Novum Alpha - Daily Analysis 3 December 2021 (10-Minute Read)
A fabulous Friday to you as markets vacillate against a backdrop of uncertainty ahead of a key U.S. jobs report.
In brief (TL:DR)
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In today's issue...
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Market OverviewVolatility in markets remains elevated, reflecting the Fed’s shift toward less generous monetary settings and uncertainty about how the omicron outbreak will affect global reopening.
Some worries about the new strain have receded in the hope that vaccines will remain effective or can be adjusted.
In Asia, markets were mixed Friday with Tokyo's Nikkei 225 (+0.39%), Sydney’s ASX 200 (+0.26%) and Seoul's Kospi Index (+0.87%) up, while Hong Kong's Hang Seng (-0.74%) was down.
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1. The One Chip Company to Rule Them All that Wasn't
Arm is the company that you’ve probably never heard about but yet come into contact with on an almost daily basis.
As one of the world’s leading chip designers, Arm’s chip blueprints go into everything from Apple’s Macs to Ford pickup trucks.
So when Nvidia, the world’s most valuable chip company by market cap announced its plan to acquire Arm to create a chip design juggernaut, it was somewhat surprising that the move didn’t attract more attention from regulators.
To be sure, financial regulators in the U.K., where Arm is headquartered, bristled at the prospect of selling a crown jewel to a U.S. firm, but for all intents and purposes, it looked as though the deal was going ahead.
Now over a year later, Nvidia’s ambitious plan may be scuttled by the U.S. Federal Trade Commission, which has sued to block the US$40 billion deal yesterday, calling it a threat to semiconductor innovation.
Arm customers have also banded together to rail against the transaction and investors and analysts have all but written off the idea of it ever happening.
While Nvidia is better known for its graphics processing chips, it’s also made significant inroads into chips that serve data centers and facilitate artificial intelligence processes.
Whereas Arm has expertise in central processing units, which handle more varied functions, as well as lower-end chip design that goes into everyday products that don’t necessarily always have continual access to power sources.
Arm licenses its designs to a variety of other chipmakers, as well as tech companies, who use Arm designs as a base for innovation, while Nvidia designs some of the world’s most desirable chips, but makes none of them, preferring instead to work with semiconductor manufacturers like TSMC Corp (-0.81%) in Taiwan.
Nvidia remains defiant despite the FTC litigation, and vowed to fight on, but with regulatory scrutiny escalating globally, the prospect of a completion of the marriage appear increasingly dim.
Investors meanwhile appear to be indifferent as Nvidia continues to do well, thanks to its fortuitous decision to push into server chips and when the FTC suit was announced yesterday, shares of the chip design firm rose.
Part of the reason of course is that most investors never really expected the deal to go through anyway, and those expectations were baked into Nvidia’s share price.
More importantly, Nvidia has focused on branching into more lucrative sectors, including servers, which support the rapidly growing cloud sector.
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2. China's Decoupling with U.S. is Damaging its Tech Sector
Just when you thought it was safe to go back into Chinese tech stocks, the impending delisting of Didi Global from Nasdaq sent Chinese tech shares listed in Hong Kong hurtling to near record lows.
The Hang Seng Tech Index, which tracks mostly big Chinese tech giants listed on the Hong Kong Stock Exchange dropped by as much as 2.5% with about US$1.5 trillion of combined market value evaporated since its February peak.
Didi Global has announced that it will be starting the process to delist from Nasdaq and relist in Hong Kong, even as China has closed a backdoor through variable interest enterprises that allowed Chinese companies to gain access to overseas capital markets.
The U.S. is also moving to more closely scrutinize foreign listings on its capital markets, with regulators announcing a final plan for putting in place a new law that mandates foreign companies open their books to American scrutiny or risk being kicked off the country’s exchanges within three years.
Washington has long been concerned over Chinese Communist Party interests across a variety of companies that have listed on American bourses and in July, the U.S. Securities and Exchange Commission vowed to require more information for Chinese firms seeking a listing on Wall Street.
With the world’s deepest and most liquid capital markets situated on the island of Manhattan, Chinese entrepreneurs have for years dreamed of floating shares of their firms on Wall Street but that may be set to be a thing of the past.
The potential closure, or at the very least, limitation of access of Chinese firms to America’s capital markets comes as Beijing has been tightening regulations on areas ranging from digital finance and data security, to online games.
A Bank of America report last month suggested that delisting from U.S. stock markets would necessarily raise the cost of capital for Chinese firms, especially since of the 270 ADRs or American Depository Receipts traded in the U.S., with a combined market cap of some US$1.8 trillion, over half of them, or 150, do not qualify to list in Hong Kong.
That could potentially create an opportunity for other stock exchanges to draw in these Chinese firms, including London and Singapore.
Some of the biggest names in Chinese tech, all of which have U.S. ADRs, were among the top losers on the Hang Seng Tech Index, including Netease (-7.54%), Bilibili (-5.40%) and JD.com (-6.96%).
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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. World's Largest Asset Manager Make a Pitch for U.S. Spot Bitcoin ETF
Some of the world’s asset managers haven’t given up hope yet on the prospect of a U.S. bitcoin ETF that actually holds bitcoin (whatever that means) as Fidelity Investments, the world’s fourth largest asset manager with assets of US$4.2 trillion, puts in a bid to launch a bitcoin ETF with real bitcoin inside in the U.S., even as it launches one in Canada.
Unlike the ProShares Bitcoin Strategy ETF, which uses CME Group’s bitcoin futures to track the price of bitcoin, Fidelity Advantage Bitcoin ETF (FBTC) is designed to invest in “physical” spot bitcoin, a model that the U.S. Securities and Exchange Commission has so far rejected.
FBTC is scheduled to launch on the Toronto stock exchange on Thursday and comes more than eight months after it filed with the SEC to launch a similar spot bitcoin ETF in its home market.
Fidelity Investments as well as a dozen or more other hopefuls, have seen their applications for a U.S. spot-based bitcoin ETF put on hold indefinitely, as the SEC continues to be concerned over “fraudulent and manipulative acts and practices” in the markets where bitcoin is traded.
That SEC position was challenged at the end of last month in a latter from lawyers representing the US$32 billion Grayscale Bitcoin Trust who argued that the regulator had “no basis for the position that investing in the derivatives market for an asset is acceptable for investors while investing in the asset itself is not.”
With Fidelity Investments, the Canadian cryptocurrency ETF market is growing increasingly crowded, with no less than seven managers already offering 23 different cryptocurrency funds, according to data from TrackInsight.
Data from TrackInsight also reveals that Canadian cryptocurrency ETFs which invest in ether as well as bitcoin, with combined assets of some US$5.7 billion, are rapidly catching up with Europe’s US$11.4 billion cryptocurrency ETF products.
Australia will also see the first launch of a bitcoin ETF that holds physical bitcoin next year.
WisdomTree and VanEck, which each manage around US$75 billion in ETFs worldwide are some of the biggest names to have entered the European market for cryptocurrency ETFs, but would be dwarfed by Fidelity Investments.
Despite their volatility, cryptocurrencies are increasingly being seen by mainstream investment industry figures as assets that, in moderation, could potentially improve the risk-reward characteristics of broad-based portfolios.
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Dec 03, 2021