Three things that got the team talking this week - Firetrail Investments

Weekly insights from the Trail

Three things that got the team talking this week

February 18, 2022March 4th, 2022

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1. Hot chips…

The chip disruption continues and is benefitting Firetrail S3 Global Opportunities Fund holding Micron Technology! According to press reports the price of flash memory chips has gone up 20% in the last week due to two supply related factors:

Ukraine supplies a lot of specialised gases that are necessary for chip production. In particular it supplies 90% of the world’s semiconductor-grade neon gas and customers are trying to lock up supply. As a guide, when Russia invaded Crimea in 2014 neon gas prices rose 600%! Chipmakers hold about 8 weeks of inventory of neon, so there is a level of buffer there…
Secondly, and perhaps more importantly – flash memory producer Western Digital looks to have some of its production out for 4-6 weeks due to chemical contamination in its supply chain. It now needs to clean and recalibrate some of its facilities. The outage is equivalent to >10% of world supply!! (See dark blue in pie chart below)

Despite this, Western digital shares haven’t moved much on the news. The production hiccup is being more than offset by price, as well as the fact they are claiming force majeure from it being a supplier issue.

Source: Firetrail

2. Don’t miss…

We are in the thick of Australia’s reporting season. Over 70 of the ASX300 companies reported this week. And misses are being punished more acutely than any other quarter over the past 2 years.

3. Pressure at the pump…

Petrol prices have increased around 30% y/y in recent quarters and hit the highest levels since 2014. Automotive fuel is ~3.3% of the CPI basket (and a similar share of consumption). So petrol directly boosted headline CPI ~1% y/y, and hence made a ~1% subtraction from real consumption. The recent price fuel spike suggests the impact will be broadly similar in the next quarter or two. If geo-political tensions worsen, and prices spike further, the risk would be a greater negative impact on consumers.

US sentiment collapsed to the lowest since 2011 this week, driven by concerns over higher inflation causing weaker real income. This gives the Fed even more to consider!

Source: UBS, E&P

Disclaimer

This article is prepared by Firetrail Investments Pty Limited (‘Firetrail’) (ABN 98 622 377 913, AFSL 516821) as the investment manager of the Firetrail Australian High Conviction Fund (ARSN 624 136 045), the Firetrail Absolute Return Fund (ARSN 624 135 879), the Firetrail Australian Small Companies Fund (ARSN 638 792 113) and the Firetrail S3 Global Opportunities Fund (ARSN 653 717 625) (‘the Funds’). Pinnacle Fund Services Limited ('PFSL') (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the relevant Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.

Links to the Product Disclosure Statement: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

Links to the Target Market Determination: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com

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