Start Investing

Novum Alpha - Daily Analysis 8 September 2021 (10-Minute Read)

Investors are watching closely as the increase in Covid-19 cases this summer prompts many employers to postpone plans to return to the office.

 
A wonderful Wednesday to you as stocks stumble in the midweek. 
 

In brief (TL:DR)

 
  • U.S. stocks reopened after the extended holiday weekend with the Dow Jones Industrial Average (-0.76%) and S&P 500 (-0.34%) dragged down by cyclicals, while the tech-centric Nasdaq Composite (+0.07%) was slightly up.
  • Asian stocks were steady Wednesday as a rally in Japan moderated and traders evaluated the risk of a slower recovery from the pandemic due to the delta virus variant.
  • Benchmark U.S. 10-year Treasury yields were at 1.37% (yields rise when bond prices fall).
  • The dollar pared a rally.
  • Oil steadied after a two-day decline with October 2021 contracts for WTI Crude Oil (Nymex) (+0.61%) at US$68.77.
  • Gold was lower with December 2021 contracts for Gold (Comex) (-0.04%) at US$1,797.80.
  • Bitcoin (-10.61%) crashed to US$47,108 in the wake of El Salvador’s rocky implementation of a law that makes the cryptocurrency legal tender and as inflows raced ahead of outflows, dramatically clogging exchanges and their ability to execute orders (inflows suggest that traders are looking to sell Bitcoin in expectation of lower prices). 
 

In today's issue...

 
  1. What is China’s Common Prosperity Drive?
  2. European Junk Bonds Go Full Retard
  3. Bitcoin Gets a C- in Key El Salvador Test
 

Market Overview

 
Investors are watching closely as the increase in Covid-19 cases this summer prompts many employers to postpone plans to return to the office.
 
The travel industry’s hopes for a resurgence in business trips also appear to be on hold, a pause that may ultimately prove to be indefinite. 
 
U.S. futures were little changed after the S&P 500 fell and the Nasdaq 100 climbed to a record as growth concerns sent investors toward more defensive corners of the market.
 
Asian stocks were steady Wednesday as a rally in Japan moderated and traders evaluated the risk of a slower recovery from the pandemic due to the delta virus variant.
 
In Asia, markets were mostly lower on Wednesday's morning trading session, with Tokyo's Nikkei 225 (+0.46%) up, while Hong Kong's Hang Seng (-0.53%), Seoul's Kospi Index (-0.87%) and Sydney’s ASX 200 (-0.31%) were down.
 

Did you miss us at VC Headstart 2021 by Wholesale Investor?

 

 

 

1. What is China's Common Prosperity Drive?

 
  • Xi’s "common prosperity" drive has triggered something unusual, a spirited public policy debate over whether this is the beginning of the end or the end of the beginning for capitalism in China
  • Part of the greater problem is that there is now open debate over what the recent sanction of private companies in some of China’s most lucrative sectors means for the broader Chinese economy 
 
In a country that prizes control over anything else, Beijing is pushing to shake off former leader Deng Xiaoping’s push to "let some get rich first," and replace it with the amorphous aim towards a “common prosperity” that is leaving both business leaders and investors scratching their heads.
 
What exactly is “common prosperity”?
 
Is it capitalism with Chinese characteristics?
 
Part of the greater problem is that there is now open debate over what the recent sanction of private companies of some of China’s most lucrative sectors means for the broader Chinese economy.
 
Some are seeing the latest shift as a durable and more widespread one, with blogger Li Guangman, whose commentary last month on Beijing’s regulatory crackdown was widely published by state media,
 
“The capital market will no longer become a paradise for capitalists to get rich overnight.”
 
But there are others who suggest that the change is a more measured shift towards social progress, rather than a sweeping campaign akin to the Cultural Revolution.
 
For global investors though, it might not be entirely unwise to simply take a break from China altogether.
 
What started last year as a push to rein in China’s Big Tech companies has now expanded into what some are interpreting as a ban on profits in general, with afterschool education companies beinfg forced overnight into not-for-profits, while Beijing tackles rising healthcare and education costs.
 
Yet China appears to still want to foster technological innovation and some, such as Victor Gao, a former interpreter for Chinese leader Deng Xiaoping, who ushered in sweeping economic reforms that transformed China into an economic powerhouse, are suggesting that the current measures have been overdone.
 
Given China’s sprawling bureaucracy, often stuffed with sycophants looking to rise through the Party ranks, it’s entirely possible that top Chinese leaders had neither intended such extensive curbs, nor anticipated their fallout.
 
That much has become apparent as over the past few weeks, more top Chinese officials have sought to reassure businesses that Beijing has no intention of sweeping away the private sector.
 
China’s Vice Premier Liu He, President Xi Jinping’s top lieutenant and economic aide who led China’s trade talks with the U.S. said on Monday that policies supporting the economy haven’t changed and importantly, “will not change in the future.”
 
And therein lies a potential opportunity for plucky investors to pick up some of China’s prized companies on the cheap.
 

Join us at Crypto World 2021 - The Worlds Largest Online Crypto Conference

 

 

 

2. European Junk Bonds Go Full Retard

 
  • Investors in European junk bonds have begun accepting interest payments that are lower than eurozone inflation levels for the first time ever
  • But investors may also be taking comfort in the fact that Europe’s strong economic recovery as vaccinations get under way and it emerges out of the pandemic, has seen a bumper earnings season reduce the likelihood of defaults
 
With the delta variant threatening to derail the global economic recovery, investors are turning to European junk bonds and accepting interest payments that are lower than eurozone inflation levels, as options run dry.
 
