Novum Alpha - Daily Analysis 5 August 2022 (10-Minute Read)
A fantastic Friday to you as markets flounder with China ratcheting up tensions after U.S. House of Representatives Speaker Nancy Pelosi's visit to Taiwan.
In brief (TL:DR)
In today's issue...
A global equity index is set for a third weekly advance in a recovery from bear-market lows, helped by resilient company profits in the US.
The durability of the bounce remains in doubt because of central bank rate rises to tackle punishing inflation.
Investors are also continuing to monitor the aftermath of US House Speaker Nancy Pelosi’s visit to Taiwan. China, which regards the self-ruled island as part of its territory, reportedly fired missiles over Taiwan during military drills on Thursday. If confirmed, that would mark a major escalation.
Asian markets were higher on Friday with Tokyo's Nikkei 225 (+0.71%), Sydney’s ASX 200 (+0.35%) and Seoul's Kospi Index (+0.75%) up, while Hong Kong's Hang Seng Index (-0.15%) was down slightly in the morning trading session.
1. Hedge Fund Tiger Global Down 50% but May be at Bottom
It’s been said that professional investors like to buy when it’s cheap and retail loves to buy when it’s expensive.
And for professional investors who are looking to buy a slice of legendary hedge fund Tiger Global, there may be no better time than now.
Nursing heavy losses amid a tech rout that has caused performance across one of the world’s largest hedge funds to end the second quarter down 63.6%, Tiger Global’s flagship fund is now down just over 50% after fees for the first half of the year.
But depending on one’s perspective, this might be the opportune time to buy into a slice of the action of what has until fairly recently, been one of the best performing hedge funds of all time.
Rising global inflation and central banks determined to stave off price pressures have tanked whole sectors that have known nothing other than growth, especially tech stocks.
Tiger Global’s exposure to technology and software companies in the U.S. and China had made it among the best performing and fastest growing hedge funds in the world over the past decade, chalking up tens of billions of dollars in profits.
But the persistence of inflation and the willingness of central banks to hike interest rates to combat price pressures has been unprecedented and blindsided not just policymakers, but the hedge funds that have benefited off that boom as well.
Nevertheless, because central banks can’t and won’t raise interest rates indefinitely, Tiger Global’s prospective clients may be finding themselves in an opportunity to buy on the cheap as evidenced by last month’s performance.
Tiger Global’s flagship fund gained 0.4% in July, putting year-to-date losses at 49.8%, whereas its long-only fund clocked an admirable 4.6% in July and the crossover fund notched up 2.9%.
Although the losses have dented Tiger Global’s enviable track record, its flagship fund, launched in 2001 has nonetheless recorded net annual returns just shy of 15%, an amazing feat by any measure.
Private investments have helped to soften the blow of marked-to-market losses from Tiger Global’s holdings in more liquid public markets, but was still marked down in the second quarter despite positive operating performance overall.
Significantly, Tiger Global has promised to maintain the same approach it held since it was founded in the wake of the dotcom bust, and for a hedge fund that has survived numerous crises, the lessons learned from current conditions, should put fresh investors in good stead for years to come.
2. Cooling Demand for Chips May Presage a Global Recession
For many months in 2021, gamers and cryptocurrency miners were not the only ones to lament a shortage of chips, everything from automakers to electric kettle manufacturers were short of the essential silicon brains needed to power many of the devices required of modern life.
But look around for a graphics card today and gamers will no doubt have noticed that prices have come down significantly for some of the most popular offerings from the likes of Nvidia and AMD, amid what appears to be a growing glut in semiconductor supply.
Global growth of chip sales has decelerated for six straight months, in yet another sign that the global economy is straining under the dual weights of rising interest rates and growing geopolitical risks.
Data from a semiconductor industry body reveals that sales of chips rose just 13.3% in June, down from 18% in May and the longest slowdown since the U.S.-China trade war of 2018.
Astute observers would have noted that the 3-month moving average in chip sales has correlated with the global economy’s performance in recent decades, with the latest weakness coming as concern about a worldwide recession prompting chipmakers to reassess growth plans.
When there was a global shortage of chips, semiconductor giants, TSMC (+2.80%), Intel (-1.37%) and Samsung Electronics announced ambitious investment plans to grow production.
But semiconductor factories are notoriously expensive to build and can take decades for such investments to be recouped.
Semiconductors are key components of an array of products, some of which most consumers may not even be aware of, from cars to coffee machines.
But chip sales have started to cool with central banks raising borrowing costs to combat spiraling inflation and China’s repeated and persistent Covid-19 lockdown policies and could be a sign that that the world economy is deteriorating rapidly.
To understand the extent of the malaise, consider that South Korea, the world’s biggest producer of chips saw exports fall precipitously to 2.1% in July from 10.7% in June, the fourth straight month of declines.
Taiwan, another key player in chipmaking and which is now under threat from China, saw manufacturing contract in both June and July, with new export orders for chips registering the biggest decline.
Although U.S. GDP has fallen for two straight quarters, the National Bureau of Economic Research remains in denial about the economy already being in a technical recession.
Given how chips are essential to so much of manufacturing and are strongly indicative of global demand for goods, a falloff in chip exports may be the canary in the coalmine and indicative that a global recession is imminent.
3. BlackRock Pairs Up with Cryptocurrency Exchange Coinbase Global
In a huge fillip for the cryptocurrency industry, the world's biggest asset manager BlackRock (+0.79%) is partnering with exchange Coinbase Global (+10.01%) to make it easier for institutional investors to manage and trade Bitcoin.
The announcement by Coinbase Global and BlackRock sent shares of the former surging by as much as 15% and provides much needed relief for the embattled cryptocurrency exchange which is having to contend with decreasing trading volumes and stagnant prices.
Unfortunately, Cathie Wood’s Ark Investment Management was unable to benefit from the rebound in Coinbase Global’s share price, with her ETFs having dumped shares of the cryptocurrency exchange just weeks prior.
Coinbase Global has roughly tracked the fortunes of the cryptocurrency industry, having shed some two-thirds of its value and market cap this year alone.
According to BlackRock, clients will be able to use its Aladdin investment management system to oversee their exposure to Bitcoin along with other portfolio assets such as stocks and bonds, integrating the nascent asset class into more investors’ portfolios.
In a statement released yesterday, BlackRock highlighted that the initial focus for its partnership with Coinbase Global will be “on Bitcoin.”
Unlike the Crypto Winter of 2018, institutional interest and participation in cryptocurrencies is growing despite the bear market and BlackRock’s move deepens Wall Street’s involvement in the sector.
Bitcoin has lost over half its value in 2022 alone and numerous high-profile collapses of some of the biggest projects and companies in the cryptocurrency sector have invited greater regulatory scrutiny to the sector.
Unlike other cryptocurrencies, the regulatory risks of BlackRock’s partnership with Coinbase Global, insofar as they center around Bitcoin, are somewhat contained, given that the cryptocurrency has clearer regulatory status in Washington, as opposed to say the slew of other cryptocurrencies that the U.S. Securities and Exchange Commission have declared as “unregistered securities.”
More importantly, the BlackRock-Coinbase Global partnership demonstrates that there is still demand for cryptocurrency exposure from sophisticated investors, despite the sharp decline in prices this year.
Institutional investors are also becoming increasingly important to Coinbase Global, with the exchange revealing in May this year that about 75% of its US$309 billion in trading volume in the first quarter of this year coming from institutional investors such as hedge funds, corporate treasuries and asset managers.
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Aug 05, 2022
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