Novum Alpha - Daily Analysis 24 August 2022 (10-Minute Read)
A wonderful Wednesday to you as the global slump in business activity darkens economic prospects.
In brief (TL:DR)
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In today's issue...
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Market OverviewThe latest data reveals weakening economic activity from the U.S. to Europe and Asia, underlining the delicate task the Fed faces in hiking interest rates to bring down inflation without sparking a recession.
Investors will pour over U.S. Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday for a sense of how hawkish the central bank will be in the face of mounting economic challenges.
A global rebound in equities from a June low has stalled ahead of the much-anticipated event, but it could also be a sign that investors are becoming more attuned to the challenges that lie ahead.
Asian markets were mixed on Wednesday with Tokyo's Nikkei 225 (-0.48%) and Hong Kong's Hang Seng Index (-1.33%) down, while Seoul's Kospi Index (+0.43%) and Sydney’s ASX 200 (+0.60%) were up.
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1. The Great Chinese Delisting Could Mint Singapore Markets
When former U.S. President Donald Trump was to meet with North Korea’s leader Kim Jong Un, many possible locations were mooted before Singapore (humidity notwithstanding) was finally secured as the place for the two nuclear powers to have their leaders meet.
For decades, the tiny city state, one of the richest places on the planet, has played host to juggernauts and provided refuge to the persecuted, provided of course that they are “sufficient.”
So, when Chinese firms facing greater regulatory scrutiny, especially with respect to their financial data, came under threat of delisting from U.S. bourses, there were only really a handful of alternative trading floors to head to, Hong Kong, Shanghai and of course, Singapore.
Listing in Hong Kong proved nowhere near as expedient or as straightforward as many U.S.-listed Chinese firms had anticipated, while many are already listed on both Shanghai and Shenzhen stock exchanges, which is where Singapore came in as the obvious choice.
Singapore Exchange (SGX) is said to be attracting more listings in coming months by Chinese issuers that already trade American depository receipts, even as it grapples with delayed deals amid a global valuation slump.
If the first clutch of listings in Singapore is successful, investors can expect others will follow suit after electric vehicle maker Nio Inc.’s technical listing in May.
SGX is also in talks with companies in China and Southeast Asia operating in areas such as fintech and consumer tech that it would like to attract to its bourse.
The Singapore bourse is also looking to attract other companies listed in the U.S. but declined to speculate on potential homecoming listings, including Grab Holdings and Sea Ltd, two tech juggernauts that are headquartered in Singapore but listed on Wall Street.
While the draw for Chinese firms listed in the U.S. to relist on SGX is one born out of necessity, the same considerations may not necessarily apply for Singapore-headquartered firms to return home, especially as they continue to have access to the far more liquid and deep capital markets of the United States.
Listing plans globally this year have waned with investors deterred by high inflation and rising interest rates and many companies have had to delay offerings for on SGX, including big-ticket names such as Thai Beverage and Olam Group.
Last month SGX inked an accord with the New York Stock Exchange that allows for better collaboration on dual listings of companies, a move that could help facilitate some companies Chinese companies listed in the U.S. moving to the somewhat more hospitable market.
According to data compiled by Bloomberg, there are at least 11 China-domiciled firms that have listings in both the U.S. and Singapore, a number that could grow and provide a boost for SGX, which is itself listed.
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2. Asia May be Beneficiary of Greater Russian Fuel Exports as E.U. Sanctions Bite
As winter approaches in Europe, the continent is unfortunately caught in a situation where it has had to cut off its nose to spite its face.
With the Russian invasion of Ukraine showing no sign of ending, roiling energy markets for the most part of this year and threatening to spill over into 2023, the European Union, in solidarity with the U.S., continues to sanction Russian energy exports, despite its desperate need for them.
This December, a European Union ban on most flows of Russian crude will start, followed by a similar move against products including naphtha - a fuel primarily used to make plastics, about two months later.
In a bid to find alternative markets as E.U. sanctions tighten, Russia may try to push greater volumes of a key oil product into Asia, possibly blending some with crude oil.
According to preliminary data by Vortexa, Russian naphtha exports to Asia rose 84% to about 130,000 barrels in the first three weeks of August, compared with all of July.
That increase came despite weak regional conditions as local plastic makers, key consumers of oil byproducts, struggle with thin margins and poor plastics demand from China, where an economic slowdown because of a property crisis and zero-Covid lockdowns is biting.
More Russian-made naphtha is likely to head into hubs such as Singapore and Fujairah from February when E.U. sanctions kick in, where it can be stored for when demand should pick up.
Russian naphtha may already have been blended into the country’s Urals crude and shipped to India earlier this year, as New Delhi declined to participate in western sanctions.
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3. Ether Prices are Rising and Why That's a Bad Thing for NFT Lenders
The recent rise in Ether prices despite the bear market has contributed to large-scale liquidations on BendDAO, an NFT lender last week.
Although cryptocurrency prices have given up most of their gains in July, Ether has remained surprisingly resilient, due in large part over optimism surrounding the upcoming software upgrade known as the Merge.
The Merge will see Ethereum, the blockchain that powers Ether, move from the more energy-intensive Proof-of-Work to a Proof-of-Stake system to securing transactions.
But as Ether denominated loans increased in dollar terms, the value of NFT collateral pledged to secure such loans continued to depreciate triggering BendDAO to liquidate collateral through auctions.
As users started rushing to withdraw deposits from the BendDAO amid concern about a potential liquidity crunch on Friday, the total value of assets locked in BendDAO’s protocol dropped by about 50% to around US$41 million over the weekend.
BendDAO, one of the most popular lending platforms for holders of NFTs such as Bored Apes to borrow against their collections, is revising its terms after a drop in prices threatened to trigger the liquidation of much of the collateral backing many of its loans.
NFTs from the Bored Ape Yacht Club collection make up about 68% of assets that serve as collateral on BendDAO, while another 16% is from Mutant Ape Yacht Club NFTs.
BendDAO warned that the bidding price or the liquidation threshold for many of its Ether-denominated NFT loans had to be at least 95% of the NFTs’ floor price and gave borrowers 48 hours to pay down loans before liquidation.
Unlike centralized crypto lenders such as Celsius Network and BlockFi, BendDAO is a decentralized autonomous organization, meaning that stakeholders can collectively vote for changes in the protocol’s code.
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Aug 24, 2022