Five insights in five minutes
Where the growth is
We write oodles on China. To explain why, here’s a simple calculation based on the latest economic forecasts from the IMF, released this week. Beginning with a six per cent rebound in growth this year – the strongest in four decades of data – global output is expected to rise by almost USD30 trillion over the next half decade (to USD20 trillion, in case you’re asked). Backing out the IMF’s numbers by country, mainland China is by far the biggest contributor over the period – shouldering a whopping one fifth of total growth. America is next on 15 per cent, then India with eight per cent. Meanwhile the world’s third and fourth biggest economies, Japan and Germany respectively, barely account for seven per cent of the estimated rise in output between them. So don’t feel guilty spending ten times longer reading about Chinese liquidity conditions for March (still tightish) than the stronger-than-expected housing activity in Britain. That balance is about right.
Themes: all asset classes
Virtual collectibles have been making headlines for their surreal sale prices. A piece by digital artist, Beeple, sold for USD69 million in a Christie’s auction last month, resembling values for Van Gogh or Basquiat masterpieces. The windfalls extend beyond digital art, with sellers cashing in on everything from tweets and memes, to sports clips and digital cats – profits made on USD300,000 cryptokitties may be as warming as real kitten cuddles. Blockchain technology authenticates these digital assets, which are traded in the form of non-fungible tokens (NFTs) based on standards that allow for open marketplaces. The market has quickly surpassed USD1 billion and garnered investor attention. Per the chart below, a basket of NFT-related technology and media stocks has tripled since the Christie’s auction. Just last week, the ‘Godzilla vs Kong’ Hollywood release was accompanied by an exclusive NFT collection. While not your parents’ collectibles, NFT adoption is set to continue as a means to monetise digital media.
Themes: digital economy, alternative assets, global equities
Asia credit opportunity
In a game of rugby, it is illegal to pass the ball forwards. But even a backwards pass between running teammates will appear forwards to a stationary spectator (especially if supporting the other side). Your starting point matters in finance too. Investors in Asia ex-Japan credit who made the right call last August that spreads would continue to tighten, even after the rapid 110 basis point move post-pandemic sell-off, have been caught off-side by the rise in global rates. As you can see in the chart below, investment grade spreads have fallen another 40 basis points, however the dollar-based index return has been negative. With ten-year treasury yields struggling to break through 1.7 per cent, however, Asian credit may be close to lacing its boots again. Not only should any decline in core rates help, spreads will cheer the fact that aggregate company free cashflows relative to net debt are up by a quarter since the index peaked last year.
Themes: Asia ex-Japan credit
Buoyant European e-commerce
Last year’s European equity losses from the pandemic are now behind us as the Stoxx 600 index finally surpassed its pre-covid high on Tuesday. However, whilst the stock market was reeling and output declined globally by an estimated four per cent overall, e-commerce in Europe was in fact accelerating. Western Europe retail e-commerce sales grew by a quarter in 2020 according to eMarketer’s annual report, with 30 per cent for central and eastern Europe. Though this shift in consumer behaviour to favour online rather than brick-and-mortar was of course driven by a lack of choice, a survey conducted by E-commerce Europe supports the notion that this will be a permanent feature, with all 19 contributing countries reporting a confident future outlook for e-commerce. In fact, analysts expect revenues for large names, including Shop Apotheke and ASOS, to more than double by 2026, with 22 per cent growth this year alone.
Themes: Europe equities
Singapore the financial center
One mountain isn’t big enough to house two tigers. Yet thriving international financial centers Hong Kong and Singapore have defied this modern Chinese proverb. The former has captured more attention in recent years because of the mega IPO deals its exchange has secured with Chinese commercial giants, having raised USD50 billion last year, second only to Nasdaq’s USD60 billion. But Singapore has found its own lair in wealth management, as Asia’s Switzerland. According to BCG’s Global Wealth Report, Singapore was one of only three markets in the world managing more than one trillion dollars of cross-border wealth at the end of 2019, as the chart below indicates. Sure, Hong Kong is ahead on this metric as well, but mainly owing to ‘cross-border’ wealth coming from mainland China. And Singapore’s surrounding geography is among the fastest growing (and thus wealth accumulating) in the world. Listen to this Asian tiger roar!
Themes: Singapore, wealth management
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