Daily Analysis 7 September 2022 (10-Minute Read)

A terrific Wednesday to you as outlook of aggressive Fed tightening saps global shares.


In brief (TL:DR)

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  • U.S. stocks were lower on Tuesday with the Dow Jones Industrial Average (-0.55%), the S&P 500 (-0.41%) and the Nasdaq Composite (-0.74%) all down.

  • Asian stocks fell amid expectations for aggressive monetary tightening by the Federal Reserve to tackle inflation.

  • Benchmark U.S. 10-year Treasury yields was steady at 3.35% (yields rise when bond prices fall).

  • The dollar extended its rally on Wednesday.

  • Oil edged lower with October 2022 contracts for WTI Crude Oil (Nymex) (-1.66%) at US$85.44, hampered by worries about demand.

  • Gold slipped with December 2022 contracts for Gold (Comex) (-0.55%) at US$1,703.50.

  • Bitcoin (-5.55%) retreated to US$18,795.


In today's issue...

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  1. Asian Hedge Funds Hammered by Bullish 2021 Bets

  2. Asian Auto Stock Focused on Southeast Asia Surges 84%

  3. Bitcoin Mining Firm Poolin Latest to Halt Withdrawals

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Market Overview

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Markets are also contending with a debilitating energy crisis in Europe and Covid lockdowns in China, which continues to pursue a strategy of eliminating the virus despite the attendant economic cost.

Concerns are growing about the outlook for company earnings given the various global economic headwinds.

Asian markets fell on Wednesday with Tokyo's Nikkei 225 (-0.71%), Seoul's Kospi Index (-1.39%), Hong Kong's Hang Seng Index (-0.94%) and Sydney’s ASX 200 (-1.42%) all down.



1. Asian Hedge Funds Hammered by Bullish 2021 Bets

  • Some of the more notable picks from last year’s Sohn event have failed to pan out against a backdrop of higher interest rates.

  • Nevertheless, Sohn did deliver some winning ideas as well, including Chinese steel makers and bets on Vietnam’s growing appetite for jewelry, which paid off nicely.

Asian hedge fund managers in an upbeat mood at last year’s Sohn Hong Kong investment conference have since seen sentiment soured as bullish bets have been derailed from market turmoil wrought by a U.S. Federal Reserve determined to tame inflation.

Over the past year, Asian hedge funds have been caught flatfooted from a slew of headwinds that have buffeted markets, including surging inflation, aggressive interest rate hikes, Russia’s invasion of Ukraine and geopolitical tensions between China and the U.S.

Macroeconomic factors have caused turmoil across equities, bonds, currencies and riskier assets like cryptocurrencies.

Adding to the pain, China’s economic slowdown in the wake of its zero-Covid policy and regulatory crackdowns on a slew of industries from real estate to technology have also hammered prospects in Asia.

According to preliminary data through August, the Eurekahedge Asian Hedge Fund Index is down -7.4% this year, heading for its worst annual performance since 2018.

Some of the more notable picks from last year’s Sohn event have failed to pan out against a backdrop of higher interest rates.

E-commerce and gaming giant SEA was the worst performer, falling 76%, and bad news has been piling up for the Singapore-headquartered tech giant, which had soared 24 times in the four years to its October 2021 peak.

Japanese digital finance firm Monex Group plunged in tandem with the crypto rout and QD Laser, a Japanese eyewear maker that has lost momentum since its initial public offering in early 2021.

Nevertheless, Sohn did deliver some winning ideas as well, including Chinese steel makers and bets on Vietnam’s growing appetite for jewelry, which paid off nicely.

A year does not a strategy make though and it investors will do well to see what fresh and novel ideas are developed out of Sohn this year, especially as such calls will need to navigate an increasingly uncertain investment environment.



2. Asian Auto Stock Focused on Southeast Asia Surges 84%

  • Japanese car exporters have benefitted from the yen plunging to a 24-year low, helping to boost exports.

  • Mitsubishi Motors’ gains are more than double those of any other compatriot, helped by a product mix suited to emerging markets in Southeast Asia as economies reopen after the pandemic’s peak.

Shares of Mitsubishi Motors (+3.61%), which is in an alliance with Nissan Motor and Renault, have rallied 84% this year, outperforming all Asian peers, spurred by a demand revival for small affordable cars and pickups in Southeast Asia.

Japanese car exporters have benefitted from the yen plunging to a 24-year low, helping to boost exports.

Shares of Mazda Motor (+2.45%) and Subaru (+3.37%) have risen over 20%, though Toyota (-0.68%), which has more exposure to the U.S. and North America, has dropped.

Mitsubishi Motors’ gains are more than double those of any other compatriot, helped by a product mix suited to emerging markets in Southeast Asia as economies reopen after the pandemic’s peak.

Mitsubishi Motors gets about a quarter of its revenue from Southeast Asia, including Thailand, Indonesia, Vietnam and the Philippines and its core markets make it less vulnerable to the U.S. economy’s slowdown than for peers Toyota, Honda, Nissan, Subaru and Mazda.

Southeast Asian markets are seen as one bright spot in a receding global economy, with tailwinds from commodities, tourism and a high proportion of banks that are well-positioned and capitalized for rising interest rates worldwide.



3. Bitcoin Mining Firm Poolin Latest to Halt Withdrawals

  • Poolin, one of the largest providers of Bitcoin mining-pool services, has suspended all withdrawals, flash trades and internal transfers within their system, citing the need to preserve liquidity.

  • The liquidity crunch comes at a time when Poolin is completing the costly process of moving its mining operations to Texas since China banned crypto mining last May.

For the uninitiated, the role of a Bitcoin mining pool is intended to be relatively straightforward – pool computing resources to increase the odds of solving the mathematical puzzle that allows a miner to secure the blockchain and receive the block reward.

Because of the competitive nature of Bitcoin mining in particular, pooling resources ensures that a miner receives their share of the block reward, based on their contribution towards the total mining pool’s computing power.

Mining pool companies have become an integral part of the Bitcoin mining industry with software that aggregates computing power from miners to increase the probability of winning the token rewards by securing the Bitcoin network charging a fee for providing such services.

Many miners including Marathon Digital Holdings (-2.28%) and Riot Blockchain (-3.47%) use mining pool services as a single miner has a very slim chance of winning the Bitcoin rewards.

The miners would rather combine their power and receive a share of the rewards if their pool wins and pools allow miners to withdraw Bitcoin rewards through a wallet owned by the pool.

However, Poolin, one of the largest providers of Bitcoin mining-pool services, has suspended all withdrawals, flash trades and internal transfers within their system, citing the need to preserve liquidity.

The Chinese firm has seen a significant drop in computing power in its mining pool over the last three days.

Poolin representative said that this imperative is to serve their goal of preserving assets, stabilizing liquidity, and operations in the midst of the dull crypto market.

According to btc.com, Poolin is the sixth-largest Bitcoin mining pool by computing power.

The liquidity crunch comes at a time when Poolin is completing the costly process of moving its mining operations to Texas since China banned crypto mining last May.

But the recent suspension of withdrawals by Poolin raises questions as to what the mining pool was doing with mined cryptocurrency that miners did not withdraw from the system.

When lending cryptocurrencies was very much in vogue, it’s entirely possible that Poolin lent out the assets of pool contributors, promising them a higher return if they were not to withdraw their pool stakes.

For the most part, mining pools allow Bitcoin rewards to be withdrawn from pool wallets every 24 hours, ensuring liquidity for miners.

But some mining pool companies incentivize miners to leave their mining rewards in pool wallets for longer, enticing them with attractive yields and other lending products.

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