Weekend Edition 5-6 March 2022 (10-Minute Read)
Hello there,
A wonderful weekend to you as risk assets wind their way lower with Russia upping the ferocity of its invasion of Ukraine.
In brief (TL:DR)
U.S. stocks sank on Friday with the Dow Jones Industrial Average (-0.53%), S&P 500 (-0.79%) and the Nasdaq Composite (-1.66%) all down as fear continued to grip investors with conditions in Ukraine worsening.
Asian stocks sank Friday as reports that a major nuclear power plant caught fire in Ukraine after shelling by Russian troops continues to shake investor sentiment.
Benchmark U.S. 10-year Treasury yields continued to slide on demand for safe haven assets in increasing uncertain circumstances with yields tumbling to 1.732% (yields fall when bond prices rise).
The dollar held gains.
Oil continued its ascent with April 2022 contracts for WTI Crude Oil (Nymex) (+7.44%) at US$115.68 as Europe and the U.S. demonstrate strengthening resolve to cut Russian oil from global markets.
Gold continued to gain with April 2022 contracts for Gold (Comex) (+1.59%) at US$1,966.60 on demand for haven assets.
Bitcoin (-3.50%) fell to US$39,174 over the weekend as sinking risk appetite continued to put downwards pressure on the benchmark cryptocurrency.
In today's issue...
How do you invest in the middle of an invasion?
Blood on the Streets as Retail and Professional Investors Swap Seats
Even Bitcoin Isn't Immune to a Nuclear Threat
Market Overview
Fears that the White House will ban Russian crude imports to the U.S. and send energy prices spiraling have coalesced with concerns that the violence in Ukraine is becoming indiscriminate, creating a toxic cocktail that has sent risk appetite flagging.
Russian shells landed near Europe's biggest nuclear power plant in Ukraine on Friday, setting an administrative building on fire, but the situation has since come under control with no signs of radiation spreading and all safety structures continuing to be operational.
Nonetheless, concerns that violence is escalating in a part of the world which has one of the highest concentrations of vulnerable nuclear infrastructure has seen investors lose appetite for risk assets, sending stocks lower.
Asian markets closed lower on Friday with Tokyo's Nikkei 225 (-2.23%), Hong Kong's Hang Seng Index (-2.50%), Seoul's Kospi Index (-1.22%) and Sydney’s ASX 200 (-0.57%) all down.
1. How do you invest in the middle of an invasion?
Investors may be better off to ignore the intraday volatility and focus on the long-term trends to build robust portfolios
Thematic sectors like defense, clean energy and mining and oil and services are likely to continue doing well regardless of how the Russian invasion of Ukraine resolves itself
Investors may understandably want to sit out this round as Russia’s pounding of Ukrainian cities sees markets more volatile and investment decisions trickier as the war rages on.
But conflict can also be a major opportunity for the plucky investor, provided of course that they fall on the right side of history.
While most Western observers saw Russia’s annexation of Crimea as an event on a par with Russia, the invasion of Ukraine is different and makes real years of doing deals with the devil – relying on resource-rich autocrats who regard the West as the enemy, paying for their armies in exchange for their mineral wealth.
Making astute investment decisions as Russian shells fly into Ukrainian apartment buildings isn’t for the faint-of-heart and the question that investors must ask is how much fear dominates.
An investor who bought Russian ruble-denominated stocks after the market’s astonishing 54% drop in the first two hours of the invasion would have suffered whiplash but been richly rewarded when those same stocks rebounded 42% in the next half hour.
But had these investors not sold, they would worry if they could ever see their money again as the Russian stock market remains closed and Western economic sanctions have essentially isolated Russia from the global financial system.
Yet even for the less adventurous, the tech-heavy Nasdaq 100 fell hard when Russian tanks rolled into Ukraine, only to have its best day since March last year by the day’s close.
But as tempting as the intraday swings are for the profligate gambler, investors who are looking to long term trends will probably want to pay more attention to the prospect of higher inflation and slower growth and approach their portfolios thematically.
Years of underinvestment in mining and extraction, thanks in no small part to stricter environmental regulations and a refocus on managing balance sheets to generate returns, mining companies and other extraction companies should do well.
Even before the Russian invasion of Ukraine, some of the world’s biggest extraction companies had shunned the ruinous and heavily levered blockbuster mining projects to focus on profitability and cleaning up their balance sheets – they’re in the best position for a rally as the Russian invasion has only served to exacerbate underlying trends.
