“Energy companies report high earnings for 2022, Regulations are set to reignite confidence in cryptocurrencies, Balloon incident set to sour US-China relations further.”
The Stock Market
Global Market: S&P 500 & NASDAQ
The S&P 500 and NASDAQ have climbed back to a price of 4138.48 and 12006.96 on 3rd February. This is the 5th straight week the NASDAQ has continuously increased despite significant layoffs reported. Additionally, companies listed in the S&P 500 have reported an average 5.3% year-on-year decrease in earnings for Q4-2022. The bullish outlook from investors is likely due to expectations that interest rate rises will slow down.
The first quarter of the third year of a presidential term has historically reported the best stock market performance since the 1950s. However, with a recession set to arrive in the second half of 2023, investors should not expect such optimism to last. Those looking to beat the market would have noted the importance of avoiding bets in hyper-growth stocks, commonly found in the technology sectors. During the dot-com bubble, tech stocks making up the index slowly fell from 20% to 5%. In the present day, it would be wise to reduce exposure to these mega-cap stocks as they currently oversaturate the S&P 500 at 25%.
Global Market: FTSE100
The FTSE100 has set a new yearly high going into February, closing on a 1% up from Thursday at 7901.80 on Friday. The index performance should not fool investors as it comprises most international firms, which have significantly benefitted from the weakened value of the pound sterling, valued at 1 to 1.21 USD, 11% lower than in Q1 2022. The IMF released a statement predicting the UK to be the only G7 nation to be in a recession this year, further fuelling the “declinism” movement, as put by Chancellor Jeremy Hunt. While optimists can take solace in the fact that the UK overperformed its predicted growth rate of 3.6% in 2022 if the government fails to inspire faith in its policies, this prediction may become a self-fuelling prophecy.
APAC News: Indonesia
With the world’s attention firmly fixed on the return of China to the global market, some may have missed Indonesia’s assertion of dominance in its region. The largest Southeast Asian economy has steered its growth path back to the pre-Covid projections. As of February, its economy has grown 5.31% from the previous year, the highest in its past nine years.
Its main driver internally is their quick recovery post-COVID. Household consumption has traditionally built up a bulk of its GDP. Hence disappearing COVID cases and restrictions have significantly boosted their economy. Externally, rising oil and gas prices have been a strong tailwind for their commodity-driven economy.
While its impact on the global market may pale compared to other economies, Indonesia has been an incubator for consumer-facing, shallow tech start-ups. The performance will encourage venture capitalists; however, with presidential elections and decreasing growth rates set to persist for 2023, Joshua Pardede of Bank Permata, one of Indonesia’s most prominent domestic banks, expects foreign-direct investments in innovative products may be put on hold for now. Nevertheless, this will be a region to monitor in the coming years.
Green Finance News: Energy
Exorbitant energy prices driven by the Ukraine conflict have seen commodity giants report extravagant yearly earnings for 2022. Shell set a record high in its 115-year history, saying $40 billion in profits, while ExxonMobil clocks in a $55.7 billion profit.
These numbers should encourage supporters of renewables, and low-carbon solutions as these supermajor energy providers have pledged the most significant commitments to transition efforts. Higher profits should lead to increased investment in such products, yet most companies have reaffirmed their stance to maximise profits and maintain existing funding for such projects.
There are two camps on what is driving price volatility in energy markets. One stance, presented by Shell’s CEO, Wael Sawan, states that the energy transition needs to be “balanced”, meaning a focus on investing in existing gas solutions rather than an “all-in” approach to renewable or low-carbon solutions. They have set to maintain their investment between the $23-27 billion range to focus on delivering returns for their shareholders.
The alternate view is that an overreliance on traditional oil & gas is the source of volatility, as shown by its susceptibility to external shocks like the Ukraine Crisis. Activists of the alternate view suggest that diversifying energy sources should be the primary focus, and it must be done quickly to make renewables a feasible alternative.
Investor sentiments signal that energy security, rather than climate change, is at the forefront of business concerns. That said, climate change activists like Greenpeace have been vocal about their displeasure with the government’s inaction towards these energy companies’ “exploitive” profit-generation methods, staging protests outside Shell HQ soon after the earnings were reported. Ed Milliband, the shadow climate change secretary, echoes similar sentiments, criticising government inaction for redistributing wealth adequately away from these profiting companies. For context, Shell only paid $1.9 billion as tax in the UK for their earnings.
With BP and TotalEnergies set to report their earnings this week, the figures will undoubtedly place further pressure on the government to raise taxes, but whether the reaction is adequate or timely will yet to be seen.
