“China’s return sparks mixed reviews at Davos 2023, GTX comes into the spotlight, Tech layoff continues despite a slight improvement in market performance.”
The Stock Market
Global Market: S&P 500 & NASDAQ
The S&P 500 closed out on 20 January at 3972.61, 3% higher than the end of 2022. On the same date, the NASDAQ closed at a yearly high of 11140.44. Such improvements in the stock market suggest resilience and indicate slightly improved performances by tech stocks. For example, Netflix saw a 6.1% increase in valuation after a 7.7 million rise in subscribers in the last quarter of 2022. Still, with most analysts predicting a recession and mass layoffs still occurring, there is strong reason to believe that such equity valuations have not accounted for this pessimism just yet.
While signs of recovery and stabilisation are observed in the US, over in the UK, pessimism remains as PM Rishi Sunak’s inactions have not brought much confidence to the market. The UK government still has to deal with the aftermath of Brexit, where it is still uncertain which regulations the UK will continue to keep post-Brexit. This poses a significant threat to managing its monetary policy as inflation expectations will continue to stagnate, making it inefficient to lower the actual inflation rate. Hence, the UK government might not have any other option than to slow down the economy.
APAC News: China’s Reopening
The reopening of China has been met with general negativity as analysts expect a huge demand shock to reignite inflationary pressure. At the World Economic Forum Annual Meeting 2023 in Davos (Davos 2023), President Christine Lagarde of the European Central Bank expressed concern that China’s presence will create more competition for energy despite the Russian Crisis causing a decrease in its supply. Additionally, Bloomberg analysts have estimated that Chinese households have a total of $ 720 billion in excess savings that can be turned into fuel for the consumer markets. Increased consumption at this time will spill over into the recovering markets like the US and UK, halting their deflationary efforts thus far.
Conversely, the reconnection of supply chains through China could dampen the inflationary spikes in Eastern European nations, which will carry into the EU. Investors across asset classes have experienced temporary optimism, especially in emerging markets. The debt and equity market has seen a significant capital inflow of around $12.7 billion, and there has also been a $14.5 billion influx into Chinese bond funds. Nevertheless, it would be wise to remain cautious given general global uncertainties.
Green Finance News: Davos 2023
Davos 2023 also saw severe discussions surrounding green financing and climate protection. Amidst all the different voices and focal points at the conference, the speakers shared two core themes: urgency and practicality. There was a sombre recognition that many targets have yet to be hit by corporations. Anton Guterres, Secretary-General of the UN, openly criticised our collective failure to “limit global temperature rise to 1.5C” and drove a stronger call to action that representatives of various MNCs echoed.
Practical actions that have been called into action generally surround funding. Per Heggenes, chief executive of the Ikea foundation mentioned that a tremendous philanthropic effort is needed as the current figure of 2% for a philanthropic step towards climate change needs to be revised. Faith Birol of the International Energy Agency calls upon a greater need for investment in carbon-free energy sources and their supporting technologies, a view seconded by former Vice President of the US, Al Gore, who believes that the subsequent 50% reduction in emissions can only be realised by unlocking the potential of the technologies that are in development.
With a clear call for greater international collaboration, the rise of Climatech and green investments will surely accelerate after this meeting. As more countries re-emerge from Covid, this would be a great time to leverage multinational trade agreements to develop technologies that can preserve our future.
The Crypto Market
Cryptocurrency Market: Bitcoin & Ethereum
The year opened strongly for cryptocurrencies as Bitcoin saw its value rise 36% to 22,884.90 and Ethereum up to 1,636.38 by 20 January since the start of 2023. This coincides with the cooling inflation seen in the US, and the following question on investors’ minds would be if this will be consistent.
These values have not priced in confidence from imminent crypto regulations like the EU’s Markets in Crypto Assets regulation that has been pushed back to an April rollout. Even at Davos 2023, there were more vigorous calls to action governor of the Central Bank of France, Francois Villeroy de Galhau, to suggest cases of outright prohibition are needed on top of regulations. The most pressing challenge would be how such traditional finance figures will warp investors’ perceptions.
