Notable market news this past week (24-Dec-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🛢️ Angola Announces Exit from OPEC
Quota Dispute Leads to Exit: The South African nation decision to leave OPEC was driven by a disagreement over oil production quotas. Angola, facing a decline in production capabilities, found the reduced quota imposed by OPEC unfeasible, leading to a fundamental disagreement.
Minimal Impact on Global Oil Supply: Despite Angola's departure, the impact on the global oil supply is expected to be minimal. Angola's current production is already below OPEC's set quota, implying little change in actual oil output.
OPEC's Challenges: Angola's exit reduces OPEC's member nations to twelve. This change occurs amid OPEC's broader challenges in maintaining price stability and market influence, especially with rising U.S. production and shifting global energy dynamics.
🇨🇳 China shocks investors with new rules to reduce spending on video games
Sudden introduction of new rules: These measures include spending limits for online games and a ban on certain reward incentives for players who logs on daily. The rules aim to address concerns over gaming addiction and excessive in-game spending.
Market implications:
- The announcement caused a significant decline in the market value of major Chinese gaming companies like Tencent and NetEase - Tencent fell 12% in Hong Kong, its worst day since 2008, while NetEase sank a record 25%.
- The upheaval affected stocks linked to the move across Europe, South Africa, South Korea, and Japan. Investors reacted strongly due to the sudden emergence of new rules on Friday, which were both vague and all-encompassing. This abrupt development left people struggling to discern the intent or potential consequences.
Poor timing: The regulations surfaced at the conclusion of a challenging and arduous year for Chinese investors, making it especially disheartening for those anticipating improvements in 2024.
☕️ Quick fire happenings to note
🌏 Global macro
- BOJ maintains negative interest rates: Kazuo Ueda indicated progress towards the central bank's targets but did not provide clear hints on the timing for exiting this policy. The decision was based on the need for more evidence of sustainable wage and price increases. The yen weakened and stocks rose following the announcement.
- Mongolia set to allow foreign banks to operate in the country for the first time: This policy shift, as part of its strategy to enhance its banking sector's stability and growth, permits foreign commercial bank branches to provide banking services, a departure from the previous limitation to representative offices. The introduction of foreign banks is expected to improve foreign currency liquidity and lending opportunities in Mongolia, which is currently dealing with high inflation rates and tight monetary policy.
- Decline in US dollar's share in global central-bank reserves: The US dollar's share dropped to 59.2%, the lowest since the fourth quarter of last year. Meanwhile, the share of the Japanese yen in reserves increased. This indicates a gradual decline in the dollar's dominance since the early 2000s when its share was over 70%. This shift has implications for the US, as the dollar's status helps keep funding costs low and supports budget deficits by encouraging trading partners to invest in US government bonds.
- US new-home sales declined by 12.2%: Marking a one-year low in Nov this year at 590k new-homes sold. This drop, predominantly in the South, poses challenges for the housing market's recovery. Despite this downturn, housing starts reached a six-month high and homebuilder sentiment improved, indicating potential market improvement in 2024. The median sales price of new homes fell 6% year-over-year to $434.7k, with inventory increasing for the fourth consecutive month.
- Red Sea attacks shakes up global supply chain: To protect their crews and cargo, 4 out of 5 of the world’s largest shipping cos — including Maersk and Hapag-Lloyd — have adjusted routes or pulled their container ships from the Red Sea, a critical trade corridor that leads to the Suez Canal. Houthi militants have attacked at least 10 ships in the region, with two new incidents on Monday. The Houthis say the attacks are in protest of the Israel-Hamas war, and the Suez is just 130 miles from the Gaza Strip.
🏦 Individual stocks/companies
- Tencent experienced a $80b market value drop: China's introduction of new gaming regulations to limit online spending and playtime this week, potentially impacting the business model of gaming companies. This move rekindles concerns about China's stringent oversight of its tech sector, reminiscent of the 2021 crackdown.
- ByteDance sales soar to over $110b in 2023: This 30% revenue growth comes despite economic challenges in China and increased global scrutiny. ByteDance's expansion into areas like e-commerce and other online services has solidified its position as a leading internet company in China. While the exact profitability details are not public, ByteDance's rise indicates significant revenue generation, overshadowing many of its rivals in the social media sector.
