Daily Analysis 8 September 2022 (10-Minute Read)

A wonderful Thursday to you as an Asian equity gauge climbs from the lowest level since 2020.

­

In brief (TL:DR)

­

  • U.S. stocks were higher on Wednesday with the Dow Jones Industrial Average (+1.40%), the S&P 500 (+1.83%) and the Nasdaq Composite (+2.14%) all up.

  • Asian stocks rebounded Thursday from the lowest level since 2020 after Australia’s central bank chief signaled a potential end to jumbo interest-rate hikes.

  • Benchmark U.S. 10-year Treasury yields fell three basis points to 3.23% (yields fall when bond prices rise).

  • The dollar was firm as the yen, euro and pound weakened.

  • Oil pared a sharp slide this week with October 2022 contracts for WTI Crude Oil (Nymex) (+0.32%) at US$82.20, sparked by demand risks from monetary tightening and China’s Covid travails.

  • Gold edged lower with December 2022 contracts for Gold (Comex) (-0.05%) at US$1,727.00.

  • Bitcoin (+2.00%) recovered to US$19,172.

­

In today's issue...

­

  1. Chinese Listings Heading Across Atlantic to Europe

  2. Goldman Sachs Raises Fed Hike Forecasts for September and November

  3. DeFi Protocols Look to Replenish Treasuries


Market Overview

­

Central banks are walking a tightrope, raising interest rates sharply to tackle inflation while remaining leery of sparking a damaging economic contraction in the process.

The uncertainty is whipsawing markets and has saddled equities and bonds with steep losses this year.

Asian markets recovered on Thursday with Tokyo's Nikkei 225 (+2.31%), Seoul's Kospi Index (+0.33%) and Sydney’s ASX 200 (+1.77%) up, while Hong Kong's Hang Seng Index (-1.00%) was down.

­


1. Chinese Listings Heading Across Atlantic to Europe

  • This year, Chinese companies have raised more than five times as much money through share sales in Europe than the U.S., with exchanges in London and Zurich benefit from fraying geopolitical ties between the superpowers.

  • However, there was a caution that the European share sales were unlikely to rival the flow of dealmaking by Chinese groups in New York.

Since the New World was discovered, emigration has almost always been one-way from Europe to the Americas since.

But despite having the deepest and most liquid capital markets in the world, geopolitical strife between Washington and Beijing has seen a slew of Chinese listings leave the U.S. and head out to other exchanges, including European ones.

Chinese listings on Wall Street were shuttered in July 2021 after ride-hailing app Didi Chuxing was accused of cyber security breaches by Beijing regulators just days after its US$4.4 billion initial public offering.

The Didi Chuxing incident further soured a long-running dispute over U.S. regulators’ access to Chinese audit files, which could lead to Washington banning trading in all Chinese companies in 2024.

A landmark audit inspection agreement between Beijing and Washington will be tested this month as the fate of about 200 Chinese listings on Wall Street hang in the balance.

Hongkong, China’s largest offshore market, had US$6.6 billion worth of IPO fundraising by Chinese companies in total this year, down 80% compared to a year ago as the regulatory escalation has also damped Chinese corporate fundraising in Hong Kong.

Against this backdrop, Chinese companies have been rushing to find alternative markets, including European stock exchanges such as London, Switzerland and Germany and for the first time, Chinese corporate dealmaking in Europe has exceeded that in New York.

This year, Chinese companies have raised more than five times as much money through share sales in Europe than the U.S., with exchanges in London and Zurich benefit from fraying geopolitical ties between the superpowers.

According to data from Dealogic, five Chinese companies have raised over US$2.1 billion on stock exchanges in Zurich and London this year alone, versus the less than US$400 million in total raised from listings in New York.

Zurich, in particular, has benefited from a new “stock connect” scheme with mainland Chinese exchanges and its less demanding requirements over the transparency of company audits.

However, there was a caution that the European share sales were unlikely to rival the flow of dealmaking by Chinese groups in New York, which raised more than US$100 billion from share sales on Wall Street over the past two decades.

The European economy is also facing strong headwinds from soaring natural gas prices, staggering inflation, and slowing economic growth.



2. Goldman Sachs Raises Fed Hike Forecasts for September and November

  • Economists from Goldman Sachs have lifted their forecast for the pace of interest rate hikes by the Fed, even as there are growing signs inflation is slowing.

  • Forecasts from Goldman Sachs came as U.S. Federal Reserve Vice Chairman Lael Brainard said the central bank will have to raise interest rates to restrictive levels, while cautioning risks would become more two-sided in the future.

Even if this month’s U.S. inflation print should reveal that the pace of price increases is slowing, Goldman Sachs, believes that the U.S. Federal Reserve will remain on track with its supersized rate hikes right through to the end of this year.

According to Goldman Sachs (+1.25%), the need to counter red-hot inflation, will see central bankers having to catch up to inflation despite signs of gains, after being slow to respond as prices surged in late 2021.

At the meeting in June and July, the Fed hiked by 75 basis points and have kept ambiguous on the size of the next hike when they gather this month, whether another hike of a similar size or a smaller half-point move, will be rolled out.

Economists from Goldman Sachs predicted the tighter policy will keep growth below potential in the second half of this year and have lifted their forecast for the pace of interest rate hikes by the Fed, even as there are growing signs inflation is slowing.

Goldman Sachs now expects the Fed to hike by 75 basis points this month and 50 basis points in November, up from their previous forecasts of 50 basis points and 25 basis points respectively, but are also tipping a 25 basis points move in December.

