Novum Alpha - Daily Analysis 9 June 2021 (12-Minute Read)
With investors now thoroughly fatigued with buying tech stocks, U.S. Treasuries and a handful of meme stocks rallied yesterday in what was otherwise a quiet market as investors awaited inflation data and considered simmering Sino-U.S. tensions.
|
A wonderful Wednesday to you as markets drift into the midweek.
In brief (TL:DR)
|
In today's issue...
|
Market OverviewPandemic trade? How about a good old geopolitical firestorm instead.
With investors now thoroughly fatigued with buying tech stocks, U.S. Treasuries and a handful of meme stocks rallied yesterday in what was otherwise a quiet market as investors awaited inflation data and considered simmering Sino-U.S. tensions.
Forget co-operation, the Biden administration looks set to continue viewing China as competition, and not the healthy kind - with the U.S. President initiating a task force to boost the resilience of supply chains, to cut dependency on the Middle Kingdom, while examining fresh tariffs on Chinese rare earths that are used in a variety of electronics, from smartphones to electric vehicles.
While many investors had hoped that Biden would have taken a more folksy and collegial tone with China, Beijing's belligerence in the South China Sea, its alleged violation of human rights in Hong Kong and Xinjiang and growing assertiveness of claims over Taiwan are unsettling even the most dovish members of Biden's administration.
Over in Asia, the prospect of simmering tensions between the world's two largest economies saw jitters translating into Tokyo's Nikkei 225 (-0.40%), Seoul's Kospi Index (-0.37%),and Hong Kong's Hang Seng Index (-0.02%) which were down in the morning trading session, while Sydney’s ASX 200 (+0.17%) was up slightly.
|
Did you miss us at the World Family Office Forum? Watch it here... |
 |
 |
1. Meme Stock Machinations Move to South Korea
In growing signs that the U.S. markets don’t have a monopoly on the meme stock frenzy, a South Korea power-plant builder has found itself being propped up by a legion of retail investors rushing to bolster its stock in a South Korean remake of Wall Street’s GameStop (+7.14%) saga.
Funds looking to short shares in Doosan Heavy Industries & Construction Co. (+2.76%) were in for a rude shock as shares in the embattled company have risen by over 160% from mid-May to its peak yesterday, a gain that sent its market cap to the highest level since 2008.
Shares in Doosan have since shed some 23% but such volatility underlines the tussle between South Korea’s retail investors and short sellers.
Unlike in the U.S., where institutional investors are responsible for the bulk of trades, the South Korean market leans heavily on retail investors.
Since the partial lifting of a ban on short-selling in May, Doosan has since emerged as one of the most shorted stocks on the South Korean stock exchange.
In echoes of the GameStop saga which saw Reddit forums alit with discussion on propping up the stock of the video game retailer, retail investors in South Korea, known locally as “ants” expressed hostility towards unspecified short sellers and called for solidarity among Doosan shareholders.
According to Korea Exchange Data, Doosan has now become the most bought stock by retail investors so far this month, but was also the most shorted company by value as of Tuesday.
But Doosan is hardly alone.
Just as GameStop had AMC Entertainment (+0.09%) and Microvision (-0.36%), Doosan’s ascent comes hot on the heels of the relentless rally in HMM Co. (-2.55%), the South Korean shipping liner that has soared some 263% this year alone, amid a buying frenzy and rising freight rates.
HMM Co. has since slipped around 11% from its peak, but retail buying activity remains strong.
And while HMM Co. may be cleaning up as global shipping costs soar, Doosan is cleaning out, with its parent company undergoing financial restructuring and asset sales to pay down its crippling debt.
Doosan faces a multitude of challenges though, and it’s a plucky investor who would take a punt on the company.
Once a revered coal-fired power plant builder worth US$18 billion in 2007, Doosan has tried to shift towards renewable energy generation even as local nuclear power plant demand fell and its overseas coal businesses virtually collapsed and is now worth just over half of its peak market cap, at US$9.5 billion.
|
Did you miss us at the World Family Office Forum? Watch it here... |
 |
 |
2. China's Main Export Could be Inflation
Most investors will know China as being the factory of the world, making everything from our smartphones to slinkies, but an outbreak of the coronavirus in southern China’s industrial heartland may see the Middle Kingdom exporting more than just inventory, but inflation as well.
Curbing activity at some of the country’s biggest ports, a fresh Covid-19 outbreak is stoking fears of further disruption in international trade pushing up the price of exports and with it increasing prices in the U.S. and Europe, exacerbating already heightened inflationary pressures.
With over 100 new coronavirus cases reported since late May in China’s southern Guangdong province, one of China’s most important manufacturing hubs, local government officials are employing strict lockdown measures to curb the spread of the virus.
Processing exports at the Yantian container terminal in Shenzhen, a key hub for electronics, was suspended for almost a week last month, after workers there tested positive and throughput is now a trickle of pre-outbreak levels.
Strict coronavirus prevention measures have also seen the number of ships berthing in Shenzhen itself plummet.
Already stretched global supply chains which were ripped up by the pandemic are facing another bout of stress, and the most recent outbreaks in China, where new infections have remained low relative to other large economies, has brought into sharp focus of what could happen if China’s manufacturing ports were to shutdown entirely.
