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Novum Alpha - Daily Analysis 17 September 2021 (10-Minute Read)

Equity markets marked their second weekly drop as investors parsed through the mountain of data released this week that seems to suggest the path out of the pandemic is neither smooth nor clear.

 
A fantastic Friday to you as global equities look to be on course for a second weekly drop.
 

In brief (TL:DR)

 
  • U.S. stocks slipped Thursday, with the Dow Jones Industrial Average (-0.18%) and S&P 500 (-0.16%) both lower, while the tech-centric Nasdaq Composite (+0.13%) was up slightly on a mixed back of economic data.  
  • Asian stocks were mixed Friday as risks to the global recovery from China and the prospect of reduced Federal Reserve stimulus subdued sentiment.
  • Benchmark U.S. 10-year Treasury yields held at about 1.34% (yields rise when bond prices fall).
  • The dollar stayed higher.
  • Oil was steady with October 2021 contracts for WTI Crude Oil (Nymex) (-0.03%) at US$72.59.
  • Gold trimmed a drop with December 2021 contracts for Gold (Comex) (-0.02%) at US$1,756.30.
  • Bitcoin (-0.007%) was steady at US$48,023 with inflows starting to inch up against outflows (inflows suggest that traders are looking to sell Bitcoin in expectation of lower prices). 
 

In today's issue...

 
  1. Ark’s Tesla Tango Loses Power
  2. Didi Descends Into Darkness
  3. Laos Laps Up the Spoils of China’s Crypto Crackdown
 

Market Overview

 
Equity markets marked their second weekly drop as investors parsed through the mountain of data released this week that seems to suggest the path out of the pandemic is neither smooth nor clear. 
 
Consumer spending in the U.S. is lower and there are signs that the Chinese economy is growing sluggish at a time when Beijing seems hellbent on taking capitalism to task. 
 
In the U.S., the number of Americans who applied for first-time unemployment benefits rose from the week earlier, suggesting that the pace of job growth is starting to taper. 
 
And while the conditions almost certainly guarantee that the U.S. Federal Reserve will stay engaged, there is the real risk of fickleness by policymakers which will only result in further volatility in markets that have since the start of the pandemic only trended in one direction. 
 
In Asia, markets were a mixed bag with Tokyo's Nikkei 225 (+0.45%) and Hong Kong's Hang Seng (+0.50%) up, while Seoul's Kospi Index (-0.03%) and Sydney’s ASX 200 (-0.72%) were lower in Friday's morning trading session. 
 

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1. Ark's Tesla Tango Loses Power

 
  • Ark Investment Management starts paring down its holding of electric vehicle maker Tesla
  • Tesla selloff could be profit taking and reducing concentration risks as well as symptomatic of broader moves in China which may challenge the American EV maker 
 
Ark Investment Management’s Cathie Wood may be a vocal advocate for Elon Musk’s electric vehicle maker Tesla (+0.15%), but it sure isn’t showing on her funds’ balance sheets.
 
On Wednesday, both ARK Innovation and ARK Next Generation Internet ETFs sold over 81,600 Tesla shares, at a value of around US$62 million according to Ark Investment Management’s daily trading update.
 
So far this month, Ark has offloaded some US$266 million worth of Tesla shares.
 
But has Wood really given up faith on the electric vehicle maker?
 
Data compiled by Bloomberg reveals that Tesla is still Ark’s biggest holding and Tesla shares have rebounded since mid-May, gaining about 34% in the period, which is why taking some profit off the table may not be entirely ill-advised.
 
And Ark’s strategy has always regularly involved selling some of its winners to unlock capital to bet on other targets.
 
Rather than losing faith in the electric vehicle maker, Ark may also be looking to reduce concentration risk at a time when China is purging specific industrial sectors but feting its EV industry, which may present a challenge to Tesla.
 
As Beijing has gone on the warpath, targeting tech companies, video games and afterschool education, it’s also shored up support for green tech and electrification of vehicles.
 
Tesla committed significant resources to China, but has since faced setbacks including a nationwide recall and doubts over its battery factory collaboration with China.
 