- Alibaba undergoes organizational restructuring: Trudy Dai, head of e-commerce platforms, T-mall and Taobao, will be replaced by current CEO, Eddie Wu. Dai will help to establish a new entity to manage Alibaba's global investment assets. These changes are part of Alibaba's strategy to revive its business amidst market challenges and growing competition from companies like PDD Holdings and ByteDance. Alibaba is focusing on core operations in cloud, retail, and logistics, while considering divesting less essential businesses.
- Blackstone to purchase 80% stake in Sony Payment Services: The $280m deal values the subsidiary of Sony Group at about 50b yen ($350m). The transaction is expected to result in a gain of about 20b yen in operating income for Sony Group in the quarter ending March 31. This move aligns with a growing trend among Japanese companies to divest non-core businesses, increasingly to private equity firms.
- US Steel agrees to sell itself to Japan's Nippon Steel for over $14 billion: This significant deal in the steel industry is set to expand Nippon's presence in the US auto market. The all-cash transaction, which values US Steel at $55 a share, is expected to close late next year. This acquisition reflects a strategic move by Nippon Steel to increase its global steel production capacity, particularly in the United States. However, the deal has raised concerns among US Steel's employees and the United Steelworkers union, with the latter opposing the acquisition due to lack of consultation.
- Toyota and Daihatsu halts shipments and recalls over 1 million cars over safety scandal: Toyota Motor Corp's shares experienced a significant drop following two major issues. Firstly, their subsidiary Daihatsu Motor Co. faced an official raid due to manipulating safety collision test results since 1989, leading to a halt in all their shipments. Secondly, Toyota recalled about 1 million vehicles in the U.S. due to a malfunction in airbag sensors.
- Bird files for bankruptcy: The electric scooter company, which was once the fastest startup to reach a $1b valuation, filed for bankruptcy this week. Founded in 2017, went public via SPAC in 2021 with a $2 billion value at its debut, but just a year later, it was already looking more like a sad scooter ditched by the side of the road with a $70m value. It was delisted from NYSE this year after its share price dropped even further. The company hopes to use the bankruptcy process to sell off its assets. Its Canadian and European units are not part of the bankruptcy and will operate normally.
🇸🇬 Singapore related
- Sumitomo Life's Strategic Expansion in SEA: Japanese insurer Sumitomo Life is set to acquire TPG Inc's 35.5% stake in Singapore Life Holdings (Singlife) for S$1.6 billion. This acquisition is part of Sumitomo's strategy to expand in Southeast Asia and follows their recent purchase of Aviva PLC's stake in Singlife. With this deal, Sumitomo Life aims to acquire the entirety of Singlife, valuing the Singapore insurer at S$4.6b.
- Singapore's temporary increase in occupancy cap for larger homes: Effective from Jan 22, 2024, to Dec 31, 2026, this measure applies to HDB flats of four rooms or larger and private properties over 90 sqm. The move aims to benefit lower-income groups, students, foreign workers, and large families by potentially reducing their rental costs and induce downward pressure on Singapore’s rental market.
- COE premiums for various vehicle categories have decreased: Category B premiums, for more powerful cars, fell by over S$20,000, marking a 15% reduction. Open category COEs, typically used for larger cars, also saw a decrease. The premiums for smaller cars (Category A), commercial vehicles, and motorcycles have similarly declined. This change comes after record-high COE prices in October and an increased COE quota for the November 2023 to January 2024 quarter. The COE supply is expected to significantly increase from the second half of 2024 before reaching the peak supply years from 2026 to 2027.
- Marginal decline for Singapore’s T-bill cut off yields: The latest 6-month Singapore T-bill auction saw the cut-off yield slightly decrease to 3.73%. Median and average yields declined, reflecting the recent fall in global bond yields. The smaller issuance size of T-bills, at S$5.6b, also contributed to the marginally reduced cut-off yield. Despite some banks reducing fixed deposit rates, the T-bill yield remains an attractive option, exceeding the best 6-month fixed deposit rate of 3.65%, offering a safe way to earn higher short-term returns.
- CPF interest rates increases: Special, MediSave and Retirement accounts to go up to 4.08% (from 4.04%) in Q1 2024. The rate hike is due to an increase in the 12-month average yield of 10-year Singapore Government Securities, which the interest rate is pegged to.
