Novum Alpha - Daily Analysis 30 November 2021 (10-Minute Read)
A terrific Tuesday to you as stocks rebound with more news coming in that the omicron variant may not be as bad as it looks.
In brief (TL:DR)
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In today's issue...
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Market OverviewU.S. President Joe Biden cautioned Americans against panicking over the variant and said lockdowns won’t be necessary, while pharmaceutical firms are working on adapting vaccines.
Scientists are still evaluating the strain, which has already buffeted international travel and could add to inflation pressures if it exacerbates supply-chain disruptions.
In Asia, markets were mixed with Tokyo's Nikkei 225 (+0.72%) and Sydney’s ASX 200 (+1.08%) up, while Hong Kong's Hang Seng (-1.16%) and Seoul's Kospi Index (-1.16%) were down in the morning trading session.
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1. Who needs IPOs when you have meme stocks and crypto?
In a year which has seen everything from meme stocks to cryptocurrencies soar in value, a rational investor would think that the surest bet would be the venerable IPO, that vehicle of choice for insiders and the well-networked.
But such a rational investor would be badly mistaken in a year that has seen high profile flotations from food delivery company Deliveroo (+1.53%) to Indian payments giant Paytm (+1.07%) flopping despite otherwise robust stock markets.
Of the companies that raised over US$1 billion at IPOs this year, almost half are trading below their listing price making the odds of an IPO investor walking away a winner no better than the odds at a baccarat table.
And the weak performance of some of the most high-profile IPOs is leading some investors to question the steady hands which have delivered winners in the past including large lead investors such as SoftBank (-0.35%), as well as underwriters Goldman Sachs (-0.73%) and Morgan Stanley (-0.71%).
Data from Dealogic shows that 49% of the 43 IPOs raising over US$1 billion or more in London, Hong Kong, India and New York are trading below their listing price.
By comparison, among large IPOs that listed in 2019 before the pandemic, only a third traded below their listing price a year after hitting the market.
The bleak IPO performance comes despite a blistering year for global equity markets that until fairly recently have enjoyed an unbroken winning streak.
IPOs themselves have had a good run this year, raising US$330 billion according to EY, just that IPO investors have had a tougher time.
Take the widely anticipated listing of Indian payments company Paytm which fell by over 40% in its first two days of trading, suffering the biggest first-day fall of any large listing this year, making it one of the worst debuts in Indian stock market history.
Meanwhile food delivery company Deliveroo saw its shares plunge 26% on day one of trading in London.
New York wasn’t good either for overseas listings with Chinese ride-hailing giant Didi Global (-0.89%) plummeting out of the gates and ushering in a renewed crackdown on tech firms in the Middle Kingdom.
There are numerous reasons that mega IPOs haven’t been doing well, chief among which is the overly optimistic pricing of some companies.
To be sure, there has been no shortage of listed companies attracting eye-watering valuations this year, but assuming that retail investors, who are an increasingly felt presence in all markets, will be the ones holding the can, would be foolish.
Emboldened by their success in taking short sellers and the so-called smart money to task earlier this year with the likes of GameStop (+1.15%) and AMC Entertainment (-2.10%) and then Hertz Global Holdings (+7.17%), retail investors who are typically chomping at the bit for mega IPOs are no longer easy prey.
Bankers on the Paytm deal said that the fintech company was determined to set a new record for an Indian IPO, which they did, by plummeting the most of any other major listing in Indian stock market history and turning away more conservative long-only investors.
What happened was that hedge funds who had far bigger allocations than they really wanted anyway ended up dumping their pre-IPO allotments which are typically discounted as soon as they could.
Instead of retail investors coming in to soak up shares of these mega IPOs, it was the so-called smart money that saw a race to the bottom to get out ahead of each other, sending the stock of these companies crashing.
Perhaps retail investors were busy at the baccarat tables with similar odds.
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2. How will Omicron Affect the Global Recovery?
While it’s still early days on the omicron coronavirus variant, economists are already modeling the possible fallout that have made even the most optimistic investors slightly more circumspect over the seemingly relentless rally in risk assets.
Japan has effectively banned all foreign visitors as part of its plan to curb the virus spread while markets are struggling to price in the economic blow.
For now, it appears from early reports out of South Africa that the symptoms suffered are mild, but questions remain with respect to vaccine resistance and virulence.
Investors are not waiting to find out, with expectations for an interest rate increase over the coming year dropping by at least 10 basis points last Friday for the major central banks of the U.S. and the U.K.
Just like in 2020, what happens next will be down to scientists and healthcare professional rather than central bankers and politicians.
In a worst-case scenario, the mutation will require a fresh series of lockdowns across the globe, threatening already strained supply chains and damaging recovering demand and reigniting fears of a deadly mix of low growth and high inflation, otherwise known as stagflation.
The other possibility of course is a middle ground, where the variant is vaccine resistant and more virulent, but results in limited health consequences and few mortalities, that would suggest that despite the mutation, the coronavirus is making its way towards becoming endemic.
And while the world isn’t yet at risk of stagflation, one more year of closed off international borders and supply chain disruptions might be the final straw on the camel’s back.