The yield on the Intercontinental Exchange Bank of America index of European high-yield bonds has plummeted to 2.34% this past week, marking the first time that buyers have accepted coupon payments below consumer price inflation, which hit 3% in August.
 
As more money chases fewer investment options, investors appear increasingly willing to fund some of the riskiest borrowers at some of the lowest rates ever, while losing money in real terms.
 
But investors may also be taking comfort from Europe’s strong economic recovery, as vaccinations get under way and the region emerges out of the pandemic, leading to a bumper earnings season reducing the likelihood of defaults.
 
The European Central Bank is meeting this week, with most investors expecting a slowdown in the pace of bond purchases in response to an improving economic outlook and a significant drop in financing costs for governments, businesses and households.
 
Similar to the U.S. Federal Reserve’s US$120 billion-a-month bond purchases, the ECB has been soaking up the equivalent of around US$94.7 billion-a-month in government and corporate bonds, which many analysts expect to taper to around US$71 billion.
 
But because most investors believe that it will be some time before the ECB stops buying bonds altogether, the demand for yield has led to the perverse situation where investors are actually losing money in real terms.
 
The ECB’s continued loose monetary policy has led to soaring demand in previously “uninvestable” assets.
 
Some investors at least are pricing in expected upgrades of some of Europe’s largest companies, which had all suffered downgrades in investment ratings in the wake of the pandemic.
 
And inflation data right now is “momentary,” in the sense that if an investor buys a bond held to maturity, the after-inflation return will depend on what inflation actually turns out to be over the lifetime of the bond, and not what inflation was in the preceding period before it was purchased.
 
 

3. Bitcoin Gets a C- in Key El Salvador Test

 
  • Bitcoin plunged as much as 17% to its lowest level in a month as El Salvador’s crypto rollout appeared to be faltering.
  • There was plenty of froth in the cryptocurrency markets to begin with, but the disappointment of Bitcoin’s roll out as legal tender in El Salvador served as a major drag.
 
What happens when a new-age form of currency meets creaking infrastructure? Exactly what you would expect to happen that’s what.
 
Investors pricing in some sort of Bitcoin utopia from El Salvador’s decision to make Bitcoin legal tender may potentially have been ingesting, smoking or snorting some of the Central American country’s key exports.
 
To be sure, there was plenty of froth in the cryptocurrency markets to begin with, but the disappointment of Bitcoin’s roll out as legal tender in El Salvador served as a major drag.
 
Yesterday’s selloff is the most significant break in the otherwise relentless rebound in Bitcoin that has seen the benchmark cryptocurrency soar by almost 75% in the last month and a half.
 
An estimated US$300 billion worth of market cap in cryptocurrencies was shaved off in the past 24 hours alone, according to data from CoinGecko.
 
To be sure, the Bitcoin rollout in El Salvador was a mess from the start.
 
The El Salvador government had to take its Bitcoin wallet app temporarily offline as the price of the cryptocurrency plummeted.
 
The digital wallet app called “Chivo” – Salvadorean slang for “cool” stopped working as server capacity was increased.
 
Chivo was intended to offer Salvadorean citizens who downloaded it an initial US$30 of free Bitcoin, but crashed soon after it was launched.
 
Exacerbating the selloff, U.S.-listed cryptocurrency exchange Coinbase Global faced technical issues as Bitcoin started plummeting, delaying or even canceling some customer transactions.
 
And while the cryptocurrency faithful globally were applauding the use of Bitcoin as legal tender in El Salvador, ordinary citizens took to the streets in process, marching in various protests across the capital San Salvador ruing against Bitcoin as a vessel to steal the riches of the country.
 
For cryptocurrency proponents however, the bigger story is the prospect of helping El Salvadorans reduce remittance fees, estimated at a fifth of the country’s GDP, and the teething problems from the Bitcoin app, expected.
 
Even if El Salvadorans lose confidence in Bitcoin because of the early glitches, insofar as the El Salvador government persists in its efforts, it may yield long term results, not just in transforming its economy, but providing a precedent for other countries to follow.
 
 

What can Digital Assets do for you?

 
Novum Alpha is proud to announce the launch of our flagship Novum Alpha Global Opportunity Digital Asset Fund ("the Fund"), a capital growth fund that offers a regulated and familiar investment vehicle for accredited and institutional investors to participate in the digital asset universe. 
 
With almost a decade trading both digital assets and financial instruments, the Fund represents a blend of our best quantitative strategies melded with a discretionary overlay that provides investors with the most comprehensive and holistic approach to digital assets on the market today. 
 
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 WebiOS and Android.
 
SIGN UP & TRY IT FREE

Sep 08, 2021

Get the Novum Alpha newsletter delivered to your inbox daily


Important Risk Information



The information provided on this site is for informational purposes only. It is not to be construed as investment advice or a recommendation or offer to buy or sell any security. Prospective clients should always obtain and read an up-to-date product and/or services description or prospectus before deciding whether to invest. Any views expressed herein are those of Novum Alpha SPC (“the Company”) are based on available information, and are subject to change without notice. There are no guarantees regarding the achievement of investment objectives, target returns, or measurements such as alpha, tracking error, asset weightings and other information ratios. The views and strategies described may not be suitable for all clients. The Company does not provide tax or legal advice. Prospective subscribers should consult with a tax or legal advisor before making any investment decision. Investing in any investment product entails risks and there can be no assurance that the Company avoid incurring losses or achieve any of a prospective subscriber’s investment goals.


Performance quoted represents past performance, which is no guarantee of future results. Investment and principal value will fluctuate, so you may have a gain or loss when assets are sold. Current performance may be higher or lower than that quoted product’s expenses and other liabilities, and such product may be unable to meet its investment objective