(Bloomberg) — China’s rising yuan has given equity investors a touchstone in their search for potential winners and losers.
Benchmark stock indexes in both Hong Kong and on the mainland have been buoyed by the recent strength of the yuan, as capital chases assets denominated in a strengthening currency. The correlation between China’s benchmark CSI 300 Index and the onshore yuan’s strength is near the highest in seven months, while the Hang Seng Index is also most-linked to the currency’s movements since February, data compiled by Bloomberg show. But not every share is a beneficiary.
Likely winners include companies that can take advantage of currency dichotomies, including Chinese property developers with sizable dollar debt and companies that generate most revenue in the mainland but are Hong Kong-listed, according to analysts.
On the flip side of the currency equation are exporters, whose products will be less price-competitive when sold in foreign markets.
The Chinese yuan has surged 12% against the dollar since May 2020, with the rally accelerating recently amid inflation concerns and the greenback’s weakness. Some investors expect the yuan rally continuing, despite the central bank taking a visible measure to stem gains.
“The central bank’s intervention will only slow down the pace of appreciation, not the direction of the appreciation,” said Jackson Wong, an asset management director at Amber Hill Capital Ltd. “A rising Chinese currency historically has a positive correlation with both mainland and Hong Kong benchmark indexes, though some sectors will suffer.”
- Dollar-debt borrowers: Companies to benefit most directly will be those that generate revenue in yuan while borrowing in foreign currencies, as debt is reduced. According to Bloomberg data, about 24% of the total outstanding dollar-denominated bonds issued by all Chinese companies are from developers.
- Hong Kong-listed Chinese companies, or H shares: A stronger yuan bodes well for the H shares, as well as valuations and foreign inflows, said CICC analysts including Hanfeng Wang. While some investors may worry that a strong yuan could discourage southbound inflows because of potential foreign-exchange losses, historical experience suggests those inflows are positively correlated with the yuan, as a stronger yuan usually suggests better growth prospect for Chinese assets, Wang said.
- Consumer companies: A rising currency enhances purchasing power and consumer confidence, which benefits the consumer sector, said Yang Delong, chief economist at First Seafront Fund Management.
- Labor-intensive exporters: Manufacturers such as toy makers, which rely on cheap prices to attract customers and generate most revenue overseas, may take a blow from a stronger yuan, Zheng Jiawei, analyst at East Asia Qianhai Securities, wrote in a research report.
- Foreign-asset owners: Textile manufacturers and machinery companies will suffer, as they tend to have large proportions of assets denominated in foreign currencies, said Cliff Zhao, head of research at CCB International.
Whether it’s going on “Saturday Night Live” and joking that dogecoin is a “hustle” or having his epiphany that bitcoin mining may not be great for the environment, Musk’s behavior has cryptocurrency bulls wishing he would stop tweeting and focus more on building cars instead.
Bitcoin (XBT) fans are tired of Musk exerting so much influence over the near-term price movements of seemingly all cryptocurrencies.
“People who followed Musk blindly have lost a lot of money. They may have gotten burned and never come back,” said Alex Mashinsky, CEO and founder of Celsius, a crypto lending platform that offers digital tokens as rewards to customers — similar to a publicly traded company paying a dividend.
“The crypto community needs to be more responsible in how it explains these assets and the risk,” Mashinsky added. “Pundits kept saying we’d never see a down market for bitcoin again because of institutional interest, Square and PayPal, etc. When you hear that, you have to worry.”
By now, you’re probably familiar with Gartner’s Hype Cycle, a visual representation of how momentum for new technology builds over time.
It’s something to keep in mind as we hear more and more about cryptocurrencies and where they will play in financial services and capital markets in the years ahead. After what some have called the crypto nuclear winter of 2018-2019, crypto is coming through the “trough of disillusionment” and it is now something you shouldn’t ignore — not simply because of the market price of the currencies themselves, but how cryptocurrency is becoming and will become a platform economy going forward.
We already live in a platform economy. Amazon, Google and Apple are the most visible examples of platform economies where these companies have created technology-driven platform models where they engage with users and consumers instead of making physical things. Platforms are about connections, data, sharing and utility for the user. We have many transaction platforms and investment platforms that are part of the digital economy. And as the platform economy evolves it will be more efficient if it has its own platform currency.
Which brings us back to cryptocurrencies. Remember, although we take fiat currencies as the norm (fiat currencies are government back currencies not linked to a commodity such as gold), fiat currencies are only 50 years old. In August 1971, American President Richard Nixon decoupled US dollars from gold, establishing the beginning of fiat currencies on a global scale.
So don’t fall into the trap that the current fiat currency system will last forever. As platform-based digital economies continue to grow rapidly and without borders, it will be inevitable that they will look for an evolved currency environment to fuel and support their growth.
And that’s where cryptocurrencies come in. More on that in my next piece.
DH Kim is the CEO of Finhaven Capital and the Finhaven Private Markets
(Bloomberg) — It’s been a rough two weeks in the crypto world, where as much as $1 trillion in market value has evaporated. Wednesday may be the worst of it, as the world’s two largest digital asset exchanges, Binance and Coinbase Global Inc., suffered service outages, sending Bitcoin falling the most since 2013.
Exchanges are central components to the digital asset world, yet they frequently go down when traffic on blockchain networks gets too high, calling into question their readiness to serve a quickly growing market. At the height of the last bull market in 2017 both Coinbase and Binance often shut users out of their accounts due to internal problems. Blockchain and crypto believers like to think they’re changing the world yet the backbone of the industry is clearly not ready for prime time.
Many traders in crypto use borrowed money to boost their returns, which leaves them vulnerable to having their positions automatically sold if prices drop. In the last 24 hours, more than 775,000 traders have had their account liquidated, equal to $8.6 billion worth of crypto, according to Bybt.com data.
“Coinbase always goes down,” said Jon West, the former head trader at digital asset brokerage Omega One who now works for the blockchain firm RChain. While it was disappointing to see the two largest exchanges break, West said this is the best they’ve ever performed when looking back at 2018 or 2019.
“It should be illegal how bad they’ve been” in the past, he said. An email to Coinbase for comment wasn’t immediately returned.
The trouble Wednesday began when Binance, the world’s biggest cryptocurrency exchange, temporarily disabled Ethereum withdrawals citing network congestion. Then Coinbase said it was investigating “intermittent downtime” on its platform.
But it had nothing to do with his on-field performance. The 7x Super Bowl champ was reportedly negotiating his salary to be paid in bitcoin.
Tom Brady, the seven time Super Bowl champion, adds “laser eyes” to his twitter profile picture, a trendy indication of one’s support for Bitcoin. He did so after it was rumored he had been investing in Bitcoin.
Earlier this year Tom Brady announced he will be launching an NFT platform, Autograph, which will allow celebrities to create and list digital collectibles. NFTs, or non-fungible tokens, are digital representations of content maintained on a blockchain or decentralized ledger. Brady’s foray into NFTs would suggested a coinciding interest in cryptocurrencies, like Bitcoin (BTC) and Ether (ETH), which are the native assets used for settlement on a blockchain.
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