Novum Alpha – Weekend Edition 28-29 November 2020 (10-Minute Read)

Welcome to the weekend and I hope you’re having a wonderful one! 

In brief (TL:DR)

  • U.S. markets were higher in muted trading volumes because of the Thanksgiving holiday in with the S&P 500 (+0.24%) and blue-chip Dow Jones Industrial Average (+0.13%) and tech-heavy Nasdaq Composite (+0.92%) all up. 
  • Asian stocks ended the week mostly higher but look set to open mixed next week. 
  • U.S. 10-year Treasury yields fell slightly to 0.846% from 0.850%. 
  • The dollar continued to slide heading into the weekend but looks set to regain lost ground on the start of the new week as it starts to become oversold. 
  • Oil slipped slightly with January 2021 contracts for WTI Crude Oil (Nymex) (-0.42%) at US$45.52 from US$45.71 as bullish sentiment about the pace of an economic recovery ebbed. 
  • February 2021 contracts for Gold (Comex) (-1.28%) fell to US$1,788.10 from US$1,814.90 as investors rotated back into risk assets.   
  • Bitcoin (+1.84%) pared back losses, dipping below US$17,000 for a period before recovering to now trade around US$17,200 heading into the weekend as inflows into exchanges continued to lead outflows (inflows typically suggest that investors are looking to sell Bitcoin in anticipation of price falls), and with signs that the cryptocurrency may be stabilizing. 

In today’s issue…

  1. Are Markets Vaccinated Against Reality? 
  2. Singapore’s Tech Stock Winter May be Set to Thaw
  3. Facebook’s Libra Lite Looks Set for a January Reveal 

Market Overview

Winding into the weekend, most Americans will be having a muted Thanksgiving Holiday, with millions wisely opting not to travel and meet with family. 
But despite the prudence of many Americans this holiday season, just as many have thrown caution to the wind and clogged up airports, traveling home to be with family. 
The diversity in approaches in the midst of the worst pandemic the country has ever experienced played out in the most recent U.S. presidential elections as well – only this time, the fallout of these ill advised Thanksgiving gatherings will only be realized a fortnight from now. 
Investors should brace themselves for a rude shock as a likely sharp spike in coronavirus infections ripples through the United States, just as temperatures continue to drop, providing the perfect conditions for the pandemic to propagate. 
In Asia, markets ended the week mostly higher with Tokyo’s Nikkei 225 (+0.40%), Seoul’s KOSPI (+0.29%) and Hong Kong’s Hang Seng Index (+0.28%) all up, while Sydney’s ASX 200 (-0.53%) was down slightly.

1. Are Markets Vaccinated Against Reality?

  • Despite some of the most challenging economic conditions since the Great Depression, markets are set to have their best month on record 
  • Investors are betting it all on the future as opposed to taking in the concerns of the present as the prospect of a coronavirus vaccine make a return to normalcy possible 
Under the circumstances, markets should be at all-time-lows, half of the developed world should be unemployed and roving bands of marauders should be combing the dystopian landscape in search of fuel and water.
Yet somehow, stocks are on track to close-in on their best month ever.
MSCI’s index of developed and emerging markets has risen 12.78% this month and set another all-time-high on Friday, rising 0.1% despite thin trading because of the U.S. Thanksgiving holiday.
Investors and analysts alike have all but given up trying to make sense of the madness.
In what the IMF has previously described as some of the worst economic conditions since the Great Depression, stocks are defying pandemic and pessimism and are on track to have their most sterling year yet.
But if investors consider that stocks are a reflection of what is to come, as opposed to what is, then it makes perfect sense.
Valuations have reached nonsensical levels, with the S&P 500 trading at over 30 times earnings, against the historical average of 15 times.
One possibility is that investors are pricing in a recovery based on science, as opposed to sentiment.
The slew of not one, but three, potentially effective coronavirus candidates has investors in a buying mood, betting that barring any rollout disasters, we should have some semblance of normalcy in months, meaning travel can resume and cinemas can be filled.
And with the prospect of the steady hand of Janet Yellen back at the helm of the U.S. Treasury Department, investors are wagering that a fresh stimulus package should be on its way.
The U.S. Federal Reserve has also made clear that it intends to keep interest rates low to give inflation time to catch up, rising over its 2% target, one that it hasn’t met over the past decade.
Investors are also shifting out of the winners from the pandemic to those which fell by the wayside, from growth to value stocks, and from technology to energy and commodities – whether that shift is premature though remains to be seen.
Over the past week, gains for stocks have been broad-based and almost all sectors saw a boost.
Yet coronavirus case numbers continue to surge in the United States and Europe.
And flare-ups in countries previously thought to have had things under control are occurring with disconcerting regularity.
Bear in mind that a stock of any company, a multiple of any earning, represents hope.
And right now investors are hopeful that barring any serious complications, the reopening of the world, vaccinated against the coronavirus will occur. 