Forecasts from Goldman Sachs came as U.S. Federal Reserve Vice Chairman Lael Brainard said the central bank will have to raise interest rates to restrictive levels, while cautioning risks would become more two-sided in the future.

U.S. jobs data suggests that more Americans are heading back into the labor force, helping to put a lid on wages and avoiding the debilitating wage-price spirals that bouts of inflation can easily lend themselves to.



3. DeFi Protocols Look to Replenish Treasuries

  • The collapse of a string of high-profile crypto lenders, exchanges and hedge funds has seen the value of treasuries managed by top DeFi protocols start to dwindle.

  • Aave, one of the biggest DeFi lending projects, is seeking US$16.28 million from the so-called decentralized autonomous organization (DAO) that governs it to pay developers.

With the world scrambling for dollars, it would be strange if even the most well-funded decentralized finance or DeFi protocols weren’t.

With the crypto rout wiping out over US$2 trillion worth of market cap from the nascent digital assets, some of the largest DeFi protocols are still reeling from the crash of a string of lenders and brokers.

Attracting billions of dollars in investments, DeFi was intended to birth a new financial system that disintermediated brokerages, banks and other middlemen.

But the collapse of a string of high-profile crypto lenders, exchanges and hedge funds has seen the value of treasuries managed by top DeFi protocols start to dwindle, according to blockchain analytics provider Nansen.ai

Aave, one of the biggest DeFi lending projects, is seeking US$16.28 million from the so-called decentralized autonomous organization (DAO) that governs it to pay developers, the first time the development team ever asked for money from the Aave DAO.

In the request, Aave said costs associated with development have risen substantially and “building an innovative, secure and battle-tested version of a protocol such as Aave V3 requires experienced builders across a variety of skill sets that are fairly compensated for their work.”

Lido DAO, which manages Lido Finance, one of the biggest projects by total value of cryptocurrencies locked on the platform, is also seeking to weather DeFi’s ongoing liquidity crunch with the value of its liquid assets falling to around US$344 million from about US$800 million earlier this year.

Recently, Lido approved a proposal to sell 10 million of its native token to the venture capital firm Dragonfly Capital to raise cash.

Uniswap, one of the most popular decentralized exchanges, also saw the value of its DAO treasury drop to about US$1.7 billion, from a high of US$2.5 billion just five months ago.

Some industry observers said it isn’t surprising that some of the biggest DeFi projects are struggling with money.

While a lot of DeFi founders are more technical and extremely book smart, when it comes to finance, they are not experienced asset managers and the recent crypto winter would have caught many of guard.

The information contained in this email communication and any attachments is for information purposes only, and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws. It does not constitute a recommendation or take into account the particular allocation objectives, financial conditions, or needs of specific individuals. The price and value of the digital assets and any digital asset allocations referred to in this email communication and the value of such digital asset may fluctuate, and allocators may realize losses on these digital assets, whether digital or financial including a loss of principal digital asset allocations. 

 

Past performance is not indicative nor does it guarantee future performance. We do not provide any investment, tax, accounting, or legal advice to our clients, and you are advised to consult with your tax, accounting, or legal advisers regarding any potential allocation of digital assets. The information and any opinions contained in this email communication have been obtained from sources that we consider reliable, but we do not represent such information and opinions as accurate or complete, and thus such information should not be relied upon as such. 

 

No registration statement has been filed with the United States Securities and Exchange Commission, any U.S. State Securities Authority or the Monetary Authority of Singapore. This email and/or its attachments may contain certain "forward‐looking statements", which reflect current views with respect to, among other things, future events and the performance of a digital asset allocation with the Novum Alpha Pte. Ltd. ("the Company"). Readers can identify these forward‐ looking statements by the use of forward‐looking words such as "outlook", "believes", "expects", "potential", "aim", "continues", "may", "will", "are becoming", "should", "could", "seeks", "approximately", "predicts", "intends", "plans", "estimates", "assumed", "anticipates", "positioned", "targeted" or the negative version of those words or other comparable words. 

 

In particular, this includes forward‐looking statements regarding, growth of the blockchain industry, digital assets and companies, the venture capital and crowdfunding market, as well as the potential returns of any digital asset allocation with the Company. Any forward‐looking statements contained in this email and/or its attachments are based, in part, upon historical performance and on current plans, estimates and expectations. The inclusion of forward‐looking information, should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated will be achieved. Such forward‐looking statements are subject to various risks, uncertainties and assumptions relating to the operations, results, condition, business prospects, growth strategy and liquidity of the Company, including those risks described in a separate set of documents. If one or more of these or other risks or uncertainties materialize, or if the underlying assumptions of the Company prove to be incorrect, actual results may vary materially from those indicated in this email and/or its attachments. 

 

Accordingly, you should not place undue reliance on any forward‐looking statements. All performance and risk targets contained herein are subject to change without notice.  There can be no assurance that the Company will achieve any targets or that there will be any return on a digital asset allocation with the Company.  Historical returns are not predictive of future results. The Company is intended to be a specialist digital asset allocation and trading vehicle in the early stage technology sector and digital assets. Allocation of digital assets in early stage technology carry significantly greater risks and may be considered high risk and volatile. There is a risk of total loss of all digital assets allocated with the Company – please refer to a separate set of documents for a details of risks. 

 

By accepting this communication you represent, warrant and undertake that: (i) you have read and agree to comply with the contents of this notice, and (ii) you will treat and safeguard this communication as strictly private and confidential and agree not to reproduce, redistribute or pass on this communication, directly or indirectly, to any other person or publish this communication, in whole or in part, for any purpose.