The Stock Market
Global Market: S&P 500 & NASDAQ
The US markets have dropped off from their February highs as the S&P 500 and NASDAQ closed at a price of 4079.09 and 11787.27, respectively. As investors have settled into the year, the reality of a long battle against inflation has begun to settle in. The US currency has begun edging lower since its six-week high of 104.67 just before the weekend. Like their predecessor Paul Volcker, the Federal Open Market Committee has echoed views on persistent interest rate hikes to battle inflation. A common sentiment is that current trends mimic the inflationary environment of the 1970s that Volcker dealt with. To learn from history, the US fed should avoid aggressively trying to curb inflation which currently hovers around 5%, as this could spark inflation. Rather, persisting small hikes are seen as a way to curtail inflation and guide it slowly back down to 2%.
For an optimistic view of the US investing landscape, we turn to the opinion of Warren Buffet. His company, Berkshire Hathaway, carries a portfolio that has yet to perform as well as the traditional S&P 500 or NASDAQ. Chief Investment Officer of The Glenview Trust Company and shareholder of Berkshire Hathaway, Bill Stone, attributes this to his overweight into blue-chip technology stocks that have underperformed this year. Nevertheless, Buffet stays committed to his resolve in the US market’s resilience. Statistics have shown that consumption amongst retailers has already recovered to pre-COVID levels, which is a positive sign for the US economy. His letter to stakeholders is set to be announced on February 25 and his words will undoubtedly sway investors’ confidence in the market.
Global Market: FTSE100
The FTSE100 has hit a 2023 high after finally breaking the 8000 value threshold, closing out on 17 Feb at 8004.36. The past week has been relatively stable as various sectors in the index balanced each other. While retail stocks have generally sunk, China’s return to global markets has raised global demand substantially, igniting solid performances from industrial metal miners.
Minor victories, however, are insufficient to mask the jarring issue in the UK. Compared to other nations, the economic recovery has been muted. The OECD reported that, except for the UK, most major economies had grown more extensively than in 2019. Additionally, the IMF has predicted a shrink, albeit less than 1%. It is hard to pinpoint where the root cause of this impending recession stems from. Economists have predicted that Brexit has cost the UK about 4% of GDP growth, rising energy costs, and post-COVID recovery. Recently, the sudden resignation of Nicola Sturgeon amidst strikes and pushes for Scottish independence only worsens the narrative. Individually they could have tackled their sequential occurrence. However, it meant that the UK is one of the G7 countries with long-term under-investment, which may continue to spiral the nation downward.
Green Finance News: Green Investment
Throughout February, oil and gas giants have reported a jump in industry-wide profits to $4 trillion despite stagnation in low-carbon solutions investment. BP has been the latest company to announce its commitment to higher fossil fuel production. Sceptics have attributed these investments to BP looking to maximise their profitability since low-carbon solutions have lower returns. In reality, these critics overlooked CEO Bernard Looney’s plans to increase its spending in low-carbon businesses by over $8 billion or even BP’s strategic focus on building profitable green hydrogen projects.
Sustainability has been at the forefront of businesses in recent years but the energy crisis has unveiled a more pressing issue, security. Building for the future also means ensuring sufficiency for the present, and this transitional period means that large companies must be wise with whatever funding comes their way. Green financing requires more qualitative considerations than ever, and strong leadership is needed to drive it.
A great example of a poor leader would be David Malpass, who recently retired from the World Bank. The World Bank provides funding to developing nations to build their infrastructures. Hence, it was frustrating to see that under Malpass, there needed to be more resources d to help these nations build up clean energy projects or adapt to volatile weather conditions. While Malpass claims that under his leadership, the World Bank has invested $32 billion into the climate, this falls short of what is required for the energy transition. Economist Nicholas Stern points out Malpass’ misguided priorities as he identified that under the World Bank’s capitalisation structure, a mere 5% increase in consistent investment, $1.2 trillion could be raised over the next few years to aid the global transition. Investors should watch for energy-related projects in the coming months as the tides favour sustainable energy.