The Crypto Market
Cryptocurrency Market: Bitcoin & Ethereum
Winter appears to end soon as Bitcoin rises 40% from a month ago to 19104.78 while Ethereum is up 32% at 1356.32. Crypto optimists like Michael Saylor, cofounder of the analytics platform MicroStrategy, have used this bright spot as their chance to restore confidence in the asset. Despite losing $1.3 billion on holding cryptocurrency in 2022, he has recently declared Bitcoin “a safe haven”. MicroStrategy adopts a unique corporate goal of converting all its cash into cryptocurrency, and as a result, stocks have risen by 117% while riding the upward trend of Bitcoin’s increasing valuation. This puts their stock at a better performance than the NASDAQ or S&P 500.
Saylor argues that its market volatility could mask the truth that Bitcoin has been one of the best-performing assets for the past two-and-a-half years. While such an unconventional strategy has paid off for now, risk-averse investors should avoid the asset given its volatility.
US senator Tim Scott has committed to developing a bipartisan regulatory framework for cryptocurrencies following increased exposure of consumers to digital assets. These efforts, however, need to be more fleshed out than those in the UK. The treasury has reaffirmed that commitments to regulation are set to bring about greater confidence in crypto-asset technologies. Specifically, frameworks around reporting, transparency and consumer protection will underpin the new proposals to update the Financial Services and Markets Acts 2000. These proposals must preserve the benefits of decentralised finance, ensuring that regulation does not drive business opportunities away from the state.
Gaming News: Animoca Brands
One company that crypto’s recovery will inspire is Animoca Brands. The Hong Kong-based company sparked a revolution in Web 3.0 gaming, which boomed in 2021. Web 3.0 gaming came at the right time, as microtransactions in gaming have been receiving a bad reputation for their exploitative pricing schemes, and crypto was still performing well. Aminoca’s blockchain gaming product addressed these issues as NFTs meant actual ownership of the in-game investors. Furthermore, trading between players could be done remotely from the distributors using cryptocurrencies. Recently, the tanking of token prices are muted the hype surrounding Animoca and could see the end of the Web3.0 gaming business model altogether. Product enthusiasts and investors should be watching this space as it represents the resilience of blockchain-driven business models in the existing climate.
Wallet News: Blockdaemon
Blockdaemon’s timing could not have been perfect for supporting resurging confidence in cryptocurrencies as it unveils its latest Advanced Multi-Party Computation (MPC) technology. This product has been long awaited since they acquired Sepior, a Danish-based wallet security start-up, in 2022.
This product is set to be the foundation to build the most secure crypto wallets to date. Its proprietary MPC security model requires multiple keys and approver policies, constituting a single signature that enables a transaction. This reduces the risks of a single point of failure risks in traditional models. The system is set to be cloud-native, meaning that key generation and transaction signings will occur faster than before and be suitable for scaling potential and bandwidth management.
First-mover advantage is firmly in the hands of Blockdaemon, as Binance has fallen behind in the wallet race so far. Blockdaemon’s extensive partner network includes another blockchain infrastructure company, Fireblocks. The acquisition of Sepior seems to put the two in contention. Yet, it could be perceived as a chance for more significant synergies as Fireblocks focuses on the security features at the digital asset management layer, which could be an integrated product with this new wallet offering further down the line.
In Other News…
Internation Relations News: US-China
On 28th January, a Chinese balloon equipped with surveillance technologies was first seen near the Aleutian Islands and later observed near Montana on 31st January. This sparked a national security threat as Montana is home to nuclear test sights, leading to President Joe Biden cancelling his trip to Beijing for the 5-6th of February. On February 5th, two US F-22S were dispatched to shoot down the balloon over the Atlantic. While China claims this was an overreaction to a simple weather balloon, it seems coincidental that a second balloon was spotted over Columbia.
As the story develops, the primary source of contention is what impact this has on US-China relations. As if right on cue, the 2023 Asia Power Index by the Lowy Institute was published on the same day as the airstrike. While the US remains firmly in the number spot, analysts have clarified that “the age of uncontested US primacy in Asia is over.” China now ranks first in economic relationships and diplomatic influence within the region, meaning that countries with trade relations with China have increasingly relied on them. This balloon incident could spark a further division of Asia into China or US spheres of influence. Existing divisions over frontier industries like semiconductors will be exacerbated, dividing global supply chains, which will spill over into global market performance and dampen regional development.
ChatGPT – If there is any story to show how fast technology developments are rolled out in this digital age, it would be ChatGPT. Since it went public in December, OpenAI has released supporting “classifier” technology to identify AI-generated responses from human-written ones. Additionally, competitors have also made a response, as Google announced its plans to launch its own AI chatbot, Bard.
Silicon Roundabout – Fintech developments in the UK have dubbed it the “Silicon Roundabout”, a European response to the well-known Silicon Valley. The innovative direction in this technology ecosystem is seeing a shift as Tech Nation closes down, paving the way for the investment bank, Barclays, to take over start-up development with their incubator, Barclays Eagle Labs.