks of other nations, have turned cautious after the US froze Russian foreign currency assets after the Russia-Ukraine conflict began in February 2022.

Meanwhile, RBI Governor Shaktikanta Das said the India’s central bank is bringing back its gold as there is ample domestic storage capacity and “nothing more should be read into it."

India’s total gold holding

By the end of March 2024, the RBI’s total gold holdings amounted to 822.1 tonnes, with a significant amount reserved in foreign vaults.

Why RBI store its gold in foreign banks?

As per reports, during India’s foreign exchange crisis in 1990-91, the nation had pledged part of its gold reserves to the Bank of England to secure a $405 million loan. By November 1991, the loan was paid back, but India decided to keep the gold in the UK for convenience.

Where RBI store its gold?

Primarily, India’s gold reserves are stored in the Bank of England, which is known for its stringent security protocols. Apart from this, the RBI also stores some of its gold reserves at the Bank for International Settlements (BIS) in Basel, Switzerland, and the Federal Reserve Bank of New York in the United States.

Risks of storing gold overseas

Reserving gold overseas makes it easier for India to trade, engage in swaps as well as earn returns, but there are risks involved too.

Geopolitical tensions and war or conflict can create uncertainty about the safety of international assets. The freezing of Russian assets by Western nations recently as well as concerns over the UK economy have likely increased the Indian government’s worries about the safety of gold reserves overseas.

Source:Firstpost

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Cryptocurrency

Catching a falling knife is risky, but some crypto options traders look to be doing just that, betting on a bullish outcome in a falling market.

Ethereum's native token ether {{ETH}}, the second-largest cryptocurrency by market value, has dropped over 5% to $3,350 in one week, according to CoinDesk data. The decline follows speculation that ether ETFs could begin trading in the U.S. next month and is consistent with weakness in market leader bitcoin and other alternative cryptocurrencies.

Still, according to Amberdata data, some traders have been buying large numbers of ether September expiry call options at the strike level of $4,000 on crypto exchange Deribit.

A call option is a derivative contract that gives the holder the right to buy the underlying asset at a specified price within a predetermined time frame. When traders purchase call options, they do so with the expectation that the price of the underlying asset will rise above the strike price, that is, $4,000 in this case, before the expiry of the option.

"Looking at the block flows this week, we see a ton of buying activity for the September $4,000 calls," Greg Magadini, director of derivatives at Amberdata, said, adding it is a sign of traders betting that "if ETH gets above $4k we likely test and breakout new all-time-highs."

Block trades are large orders typically negotiated privately between two parties and listed on an exchange. They are commonly preferred by institutional investors, hedge funds, and large market participants.

Ether, which came into existence in 2015, set a record price of over $4,800 since November 2021. While BTC surpassed its 2021 early this year, ether only briefly managed to top the $4,000 mark, with the upside relatively restricted due to regulatory uncertainty and low odds of ETH getting a spot ETF listing in the U.S.

Since then, the U.S. Securities and Exchange Commission (SEC) has set the stage for a spot ether ETF approval and dropped an investigation into Ethereum 2.0, removing significant regulatory uncertainty from the market. Now, Bloomberg's ETF analyst Eric Balchunas expects ether ETFs to begin trading in the U.S. on July 2.

Perhaps traders buying $4,000 calls expect fireworks once the ETFs go live. The bullish flow is consistent with the elevated volatility expectations in the ether market. However, some observers, including JPMorgan, aren't buying the excitement.