In the same conference, JPMorgan Chase’s CEO, Jamie Dimon, openly criticised Bitcoin as a “hyped-up fraud” that could negatively impact public sentiments. However, we should remember that JPMorgan has vested interests in surrounding Ethereum as they are a part of the Enterprise Ethereum Alliance. Furthermore, Dimon clarifies that there should still be belief in using the underlying technologies to facilitate quick and secure internal transactions rather than for commercial investors. JPMorgan uses its own JPM coin to make intraday transactions.
To a lesser extent, there are continued aftershocks of the many collapses last year, most recently being the brokerage Genesis, which filed bankruptcy on 19 January. Investors should see these shocks as natural domino effects, and in this case, there appears to be sufficient liquid with $ 150 million to fund the restructuring process. Nevertheless, these continued collapses will only slow down the recovery journey.
Product News: Blockchain & AI
While cryptocurrencies are putting off risk-averse investors, the world turns its eyes towards a series of valid use cases and complimentary developments that could legitimise the future of blockchain product offerings.
Blockchain developers can rejoice at the time savings by integrating Artificial Intelligence (AI) and ledger technologies. From smart contract coding to documentation to even use case simulation, entire sections of the development process can be outsourced to AI generation. Additionally, analytics and community management can be run post-production, creating a robust experience for Web3.0 natives. As tech companies continue to preserve their focus on Cloud technologies, private investors in blockchain firms can remain optimistic as these trends enhance the business viability of decentralised products.
Platform News: GTX
Disgraced founders of Three Arrow Capital, Su Zhu and Kyle Davies have recently announced their later venture, GTX. Building on the idea that all publicity is good publicity, their latest idea builds its marketing strategy upon the controversial collapse of FTX, a company they have had previous negative encounters.
Ironically, GTX is a platform for bankruptcy claims trading. While the idea seems comically given the context, claims trading provides a few benefits for creditors, including reducing recovery risks and time spent waiting for claims to be settled. Creditors can sell off these claims on the free market at a lower rate but with an almost immediate payout at a lower risk of being handed illiquid assets. With all the collapses throughout 2022, they have estimated this market to be valued at $20 million.
If crypto investors can take away anything from the past year, great ideas do not always lead to significant investments. Zhu and Kyle are still under criminal investigations from their collapses, and past partners like Wintermute have gone public about not lending a hand to this venture.
In Other News…
Technology News: Google Layoffs
Although there is a small semblance of optimism in the markets, Google’s most recent layoff purge reflects the end of the tech sector’s long-overdue honeymoon period. The tech boom during Covid has made software engineering one of the best-paying jobs in some of the friendliest work cultures. However, now that the general economy has turned for the worst, this bubble has burst as mass layoffs are the only solution to preserve their bottom lines. Google recently laid off 12,000 employees, some of whom reported having annual salaries of over $1 million, proving that seniority does not provide any protection in this purge. On the other sides of FAANG, layoffs are just as brutal as Microsoft and Amazon have seen further cuts of 10,000 and 18,000 employees, respectively.
The Cloud Wars have heated up recently as various players try to carve out niches in the Cloud Storage market, which AWS has traditionally dominated. Looking ahead, it was leaked that Google tried to preserve its human resources in specific key areas, including Google Cloud, AI, YouTube and Google Pixels. The integration of AI has become a possible avenue for differentiation which would explain Google’s focus on Brain AI.
ChatGPT – How we make a transaction is not just about currency but method. Payments have risen to the forefront of technology innovation in tandem with the increasing popularity of cryptocurrencies. Buy Now Pay Later schemes have become an increasingly popular way for payment systems and card providers to try to acquire a customer by enabling their consumerist behaviour. Breakup transactions into small chunks at low to no interest rates make spending appear more effortless on the wallet and, for some, better in financial planning.
Theranos – Elizabeth Holmes, founder of the fraudulent MedTech start-up, Theranos, has made the news for attempts to flee the US. As one of the first fraudulent celebrity CEOs, she draws many comparisons to Charlie Javice, whom JPMorgan most recently sued for faking customer data to dupe them into an acquisition or even FTX founder Sam Bankman-Fried.