Pax Americana had also led to a complacency that saw military spending as a share of the global economy reach its lowest level in 2018, according to the Stockholm International Peace Research Institute.
Military spending is almost certain to go up, and with many of the best U.S. defense stocks trading at an average of just 15 times predicted earnings, are a lot cheaper than the average for S&P 500 component companies of 22.
Finally, less globalization is almost a given when the dust eventually settles and countries will be looking to re-anchor production locally, a trend under way since 2008 and which will awaken the urgency to derive new, clean energy sources, which will be a feather in the cap for clean energy stocks.
That earlier reluctance to shift to low-carbon or renewable sources as well as the urgent need to replace Russian supply could see drilling for gas and oil in friendlier regions restart in earnest and will be a boon to oil services supply and prospecting companies which had been conservative in their exploration for years.
For investors without the stomach for volatility in the midst of an invasion, there are plenty of opportunities which are far less stomach-churning, and could just leave bellies filled.
2. Blood on the Streets as Retail and Professional Investors Swap Seats
Retail investors have been buying the dip as professional investors sit out this round
Longer term prospects for U.S. equities looks good nevertheless, against a backdrop of strong economic growth and robust corporate earnings
The benchmark Dow Jones Industrial Average has now fallen for four straight weeks, and the VIX, the “fear index” has reached 32, near the highest it’s been in a year.
With trouble everywhere, getting a grip as to who’s doing what in the stock market is hard, but one overarching trend that took shape over the past week is that professional traders, while keeping a hand in for picking up gems, are taking a broader step back as retail investors kept the money flowing.
According to a report by Goldman Sachs Group’s (-1.06%) prime brokerage, over the past three days of last week, as Russian shells rained down on Ukrainian cities, hedge fund clients unwound risk at the fastest rate in three months in cumulative dollar terms while retail traders “bought the dip” with US$4.1 billion flowing into S&P 500-lined ETFs.
While retail flows have been increasingly significant in U.S. markets ever since the onset of the pandemic, being held to blame for the meme stock frenzy in early 2021, mom-and-pop investors have also provided some cushion for markets that would otherwise have corrected far more sharply.
Views on the market typically diverge even under regularly quiet market conditions, but a slew of contradictory factors are making the “fog of war” difficult to see through with investors having to contend with the continued Russian invasion of Ukraine against the prospect of U.S. Federal Reserve monetary policy tightening.
The conflicting factors are even confusing the world’s smartest computers with UBS Group’s machine learning model predicting that depending on how the Russian invasion of Ukraine resolves itself, the S&P 500 could end anywhere between 3,800 to 4,800 – a whopping 26% range.
At this rate, investors could be better off training a monkey to throw darts at a financial newspaper to determine which stocks to buy or sell.
Making matters worse, central banks are having to deal with high inflation, especially energy prices, slowing growth – raising interest rates too aggressively at this critical juncture could easily throw their economies into recession, and trigger stagflation (slow or negative growth and high inflation), something that no policymaker wants to have on their hands.
Investors wondering what to do next should note that even though stocks may be able to weather geopolitical crises, even war, they aren’t immune to recessions.
For now, the bull case for American equities remains intact – solid economic growth continues to be expected throughout this year and next, even as higher energy costs compress margins, and earnings for corporate America look to be robust.
And while the raging war in Ukraine has dampened appetite for European equities, it’s actually helped to drive demand for U.S. stocks, solidifying the America First trade.
With the volatility sending the average stock in the S&P 500 below its 10-year average price-earnings ratio, falling U.S. Treasury yields, on demand for safe havens, could point to favorable valuations for U.S. equities.
Moreover, history shows that the market impact from military events, while significant in the short run, is typically fleeting.
What’s most crucial is that central bankers don’t make any significant policy missteps that could push the U.S. economy into a recession and investors can keep calm and carry on.
3. Even Bitcoin Isn't Immune to a Nuclear Threat
Russian shelling of Europe's largest nuclear power plant in Ukraine sent Bitcoin tumbling below US$40,000
Volumes of Bitcoin traded reflect only a fraction of total volume available, meaning that the long term fundamental trends for the cryptocurrency may be strong despite the volatility as short-term traders see the Bitcoin as a risk asset
While Bitcoin has lived up to its potential hedge against geopolitical turmoil, serving as a possible alternative currency for millions of Russians now thrown off the global financial system, even it is not immune to the prospect of a nuclear disaster.