Although vaccination in China is underway in earnest, only 5.9% of its population is fully vaccinated, one of the lowest compared to other major economies such as the U.S. where 42.6% are fully vaccinated and Germany where 21.9% have been immunized against the coronavirus.
And that poses risks that a small flare-up in cases could rapidly devolve into a fresh outbreak and force economically stifling lockdowns again, even as China paves a road to recovery on the back of global demand for electronics and appliances.
These export disruptions in China could send prices soaring as the U.S. and Europe start replenishing inventories in preparation for the year-end holiday shopping season that could see consumers paying more for the presents under their trees.
|
 |
 |
3. Of Crosses & Cryptocurrencies
The cryptocurrency cross is a heavy one to bear – one minute you’re riding high, smug in the face of your naysaying friends as you lavish in the mansions in your mind and supercars in your subconscious, and the next minute you're questioning every single life decision you ever made.
Such is the craziness of cryptocurrencies that they can make one feel as though one is at the cusp of clairvoyance and the depths of despair, all in the span of a single afternoon.
But amid Bitcoin’s decline this week, eagle-eyed chart-watchers (who see dead people all the time), sounded the alarm of an ominous-sounding technical breach that Bitcoin is approaching a bearish pattern, known as a “death cross.”
To the uncharted, a “death cross” is a formation on a where the average price over the last 50 days closes to its 200-day moving average – if the short-term (50-day) line crosses below the long-term (200-day) one, the coin would create this “death cross.”
Chartists (some of whom read goat entrails and tea leaves in their spare time) view a “death cross” as a technical measure that could hint at more pain to come, with the last time Bitcoin marked its crucifixion in November 2019 seeing Bitcoin shed 5%, a month after hanging itself on the cross.
Mired in a downtrend spiral in recent weeks, Bitcoin has lost about 45% since mid-April, when it hit its all-time-high.
But some chartists also point to the fact that the “death cross” is often also followed by a “golden cross” – a bullish signal.
A key level of support will be US$30,000 for Bitcoin, and if that level holds, could provide Bitcoin maximalists with the resurrection that they crave soon after.
The reasons for Bitcoin’s recent malaise are well documented, from the tweets of Elon Musk to a firmer hand against cryptocurrencies in China.
But, the most recently proffered reason for weakness in Bitcoin has been how U.S. law enforcement agencies were able to recover almost all of the Bitcoin ransom paid to perpetrators of last month’s Colonial Pipeline ransomware attack - which the uninitiated have taken to mean that Bitcoin is not as anonymous as would initially be believed.
But that obscures the fact that the Colonial Pipeline hackers were extremely sloppy in covering their tracks and played fast and loose with their Bitcoin private keys.
Contrary to the alleged anonymity provided by cryptocurrencies, decentralized ledgers of the kind that underpin Ethereum and Bitcoin are fully searchable, transparent and immutable – every transaction and every endpoint is open for the world to inspect.
When the Colonial Pipeline hackers put out the Bitcoin address to send the ransom to, the U.S. Federal Bureau of Investigation simply followed the Bitcoin trail, where the ransomed cryptocurrency eventually coalesced into a single wallet address – a rookie mistake.
Typically, someone looking to use cryptocurrency for nefarious purposes would use a variety of mixers – a string of digital wallet addresses that deliberately slices and dices and obfuscates a bundle of Bitcoin transactions that are then rerouted to another set of mixers, making the job of law enforcement far more challenging (but not altogether impossible).
And there is some speculation that the hackers actually “reassembled” the Bitcoin to be sent into a centralized cryptocurrency exchange wallet address, which have of late become increasingly compliant when it’s come to anti-money laundering and know-your-customer protocols, as authorities scrutinize the industry more closely.
Which self-respecting cyber criminal does that?
While it’s likely that the Colonial Pipeline hackers may have been aware of the need to use mixers, obfuscate flows and not reconstitute the ransomed sums, they either got lazy or were sold out by an informant, or were hacked by the FBI themselves.
Somehow, the FBI managed to get ahold of the private key (if you don’t have your private key you don’t have your cryptocurrency) of the hackers’ Bitcoin wallet address and recover almost all the ransomed Bitcoin.
No Bitcoin hasn't been compromised, but just like so many things in the blockchain, you need to put in effort to extract value from it.
|
What can Digital Assets do for you?While markets are expected to continue to be volatile, Novum Alpha's quantitative digital asset trading strategies have done well and proved resilient.
Using our proprietary deep learning and machine learning tools that actively filter out signal noise, our market agnostic approach provides one of the most sensible ways to participate in the nascent digital asset sector.
If this is something of interest to you, or if you'd like to know how digital assets can fundamentally improve your portfolio, please feel free to reach out to me by clicking here.
|
 |
|
Looking to trade cryptocurrency yourself? Then why not try CryptoHero, a member of the Novum Group.
Enjoy some of the high performing algorithms that Novum Alpha uses, absolutely free!
Because you can't be up 24 hours trading cryptocurrency markets, CryptoHero's free bots do the trading for you.
Simple and intuitive for crypto beginners to set up and run, CryptoHero is currently available on the Web and iOS with an Android version ready in 2021.
|
|
Jun 09, 2021