The biggest challenge facing policymakers for now is that they’re running out of cards to play.
Only a handful of central banks have tightened monetary policy since the end of last year’s recession and the developed world’s key rates remain around zero, which means that they lack room to come to the rescue again.
The U.S. Federal Reserve, which just started the tapering of its asset purchases has left sufficient room to reverse course on that initiative and may do so if the uncertainty surrounding the omicron variant persists.
But what’s almost certain is a rethink of the pace of interest rate hikes and a return to a more normal monetary policy at major central banks.
Investors could then possibly use this momentary pullback to stock up (no pun intended) on stocks of companies likely to do well in either case – a return of lockdowns and border restrictions as well as a broad reopening.
It would be naïve to assume the omicron variant will have no impact on the global economy – it already has seen Japan shut off its borders to foreign travelers.
But to overreact would also be premature.
In either scenario, risk will likely reward – if things are bad with the variant, central banks can be expected to respond in the only way they know how, by flooding markets with liquidity, inflation be damned.
And if things are good, that sentiment will translate as well to a rally in risk assets.
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Find out more about Novum Alpha as leading luxury portal Luxuo.com interviews our CEO & General Counsel, Patrick Tan...
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3. Who is Satoshi Nakamoto and should you care?
It may come as a surprise but there is no shortage of bitcoin investors who have never even heard of Satoshi Nakamoto or even that he, she or they wrote the whitepaper and released the open source code that started a revolution.
Perhaps never in Satoshi’s wildest dreams would they (it’s just easier to use this pronoun) have imagined that the nine-page whitepaper they wrote and open source code they released would have blossomed into a US$1 trillion market cap and a further US$1.5 trillion from other cryptocurrencies.
When the bitcoin whitepaper was released, nobody cared about Nakamoto’s identity and like so many new inventions (just as Henry Ford), the idea behind bitcoin was dismissed.
What we do know is that on January 9, 2009, Hal Finney, who had been working remotely with Nakamoto for weeks (even before the days of Zoom calls) got the bitcoin network up and running and the first transaction of bitcoin.
Over the next two years, as bitcoin slowly grew, Nakamoto wrote on message boards and privately exchanged emails with developers, but they used methods which were intended to ensure they could never be found, including anonymous email addresses and layers of encryption that would have made it virtually impossible to back trace the creator of such communications.
Then suddenly in December 2010, Nakamoto stopped posting publicly and by 2011, disappeared altogether, even ceasing communications with developers, handing over the project to Gavin Andresen, a software developer.
Incredibly, in an age where it’s virtually impossible to remain anonymous, Nakamoto, whose only breadcrumbs are two email addresses and one website, had their identity blocked.
In bitcoin’s first year of existence, one million were “mined” but have never been moved and would be worth somewhere in the region of US$57 billion at today’s prices and would make Nakamoto one of the 30 richest people in the world, according to Forbes.
But no one knows for sure that these 1 million bitcoins even belong to Nakamoto, although the ability to prove that ownership, for instance, by moving the bitcoin, would provide someone with a strong claim to being Nakamoto.
In the early years, a popular theory was that given how bitcoin potentially undermined the seigniorage of governments globally, anonymity was not just convenient, it was necessary to avoid arrest and persecution.
Since then, anyone who has ever worked on bitcoin in the early days has been speculated to be Nakamoto, including Hal Finney, who died in 2014 and Gavin Andresen.
Nick Szabo, who had the necessary skills to have created bitcoin has often been touted to be Nakamoto as well but all have denied being the mysterious creator of the cryptocurrency.
Ultimately it doesn’t matter for traders and investors who created bitcoin, and if nothing else, the speculation and mystery adds to the allure of the cryptocurrency.
Nobody wonders who created Ethereum, because everyone knows.
If bitcoin is to maintain its narrative as a censor-proof store of value that isn’t susceptible to manipulation, then the more mystery, the better.
Because there’s no one to finger the creation of bitcoin on, it’s harder to claim that its creator had intended to enrich themselves by creating this new means to store, transfer and account for value and feeds into the narrative.
A Florida lawsuit may throw up some additional controversy, just to maintain the cryptic portion of a cryptocurrency.
Craig Wright, an Australian computer scientist has long claimed to be Satoshi Nakamoto, a declaration that has been met with no shortage of ridicule and litigation.
But the family of a deceased colleague, Dave Kleiman is now suing Wright, alleging that bitcoin was the product of a business partnership and that Wright owes Kleiman’s estate half of those one million bitcoins that haven’t been moved since the very beginning.
If a jury finds that Wright and Kleiman did indeed create bitcoin and that Wright would need to pay out 500,000 bitcoin to Kleiman’s estate, it could confirm that Wright was telling the truth all along.
However, the odds of that bitcoin being moved is unlikely and there’s more than circumstantial evidence to suggest that Wright isn’t Nakamoto or had anything to do with the creation of bitcoin.
But either ways it doesn’t matter, so long as the mystery remains, the claim that unlike central bank fiat currencies, bitcoin’s creator had never intended to enrich themselves adds more to the mystique and allure of the cryptocurrency and nascent asset class.
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Nov 30, 2021