Novum Alpha - Daily Analysis 23 December 2021 (10-Minute Read)
A gauge of global stocks is up more than 2% so far this month, leaving the index 15% higher for the year and on course to surpass 2020’s gain.
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A terrific Thursday to you as stocks begin to turnaround as markets head into Christmas.
In brief (TL:DR)
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In today's issue...
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Market OverviewA gauge of global stocks is up more than 2% so far this month, leaving the index 15% higher for the year and on course to surpass 2020’s gain.
Markets, though, have been volatile of late as traders evaluated virus risks and moves toward tighter monetary policy to check high inflation.
At the same time, officials remain cautious since omicron spreads quickly. In China, the central city of Xi’an is tightening rules to curb a Covid outbreak.
In Asia, markets continued to rise Thursday with Tokyo's Nikkei 225 (+0.33%), Hong Kong's Hang Seng (+0.39%), Sydney’s ASX 200 (+0.40%) and Seoul's Kospi Index (+0.34%) all up in the morning trading session.
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1. U.S. Stock Exchanges Court Other Countries & Regions Ex-China
Breaking up is hard to do and it sucks even more when you see your ex going off with someone else.
Just as China and Wall Street go their own separate ways, pragmatists on the island of Manhattan have moved on, hunting for other prospects in India and Southeast Asia.
Never mind that only one Indian company, renewable energy operator Azure Power (+0.052%), has ever listed on an American exchange, Wall Street’s best and brightest will go to where the money is.
With deal flow from China drying up and Chinese companies taking their ball and heading home to Hong Kong, Wall Street is looking further afield to the rest of the Asia-Pacific region, in particular Southeast Asia.
So far only a small clutch of companies from the region have listed on U.S. bourses, including ride-hailing app Grab Holdings (+0.55%), gaming equipment maker Razer (-1.23%) and e-commerce and gaming juggernaut Sea (-2.22%), all three are headquartered in Singapore.
Indonesia and India are seen as the biggest areas of opportunity and underrepresented on Wall Street, especially given their massive populations, burgeoning middle class and growth potential, with Vietnam and Malaysia also attracting interest from America’s exchanges as well.
But replacing Chinese listings will be a tall order.
While there are around 80 so-called “unicorns” which are valued at over US$1 billion in the Asia Pacific region ex-China, according to CB Insights, none has the scale of companies like Alibaba Group Holdings (-0.35%) or Baidu (+0.72%), with the former garnering a market cap of US$128 billion when it was listed in New York.
And it’s not a given either that Southeast Asia or India’s biggest and most promising companies even want to go to New York either, especially given that the bulk of investors for these firms would want to be within their own time zone.
Indian payments giant Paytm (+2.54%) for instance opted to list in Mumbai, albeit India has restrictions on listing its local companies offshore, while Indonesian logistics group J&T is reportedly gearing up to list in Hong Kong.
American listings are also no guarantee of treasure for Southeast Asian firms either, with the SPAC listing of Grab Holdings dropping by over 21% on debut.
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2. Rich Asians are Going Crazy over Hedge Funds and Private Equity
Until fairly recently, the investment options of rich Asians was pretty straightforward – real estate.
On the back of an almost unbroken period of economic growth (if you exclude the 1997 Asian Financial Crisis and the 2008 Great Financial Crisis), Asian economies are stronger now than at any time in their past.
Outsourcing hubs like India and the Philippines are bolstering the network effect from rising manufacturing centers such as Vietnam and Indonesia and a burgeoning middle class with their fistful of dollars are looking to spend it, minting a new generation of millionaires and billionaires.
This new generation of wealthy, unlike their forebears, are also more open to alternative assets and a growing industry of private banks and high-end investment firms has risen to serve them.
Although real estate investment remains one of the top draws of the wealthy, low interest rates and volatile listed markets are pushing investors to look at other investment vehicles.
The shift has been palpable, with Credit Suisse Group and Apollo Global Management already making personnel shifts to step up in a region that’s seeing the fastest growth in wealthy people.
According to a report by property group Knight Frank, Asia is poised for the biggest jump in individuals with a net worth of at least US$30 million and by 2025, the region will be home to 24% of all ultra-high net worth individuals, up from 17% a decade earlier.
Although investments in hedge funds and private equity tend to offer higher returns, they are a lot less liquid and portfolio volatility can be substantial.
In November, hedge funds posted their largest single-month decline since March 2020, when the pandemic first started as equities fell sharply due to fears of new omicron restrictions and monetary policy tightening, according to Hedge Fund Research.
The US$4 billion Hong Kong-based BFAM Partners looks set to be heading for its first annual loss in its 9-year history, hurt by a selloff in Chinese real estate credit, while the BFAM Asian Opportunities Fund lost over 10% in the year to November.
But the demand for alternative investments is evident, whether through venture capital, private equity or hedge funds, as the sure-win bet on real estate in China dries up.
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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. Cryptocurrency Funds Look Back on a Phenomenal Year
While the launch of the ProShares Bitcoin ETF galvanized the cryptocurrency market as the first U.S. bitcoin ETF (albeit a futures-based one), even before its launch, cryptocurrency funds as a whole notched some notable milestones globally over the past year.
According to Bloomberg Intelligence data, the number of crypto-tracking investment vehicles worldwide doubled to 80 from just 35 at the end of 2020 and assets soared to US$63 billion, compared to just US$24 billion at the start of this year.
Considering that ETFs in the U.S. alone are now valued at around US$3 trillion, the scope for growth in those that track cryptocurrencies is substantial.
Rising inflation and speculative forces against a backdrop of low yields is allowing cryptocurrencies to claim an even bigger share of the global investment landscape than would otherwise have been expected.
Nevertheless, the ever-present volatility that cryptocurrencies are so notorious for, did not fail to disappoint, with bitcoin, the benchmark digital asset, seeing a drawdown of almost 60% from April to June, only to reverse course and hit an all-time-high in November.
Bitcoin has since slipped by over 30% from its November high, but that volatility has done little to dampen investor demand for cryptocurrencies.
CEO of cryptocurrency asset manager Valkyrie Investments, in an episode of Bloomberg’s “QuickTake Stock” streaming program, noted,
“If you look at inflows on a volume perspective, not only has it been steady even with the price corrections that Bitcoin is notoriously famous for, but you’re seeing a lot of institutions jump in.”
The majority of 2021’s fund launches were outside the U.S., but the launch of the ProShares Bitcoin Strategy ETF managed in two days to accumulate US$1 billion, making it one of the best starts for an ETF on record.
That surge for the ProShares product demonstrates that three is substantial pent-up demand for crypto exposure among U.S. investors into cryptocurrencies with an institutional wrapper, and this was for an ETF that doesn’t even actually hold any bitcoin.
It is entirely possible that when a physically-backed bitcoin ETF is approved in the U.S., demand will be even higher.
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Dec 23, 2021