The Crypto Market
Cryptocurrency Market: Bitcoin & Ethereum
Positivity in the cryptocurrency markets is at its yearly high, with Bitcoin and Ethereum closing on February 17 at 23793.20 and 1666.65, respectively. One of the latest drivers is the innovation of Bitcoin Ordinals, officially launched on February 13. Previously, Bitcoin has only been beneficial for storing and transferring data. However, the Ordinals Protocol have allowed additional data like text, JPEG or even video files to be embedded into Bitcoin’s smallest denomination, sats. In some ways, this could be viewed as Bitcoin’s response to NFTs. The main difference is that the additional data is completely immutable as it is built into the blockchain, unlike NFTs which often carry metadata that can be modified. Mining activity will increase for non-monetary purposes and such fresh new innovations will only drive higher usage.
Cryptocurrency highs are set to decline this week as US interest rates are still rising. Nevertheless, digital innovation in the space is always encouraging as Web 3.0 projects will be set to return very soon.
Fundraising News: GSR Foundation
GSR, a cryptocurrency market maker, celebrates their 10th anniversary by pledging $10 million to philanthropic work under its latest GSR Foundation. These funds will be used to help support the development of emerging technologies, especially amongst marginalised communities. Philanthropic efforts are a sign of market confidence. GSR could use this to influence undervalued start-ups before the cryptocurrency market completely recovers.
Legal News: UKJT
The UK Jurisdiction Taskforce (UKJT) is a society that applies English law to develop technology and digital innovations. Recent news surrounding cryptocurrency scams and consumer protection has led to the creation of a legal statement on digital securities. Based on public consultation, this statement answers crucial questions on how English law supports the transfer of equity or debt on decentralised ledger technologies.
The statement is particularly effective in enforcing credibility into decentralised finance. It brings about great clarity on how legal systems are supportive, not against, cryptocurrency use despite distrust in recent months. Given the UK’s recognition in capital markets law, it must also stay ahead in setting the standard for digital securities. Should the UK achieve this, trends favouring decentralised finance could boost the economy further down the line.
A great example of the importance of solid legal credibility is in Asia. Over Valentine’s Day, Singapore-based DBS Group Holdings made plans to apply for a crypto license in Hong Kong. Singapore and Hong Kong are rivalling to be the leader in the Asian digital asset space. The former’s experience with Three Arrow Capital and conservative legislation has made it extra cautious to digital innovation despite being open to its use cases. The DBS move shows Hong Kong capitalising on this trend by shifting its policies to support such innovations much quicker than Singapore would like.
In Other News…
Technology News: China
This week’s focus will be on China and its technological developments. Since reopening its economy, China has shown the world its expertise in facilitating clean energy movements while stepping on the toes of the US with espionage suspicions.
A decade ago, the stereotype of China would have been that it is one of the biggest producers of carbon emissions. In 2023, China made leaps and bounds to shed off that tag. Its investment into the Electric Vehicle (EV) industry has been astonishing. Local brand BYD is poised to rival Tesla globally in the luxury EV market. Presently, BYD already has a presence in over 40 nations and its latest Yangwang models are set to raise its margins as supported by over 5.8 billion yuan in subsidies by the Chinese government. BYD’s push overseas is that their domestic market has been flooded by low-medium priced EVs. The best-selling EV in China is the Hongguang Mini, with over 500,000 lifetime sales. Yet, up until its recent price hike, the margin per car is around 89 RMB or $14 USD. Success in EV production can be attributed to China’s centralised coordination and initiatives like the green car credit program, where manufacturers are given credits worth 3000 RMB for producing EVs.
From the energy perspective, China has outshined the world as well. Renewables account for 31.3% of the country’s total power supply and are the world’s largest solar product maker and manufacturer. The Chinese government has tight control over the state, so coordinating and mobilising resources for initiatives have not been an issue. Instead, the resource constraint has forced China to rethink its land policies in competition with its agricultural focus. Of course, some might argue their tight control is a compelling reason for top talent and the newly rich to try and leave the region. A famous example was the temporary disappearance of Alibaba’s Jack Ma following his criticism of market regulations.
A more significant threat to China’s technology boom comes from external factors. Over February, the US shot down 4 aerial objects suspected to be deployed from Hainan in China. US and China have already started an ongoing feud over Taiwanese semiconductor manufacturers. The US dramatically constrains China’s supply chains, thus slowing their move for self-sufficiency. Increasingly strained ties with the US could lead to future difficulties for their exports. Despite their clear superiority in clean energy and EVs, Chinese companies have found it increasingly difficult to break into overseas markets because of trade barriers. Most recently, the Law of Commission of England and Wales have deemed regulations to ban remote driving from overseas. Tensions look to carve the continents into the US or Chinese alignments, which will only constrict innovation and national development.