As Russian shells hit and set fire to buildings at the
News that both Russians and Ukrainians were buying cryptocurrencies, especially Bitcoin, at large volumes in the face of the economic situation caused by the war, saw Bitcoin soar to as high as US$44,000 at the onset of this week, before sinking alongside other risk assets by the end of the week.
While the fire at
The start of last week saw cryptocurrencies outperform stocks by large gains, with the imposition of sanctions driving speculation that Russians and Ukrainians would both turn to digital assets as a means to preserve value.
Nonetheless, Bitcoin’s correlation with other risk assets has ebbed somewhat, with the 50-day correlation between the cryptocurrency and the S&P 500 now at 0.5, with 1 representing two assets moving in perfect lockstep, while zero denotes completely unrelated behavior.
While Bitcoin may yet prove its mettle, the volumes being traded right now do not represent the full stock of the cryptocurrency being held, which is why even a little trading can have an outsized influence on price.
Those traders, as opposed to investors, in Bitcoin at the moment would necessarily see it as a risk asset and trade accordingly, as opposed to the long-term holders of the asset class which see it as a store of value and as a hedge against government intervention.
本电子邮件通讯和任何附件中包含的信息仅供参考,不应被视为在任何司法管辖区出售或招揽购买任何证券的要约或要约,如果此类要约或招揽将违反任何当地法律。它不构成建议,也不考虑特定个人的特定分配目标、财务状况或需求。本电子邮件通讯中提及的数字资产和任何数字资产分配的价格和价值以及此类数字资产的价值可能会波动,分配者可能会在这些数字资产上实现损失,无论是数字资产还是金融损失,包括本金数字资产的损失分配.
过去的表现并不具有指示性,也不保证未来的表现。我们不向我们的客户提供任何投资、税务、会计或法律建议,建议您就数字资产的任何潜在分配咨询您的税务、会计或法律顾问。本电子邮件通讯中包含的信息和任何意见均来自我们认为可靠的来源,但我们不代表此类信息和意见准确或完整,因此不应依赖此类信息。_cc781905-5cde- 3194-bb3b-136bad5cf58d_
没有向美国证券交易委员会、任何美国国家证券管理局或新加坡金融管理局提交注册声明。本电子邮件和/或其附件可能包含某些“前瞻性陈述”,这些陈述反映了当前对未来事件和 Novum Alpha Pte 的数字资产配置表现的看法。有限公司(“本公司”)。读者可以通过使用“展望”、“相信”、“预期”、“潜在”、“目标”、“继续”、“可能”、“将”等前瞻性词语来识别这些前瞻性陈述, “正在成为”、“应该”、“可能”、“寻求”、“大约”、“预测”、“打算”、“计划”、“估计”、“假设”、“预期”、“定位”、“目标”或这些词或其他类似词的否定版本。
特别是,这包括关于区块链行业、数字资产和公司、风险投资和众筹市场的增长以及与公司进行任何数字资产配置的潜在回报的前瞻性陈述。本电子邮件和/或其附件中包含的任何前瞻性陈述部分基于历史业绩和当前计划、估计和预期。包含前瞻性信息不应被视为公司或任何其他人对未来计划、估计或预期将实现的陈述。此类前瞻性陈述受到与公司的运营、结果、状况、业务前景、增长战略和流动性有关的各种风险、不确定性和假设的影响,包括在单独的一组文件中描述的风险。如果这些或其他风险或不确定性中的一项或多项成为现实,或者如果公司的基本假设被证明不正确,则实际结果可能与本电子邮件和/或其附件中所示的结果大不相同。_cc781905-5cde-3194-bb3b -136bad5cf58d_
因此,您不应过分依赖任何前瞻性陈述。此处包含的所有绩效和风险目标如有更改,恕不另行通知。 无法保证公司将实现任何目标或与公司进行数字资产配置会有任何回报. 历史回报不能预测未来结果。该公司旨在成为早期技术领域和数字资产的专业数字资产配置和交易工具。早期技术中的数字资产分配具有更大的风险,可能被认为是高风险和波动性的。存在与公司分配的所有数字资产全部损失的风险-有关风险的详细信息,请参阅单独的一组文件。
接受本通讯即表示您声明、保证并承诺:(i) 您已阅读并同意遵守本通知的内容,并且 (ii) 您将严格保密并保护本通讯,并同意不复制、直接或间接地重新分发或传递此通讯给任何其他人,或出于任何目的全部或部分发布此通讯。