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2. Didi Descends Into Darkness

 
  • Leading Chinese ride-hailing app Didi Chuxing loses users at an alarming rate
  • Didi's competitors are taking the opportunity to eat into its market share, uncertain if the ride-hailing app will withstand the sustained regulatory crackdown for the longer term 
 
Hailing a ride in China had until fairly recently been synonymous with Didi Chuxing (-1.33%), until Beijing’s recent crackdown on the company.
 
And since the ride-hailing app’s IPO in New York in June triggered a backlash by authorities over data use, Didi Chuxing has seen the number of daily users fall by a whopping 30%.
 
In the days immediately following Didi Chuxing’s IPO, Chinese authorities banned the company from app stores, or signing up new customers, while data security investigations were carried out.
 
Regulators went one step further and took 25 of Didi’s other apps off app stores, including those that register new drivers.
 
Predictably, the regulatory crackdown had a deleterious effect on Didi Chuxing’s shares, which have plummeted by over 40% since its IPO, as rivals have used the opportunity to lure its customers with promotions.
 
Didi’s troubles though may be far from over.
 
Based on historical trends, Beijing’s crackdown on the ride-hailing app is choking it of around 4 million new users a month, and the company has yet to report second-quarter earnings to U.S. shareholders, with no indication when that could happen. 
 
Shareholders may be surprised to find out that as a foreign issuer, Didi Chuxing is under no obligation to report quarterly financials, compounding speculation of how badly the ride-hailing app has been hit.
 
And existing Didi users are growing increasingly frustrated as the wait for rides increases and availability of cars decreases, given the inability to sign up new drivers and at a time when competitors are offering a slew of promotions and discounts to users as well as incentives for drivers.
 

 

 

3. Laos Laps Up the Spoils of China's Crypto Crackdown

 
  • Landlocked Laos is looking to start cryptocurrency mining within its territory to take advantage of its abundant hydropower
  • Heavily-indebted Laos is looking for new sources of revenue and embrace of cryptocurrency mining and trading comes just a month after the central bank issued warnings about the sector
 
Known as the land of a thousand waterfalls, the impoverished and landlocked Southeast Asian country of Laos has no lack of hydroelectricity, but a shortage of hard currency.
 
One of the country’s hardest hit by the coronavirus pandemic, the Lao government is heavily indebted and reversing an earlier anti-cryptocurrency stance to embrace both mining and trading activities.
 
Coming just a month after the Lao central bank issued a warning against cryptocurrencies, Laos is now permitting not just mining activities but trading as well.
 
The communist-ruled country of 7 million produces an abundance of hydroelectric power, which it typically sells to neighboring industrial powerhouses Thailand and Vietnam.
 
According to the Lao office of the Prime Minister, six companies, including construction groups and a bank, have been authorized to begin mining and trading cryptocurrencies.
 
report in the English language, The Laotian Times, has said that government ministries will now work with the Bank of Laos and Electricité du Laos, the national power utility, to regulate the industry, with the findings of the research and consultation set to be discussed at a government meeting this month.
 
The move into cryptocurrency mining comes as powerful neighbor to the north China has cracked down hard on its industry, forcing miners to head offshore in search of more hospitable locations to conduct their business.
 
Laos has an abundance of hydropower, the cornerstone industry of a country that borrowed heavily to build dams along the mighty Mekong river and its tributaries, but is now facing plummeting demand for power as the Covid-19 crisis ravages the region.
 
The use of hydropower may also help Laos pitch the cryptocurrency mining business as “carbon neutral” as well, at a time when the carbon footprint of cryptocurrencies is coming under increasing scrutiny and criticism.
 
Elon Musk has previously said that Tesla would begin accepting Bitcoin again as soon as the majority of it is mined using sustainable energy.
 
The mountainous topography of Laos is breathtaking but has also long stunted its growth, as has its distance from seaports.
 
To sustain its economy, Laos has had to borrow heavily to fund the construction of dams to tap its abundant hydropower and moving into cryptocurrencies may be a way for Vientiane to pay down its mounting US$14 billion debt pile.
 
 

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Sep 17, 2021

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