By Cormac Mullen and Sam Potter for Fin24
Whether trader or investor, analyst or observer, Monday in markets looks like one to tell the grandchildren about.
An oil price war has broken out in the middle of a worsening global virus outbreak, and it has triggered asset moves around the world that in some cases have never been seen before. Crude itself at one point dropped by a third. Treasury yields fell to unprecedented levels across the curve. U.S. stocks dropped so hard trading was halted.
The oil crash
The all-out price-war among the world’s biggest producers crashed oil markets by about a third earlier. They pared declines, but were still down about 17% as of 12:14 p.m. in New York. Crude futures suffered the second-largest decline on record in the opening seconds of trading in Asia, behind only the plunge during the Gulf War in 1991. Brent for May settlement tumbled as much as $14.25 a barrel to $31.02. West Texas Intermediate crude for April slumped as much as 34% to $27.34 a barrel.
The severe rout in US stocks triggered trading curbs that the New York Stock Exchange put in place after the 1987 Black Monday crash. A 15-minute trading halt took hold after the S&P 500 Index fell 7% to 2,764.21 as of 9:34 a.m. in New York, triggering the breaker for the first time since December 2008 at the depths of the financial crisis.
The cost to protect US investment-grade debt against default surged by the most since Lehman Brothers declared bankruptcy in the height of the 2008 global financial crisis. Dozens of energy bonds plunged by double digits, the latest hit in a grim few weeks for junk-rated companies in the industry.
Bombed-out bond yields
US Treasury yields plunged, with the rate on 30-year bonds diving as much as 59 basis points, as rising expectations the Federal Reserve will cut policy rates to 0% in the coming months drove investors to reach to longer maturities for yield.
Bear market dominoes
Monday’s plunge in equities has pushed a number of major European stock benchmarks into bear market territory, with losses exceeding 20%. Italy’s FTSE MIB has been the most hit, down more than 25% from a high reached last month.
Commodity currencies roiled
Currencies of energy exporters were quickest to react to the oil plunge. The Norwegian krone fell to its lowest since at least 1985 versus the dollar and the Mexican peso dropped to a more than three-year low.
The yen jumped to its strongest level against the dollar since 2016 as investors sought shelter. As of Sunday, about half of the world’s countries have cases of Covid-19 and Italy’s virus deaths rose by 57%. Japan’s currency was up almost 3% against the greenback.
Volatility ratchets up
The Cboe Volatility Index surged to the highest since 2008 on Monday as a plunge in oil prices frazzled traders already on edge over the coronavirus. The VIX, which measures the 30-day implied volatility of the S&P 500 based on out-of-the-money options prices, jumped as high as 62, its highest level since December 2008 on an intraday basis.
World’s richest lose out
According to Forbes’ calculations, the top 10 biggest billionaires lost a combined $37.7-billion due to the crash of the stock market.
As such, Bernard Arnault, the world’s third-richest man, reportedly suffered the greatest losses among the top 10 list, losing as much as $6-billion on the day. Jeff Bezos, the world’s richest man, with a net worth of $114-billion, saw his fortune plunged $5.6-billion by the Black Monday’s market close. Famous investor and known Bitcoin sceptic Warren Buffett lost $5.4-billion on the day.
Source: The Economist
With its stylish shared workspaces and chic occupants, lubricated by fruit-infused water and nitro coffee on tap, WeWork, a firm that rents out temporary offices, had seemed to be riding the wave of a new trend in managing desk-jockey life. But the nine-year-old private company has suffered a setback, announcing on September 16th that it would postpone an initial public offering (IPO) that had been expected to raise $3bn-4bn. Investors, it seems, cannot decide what the firm is worth.
They have four main worries. The first, and most glaring, is WeWork’s lack of profits. The firm argues that this is explained by the huge investments needed to secure economies of scale. It says that mature locations are profitable—revenues doubled during the first half of 2019 over the same period in 2018, to $1.5bn. But its net losses also rose, if more modestly, to $905m. A second concern is how the company would fare in a recession. It has taken on $47bn in lease payments but has only $4bn in committed future revenues from customers. A third bugbear is corporate governance. WeWork will issue multiple classes of shares that give its flamboyant founder, Adam Neumann, control with a minority stake.
The final concern is the company’s valuation. When it raised money in January, with funding led by Japan’s SoftBank, the firm was valued at a heady $47bn. Critics point to IWG, which offers shared offices under the Regus and Spaces brands worldwide, and has a market capitalisation of just $4.5bn (see chart). Already WeWork seemed willing to accept a much lower price tag for its flotation, seeking a relatively modest valuation of $15bn or less from its IPO. Even that seems out of reach and the company has, for now, dropped the attempt.
Mr Neumann’s claim that his firm will “elevate the world’s consciousness” is plainly silly. Even so, it is not fair to equate WeWork with the more conventional Regus. CBRE, a property-management firm, estimates that the flexible-work niche experienced “meteoric growth” of 25% in America’s top ten markets in 2018, with similar figures in big cities worldwide. WeWork’s innovations in work-place facilities have dramatically enlarged the size of the market for temporary offices. But investors need more certainty that it knows how to make money from it.
