Notable market news this past week (07-Jan-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🚢 Red Sea crisis intensifies, boosting shipping costs and delay
Escalating Red Sea Tensions: Since Nov-23, there have been >20 attacks on commercial vessels in the Red Sea. In response, a US-led multinational naval force has been set up to intercept any future attacks. In Dec-23, US warships shot down 2 missiles and sunk 3 out of 4 Houthi boats that were targeting a Singapore-flagged container ship. Following the clash, Iran dispatched a warship into the Red Sea which prompted some of the world's largest container-shipping firms, including Maersk have decided to stop sailing through the area and take a detour instead. Carriers have already diverted >$200b in trade from the Red Sea.
Longer routes, higher freight rates and delayed shipments: The disruptions in the Red Sea, a vital maritime route, have resulted in higher freight rates and delayed shipments. The rerouting of ships around Africa adds significant costs and travel time, affecting the global supply chain. It is estimated that the re-routing could reduce effective global container shipping capacity by 10-15%.
Energy Shipments to Europe: Beyond containerised goods such as frozen food, toys and furniture, the Red Sea route provides a vital passage for energy shipments from the Middle East to Europe, as the region weans itself off Russian supplies. Given the winter season, the delay to container ships carrying fossil fuels to Europe may be felt first, with the gas market likely to be hit with price increases.
💊 FDA approves Florida’s request to import cheaper medicine from Canada
FDA approval for drug importation: Florida becomes the first state approved by the FDA to import cheaper prescription drugs directly from wholesalers Canada, aiming to reduce costs (highly priced drugs) for state programs like Medicaid. Florida has estimated that it could save up to $150m in its first year of the program, importing medicines that treat H.I.V., AIDS, diabetes, hepatitis C and psychiatric conditions.
Potential trend for other States: Following Florida's approval, other states with similar laws, like Colorado, may pursue FDA approval to import Canadian drugs, increasing competition to local pharmaceutical companies.
Concerns and limitations: Experts highlight the US's high drug costs tied to patent protections and note Canada's smaller pharma market may not meet all American needs, raising concerns about potential drug shortages in Canada.
☕️ Quick fire happenings to note
🌏 Global macro
- China imposed sanctions on 5 US firms in retaliation for US arms sales to Taiwan: The sanctioned companies include BAE Systems Land and Armament, Alliant Techsystems Operations, AeroVironment, ViaSat, and Data Link Solutions. The sanctions involve freezing their assets in China and prohibiting transactions with Chinese individuals and organizations. This response follows a $300m US military sale to Taiwan, which China regards as a violation of its territorial claims.
- US intelligence reveals China missiles filled with water not fuel: This could potentially reduce the likelihood of China engaging in any major military action soon. This development, coupled with a sweeping military purge (abruptly unseated at least 15 senior military figures) led by President Xi Jinping, could signal to investors that while immediate geopolitical risks may be lessened, long-term military preparedness and anti-corruption efforts in China are ramping up.
- US jobs data reports stronger-than-expected: 216k jobs were added in December vs 175k expected and a rise in average hourly wages to 4.1% has dampened early rate-cut expectations. The robust data suggest the economy is holding up well, prompting former NY Fed President Bill Dudley to comment that the Federal Reserve is unlikely to rush into rate cuts, potentially pushing back cuts to May or later. This shift in perspective could lead investors to reassess their expectations for monetary policy easing.
- Ex-Oil executive appointed as COP29 Chief: Ecology Minister Mukhtar Babayev, who worked for > 2 decades at the state oil and gas company is appointed by Azerbaijan to head the next round of climate talks. Although his role as ecology minister makes him a mainstream choice to preside over the talks, his background in oil may reignite the debate over the role of fossil fuel interests in the COP process.
- South Korea intensifies scrutiny on banks over complex financial products: South Korea's Financial Supervisory Service (FSS) is initiating a broader investigation into 12 banks and brokers, regarding the sale of high-risk equity-linked securities tied to the Hang Seng China Enterprises Index. The FSS expressed concerns about the aggressive marketing of these complex products to retail investors. This action reflects the increasing need for regulatory attention on speculative investments in South Korea.
- Saudi Arabia cuts oil prices to Asia: Saudi Arabia has reduced its key crude prices for buyers in all regions for Feb, responding to ongoing market weakness. This decision comes during a typical period of reduced oil consumption when refineries undergo maintenance. The cuts are part of Saudi Arabia's broader strategy, in coordination with OPEC+, to manage oil supplies and prices amid concerns about a potential surplus and a sluggish global economy. This move reflects the challenges in the oil market, which saw a decline in prices in 2023 for the first time since 2020.
