What happened
Shares of Sea Limited (SE 3.25%) were rallying this morning, up just over 10% as of 10:49 a.m. ET.
The Southeast Asian juggernaut had fallen some 85% in 2022, but looks to be regaining its footing as some of last year's headwinds appear to be easing.
While there wasn't any company-specific news today, one prominent CEO of a multinational consumer goods company made positive comments about the Southeast Asian economy at the World Economic Forum in Davos, Switzerland, yesterday. In addition, yesterday saw more measured commentary on inflation and the path for future rate hikes from Federal Reserve officials in the U.S.
A better Southeast Asian economy coupled with a moderating Federal Reserve and a beaten-down share price were enough to fuel Sea's big move this morning.
So what
At Davos, Unilever CEO Alan Jope said in an interview with Yahoo! Finance Live:
We are very bullish on South Asia -- not just India, by the way. Pakistan, India, Bangladesh [are] all doing very well. Southeast Asia, Vietnam, Indonesia, the Philippines, Thailand starting to come back strongly. We see an extraordinary ability to navigate uncertainty in Latin America.
If those comments on the health of the consumer in these regions bear fruit, it would be very bullish for Sea. Its business across e-commerce, digital finance, and video games are all consumer-facing businesses, and its core markets include some of the Southeast Asian nations mentioned – Indonesia, Thailand, the Philippines, Singapore, Malaysia, Vietnam, and Taiwan -- and more. Jope's comments about Latin America are also encouraging, as Sea has also planted its flag in Brazil, where its e-commerce arm Shopee is growing very fast.
In addition to those comments, there was some moderately encouraging commentary from Federal Reserve officials yesterday. While one Fed official, James Bullard, gave somewhat hawkish comments Wednesday, yesterday three others struck a more measured tone on interest rate hikes.
Although all three expect more rate hikes in 2023, they seemed to back lower 25-point rate increases, as well as a posture of being more data dependent while recognizing recent progress on inflation. That was especially true of Fed Vice Chair Lael Brainard, who said, "It remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment."
Moderating inflation and rate hikes could be good for international companies, which have seen their stock prices come under pressure as higher interest rates caused the U.S. dollar to strengthen last year in a significant way. That's because higher interest rates attract money from overseas to buy U.S. fixed income securities. However, as inflation has moderated, the dollar has weakened n recent months. That should also help Sea, which makes money in foreign currencies but reports results in U.S. dollars.
Now what
It was a very good day for Sea Limited today, but remember, this stock can be volatile. That's because it's a high-growth stock that currently generates large operating losses. So, its ultimate intrinsic value, dependent on profits far out in the future, can be highly sensitive to interest rates and growth expectations over the long run.
However, with rates appearing to stabilize after 2022's inflation shock and the Southeast Asian economy allegedly bouncing back strongly, Sea's stock should have a much better year in 2023 after last year's disastrous plunge.