They will also be all too well aware that the shares of some stars of the new economy have disappointed of late.Uber, a ride-hailing firm, listed its shares at $45 in May on the New York Stock Exchange. Today they were trading at about $34.50. In March its rival, Lyft, had sold its shares on the Nasdaq exchange at $72; today they are worth about $48. Slack, a corporate-messaging service whose shares started trading on the NYSE in June at an opening price of $38.50, is now valued at about $26 a share. Unicorns are going a little cheaper these days.
By Kana Nishizawa and Jeanny Yu for Business Day
If you thought the slump in US technology stocks was bad, take a look at Tencent, the Chinese internet giant 31% owned by JSE-listed Naspers.
Tencent has tumbled 25% from its January peak, erasing about $140bn of market value. That is the biggest wipeout of shareholder wealth worldwide, as measured from the date of each stock’s 52-week high. Facebook, the F in the FANG block of mega-cap US tech stocks, is the second-biggest loser, with a $136bn slump over the past three trading sessions.
Investors around the world are beginning to question whether the best days are over for technology stocks — the undisputed leaders of a nine-year boom in global equities. Tencent, Asia’s second-largest company after e-commerce behemoth Alibaba, has also been dogged by concern that growth in its mobile-gaming unit is slowing. The stock, down 9.5% in July, is poised for its biggest monthly retreat since 2014.
“Investors are increasingly pricing in lower expectations for Tencent’s interim results,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “Overall, tech companies are facing a similar problem. They have been enjoying fast profit growth in the past few years, so it will be difficult for them to maintain similar growth in the future as the competition grows and some segments are saturated.”
Tencent’s year-on-year profit growth probably slowed to 5.1% in the second quarter, the weakest pace since 2012, according to analyst estimates compiled by Bloomberg before the company releases results on August 15. At least 11 brokerages cut their Tencent share-price target in July, including Credit Suisse Group and Morgan Stanley.
Still, analysts have not turned bearish: all 51 forecasters tracked by Bloomberg have a buy recommendation on Tencent shares, with the average price target implying a 44% gain over the next 12 months.
By Jasper Jolly for City A.M
The US’s biggest technology stocks – Facebook, Amazon, Netflix and Google, collectively known as the Fangs – have fallen steeply as concerns over a trade war weighed on world indices.
The tech-heavy Nasdaq index fell by more than two per cent to its lowest close since the end of May.
Facebook and Amazon both lost over 2.5 per cent, while Netflix plummeted by more than six per cent. Apple and Alphabet, the parent company of Google, also fell heavily.
Equity indices around the world had earlier slumped, with France’s Cac 40 losing almost two per cent while Germany’s Dax gave up 2.46 per cent as investors feared further damaging trade moves.
American tech stocks have generally been immune to fears over protectionist trade tariffs, with no mention by either the US, China, or the EU of levies or other barriers to be imposed on them.
However, Russ Mould, investment director at trading platform AJ Bell, said the recent success of the Fang stocks – an acronym of the tech giants – in spite of market ructions may have made shares more vulnerable to bigger moves if sentiment shifts.
The Fangs may be “targets for some profit taking” if investors plump for cash amid fears of a broader market setback, he said.
The tech stocks are approaching similar levels of growth hit by the Nasdaq during the dotcom bubble at the turn of the century, which ended in a deep crash of more than 78 per cent, Mould said.
Over the course of 2018 a “Fangs+” index, which includes other large US-listed tech firms, has outpaced the gains of the bubble-era Nasdaq.
Yet the Fangs still face regulatory issues which could severely impact their business models, following the scandal over data misuse by political consultancy Cambridge Analytica, competition concerns, and ongoing tax issues.
“The danger for bulls is that these valuations leave little margin for error should something – anything – go wrong,” Mould added.
The rand was trading at its highest level in over a year against the pound on Tuesday 19 July, as Turkey’s failed coup saw global markets bounce back from their risk-induced levels.
The rand was 1% stronger at R14.25 against the dollar on Tuesday at 08:30. It was 1.1% stronger at R18.85 to the pound and 0.85% stronger at R15.79 to the euro.
This level against the pound was last seen in early June 2015, said Umkhulu Consulting’s Adam Phillips on Tuesday.
Phillips said he was “surprised the markets were so bullish on emerging market currencies because there were quite a few fatalities and a vast number of military and judicial officials that were rounded up by the government”.
“The ‘risk on’ that we saw yesterday still looked tired and if one looks at local bonds they again lost some ground,” he said. “As yet there seems to be no effect on the rand.”
“I think a great deal of realignment has happened internationally and we have started to see yen positions being unwound as equities move up as a fear of rate hikes recedes,” he said.
Global markets have bounced back from the risk-off that was inspired by the failed coup in Turkey last Friday, said RMB analyst Isaah Mhlanga on Tuesday.
“It is as if nothing happened or markets are just getting numb to political risk that’s inspired by anti-establishment politics,” he said.
“The rand follows global sentiment,” he said. “It lacks direction as it waits for tomorrow’s CPI release and the Sarb (interest rate announcement) on Thursday. There is, however, potential for some gains but it’s just potential given the lack of major market-moving events.”