2. Singapore’s Tech Stock Winter May be Set to Thaw 

  • Local investors may soon have an opportunity to participate in some of China’s biggest tech names through a new ETF 
  • Dearth of tech stocks on Singapore’s index and stock exchange has meant that Singapore’s indices have been left out of the most recent rally in global stocks 
Gliding in one of the many ubiquitous Toyota Crowns (a luxury Toyota that has been modified for use as a taxi in the city state) on the spotlessly clean streets of Singapore and one would be forgiven for thinking that this is a land relatively immune to the stressors of the coronavirus pandemic.
The only hints that all is not what it seems are the legions of masked shoppers thronging the streets of Orchard Road where international boutiques line the boulevard, with their promise of gilt and luxury.
But while everything may appear to be hunky dory in one of the richest places on earth, the Singapore stock market has been largely left out of the rally that has been sweeping up global indices elsewhere, and one of the main reasons for that has been a dearth of high profile technology stocks to buoy local markets.
To be sure, Singapore has its own local tech names that have made it big, including Razer (-0.74%), SEA (+2.73%) and Creative Technologies (-0.80%) – but more often than not, Singapore tech firms choose to list overseas. 
With investors turning largely to defensive tech stocks during the coronavirus pandemic, Singapore’s benchmark Straits Times Index, which is composed mostly of banks and property counters, has been largely left out of the party.
Regardless, Singapore looks set to get its first taste of tech, as Lion Global Investors and OCBC Securities partner to launch Singapore’s first technology-focused exchange traded fund that tracks Hong Kong’s recently launched Hang Seng Tech Index.
The Lion Global Investors and OCBC Securities Hang Seng Tech ETF tracks the 30 largest tech firms listed in Hong Kong, which also includes Chinese tech giants Alibaba (+0.22%), Tencent (-0.51%) and Xiaomi (-2.07%).
The Lion Global Investors and OCBC Securities Hang Seng Tech ETF initial offering period will begin on Monday and continue through to December 7, with a listing on the Singapore Exchange by December 10.
While not quite the same as having homegrown tech companies to diversify the local stock exchange with, the Hang Seng Tech ETF will make investing in tech companies more accessible to Singapore’s investing population.
The tech sector has been an outperformer this year, benefiting from what many analysts view as durable shifts in consumer behavior and accelerating business trends.

3. Facebook’s Libra Lite Looks Set for a January Reveal

  • Facebook’s cryptocurrency ambitions are heavily watered down with its Libra cryptocurrency project looking like nothing more than a dollar-backed stablecoin 
  • Libra launch is coming on the back of renewed interest in cryptocurrencies from both professional investors and central banks, with a shift to digital payments likely to prove durable 
Facebook’s (+0.81%) cryptocurrency ambitions may finally come to fruition next year, albeit in a heavily watered-down format.
Launching as soon as January next year, Facebook’s all-encompassing Libra cryptocurrency project, which was originally intended to be backed by a basket of fiat currencies and government securities, is now looking no different than a stablecoin akin to Tether, USDC or Paxos.
Instead of the plan to launch digital versions of several national currencies, including a digital composite of all of Libra’s coins, it’s now looking like Facebook will launch just a single digital currency backed one-for-one by the dollar.
Increasing regulatory scrutiny on Facebook’s global ambitions and growing wariness at the social media giant’s global power and influence, have ensured that regulators were always going to be skeptical about the firm’s plans to launch its own digital currency.
Regulators have long warned that Libra could threaten monetary stability as well as become a hotbed for money laundering.
And while the newly restricted scope of Libra may appease lawmakers, it doesn’t do much to further its purported goal of increasing financial inclusion.
In late 2019, Facebook’s Libra Association came under pressure when a large section of its most influential founding members, including PayPal (-1.43%), Mastercard (-0.66%), Vodafone (-0.62%) and eBay (+1.76%), quit the coalition and distanced themselves from Libra.
Firms like PayPal have now gone on to pursue their own cryptocurrency ambitions by facilitating the sale, purchase and use of cryptocurrencies like Bitcoin and Ether for payment, starting next year.
The news of Facebook’s impending launch of Libra this year comes as Bitcoin fell just shy of its all-time-high and has since pulled back slightly, falling below US$17,000 before recovering sharply.
Bitcoin remains up over 130% this year alone, and some 190% off its low in March, when concerns over the coronavirus pandemic were at their zenith.
The world’s first cryptocurrency remains on track to become one of the best performing asset classes of 2020.
Facebook’s Libra release comes on the back of a wave of interest in cryptocurrencies from both professional investors and central banks mulling their own issuances, with as many as 80% of central bankers considering following the lead of China to issue their own digital currencies.
The coronavirus pandemic has also hastened the shift from cash towards digital payments, a move that is likely to prove durable. 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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The information and thoughts laid out in this analysis are strictly for information purposes only and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws.

It does not constitute a recommendation or take into account the particular allocation objectives, financial conditions, or needs of specific individuals.

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