🏦 Individual stocks/companies
- Boeing 737 Max planes taken out of service following FAA order: US Federal Aviation Administration (FAA) has ordered a temporary grounding of some 737-9 Max aircraft after Friday’s mishap involving that model. The grounding is a significant setback for Boeing, which has faced manufacturing quality challenges in recent years.
- BYD outsold Tesla in Q4 2023: BYD sold 526k EVs in the last three months of 2023, compared with Tesla's 484.5k The company grew its EV sales by 73% year over year, delivering 1.57m vehicles. Although BYD still makes 9 out of every 10 of its sales within China, its international deliveries grew more than 3x in 2023. And it's threatening to surpass auto titans Volkswagen and Renault in their own lane with plans for its first European EV plant in Hungary.
- Tesla recalls over 1.6m vehicles in China: This is due to issues with the Autopilot driver-assistance system in affected Tesla EVs, which increases crash risk. The recall, which will be addressed with an over-the-air software update, is in response to concerns that drivers may misuse Autopilot functions, potentially leading to collisions. This action follows a similar recall in the U.S. last month involving 2 million vehicles.
- China’s shadow banking giant, Zhongzhi Group filed for bankruptcy: This development is notable as it reflects one of the country's largest bankruptcies, exacerbating concerns in the already strained consumer and investor environments. Zhongzhi, at its peak, managed over $140b but struggled due to the ongoing real estate crisis in China. This bankruptcy highlights the broader risks in the private credit market and the challenges in China's $2.9t trust sector, which plays a critical role in financing for various entities including property developers.
- SpaceX launches first cell service satellites with T-Mobile: SpaceX has launched its first six satellites, designed to offer mobile phone services, marking a significant step in enhancing connectivity in remote areas. These Starlink satellites, functioning as cell towers in space, will enable text messaging using regular phones in areas with weak or no cell signals. SpaceX, collaborating with T-Mobile and other global carriers, plans to expand these services to include voice and data. This development is part of a broader race to provide satellite-enabled phone connectivity worldwide, with a potential IPO for Starlink under consideration by late 2024.
- Apple shares tank as 2 brokers downgrade stock rating: Apple stock was downgraded for a second time in a week over worries that a weak macro-environment in China will hurt iPhone sales.
🇸🇬 Singapore related
- Singapore’ economy grew by 1.2% in 2023: In 2023, Singapore’s economy saw a modest growth of 1.2%, successfully steering clear of recession despite the global economic headwinds fuelled by geopolitical tensions, such as disputes in the South China Sea. In PM Lee’s New Year message, he acknowledged these challenges but remained optimistic about the country’s resilience. He emphasized the government's commitment to workforce upskilling and enhancing infrastructure, particularly to support Singapore's ageing population, ensuring the nation's continued adaptability and robustness in the face of potential future adversities.
- Singapore private home prices rose by 6.7% in 2023: This decline reflects the effectiveness of the government's cooling measures, including increased ABSD rates. Sales transaction volume declined by 15% in 2023, its lowest since 2016 corroborates the impact of these policies. Concurrently, the government has boosted its provision of housing through the Government Land Sales (GLS) program. The trend of moderating price growth may present favourable investment opportunities.
- Lazada cut staff amid speculation of upcoming IPO: Lazada started off the year with layoffs across Southeast Asia. Possible reasons for the layoffs include - (i) intensifying competition in e-commerce across Southeast Asia, especially with TikTok's recent investment into Tokopedia, (ii) structural changes within parent company, Alibaba
- Budget accommodation options on the rise in Singapore: This rise is attributed to the recovery of the travel sector and the increasing competition among operators. Despite the challenges of the pandemic, budget accommodations like The Pod Capsule Hotel and Betel Box Backpackers Hostel have adapted and thrived by enhancing their services and creating unique offerings. The sector expects increased demand due to major concerts held in Singapore this year and the return of Chinese tourists, emphasizing the need for innovation to attract budget-conscious travellers.
- COE premiums saw a significant drop in the first exercise of 2024: Category A COE, for smaller cars, decreased by 23.5%, reaching its lowest since early 2022. Category B, also declined to a level not seen since January 2022. Despite these decreases, the total number of COE bids received exceeded the available quota signalling a healthy demand and premium declines to moderate.
