The Week - UK (2020-09-12)

48 CITY

THE WEEK 12 September 2020

Talking points

“It’sallstartingtolookverydodgy

againinstockmarketland,”said

DominicFrisbyonMoneyWeek.com.

“Theextraordinaryuptrendsseensince

Marchhavenowbeenbroken,and

thereisarush tocash.”Thetechsector,

apparentlyimpervioustocoronavirus,

wastheleaderontheupside,andithas

alsoledthewaydown.Notbefore

time,somemightsay.Evenallowing

forcentralbankstimulusandmoney-

printing,“theMarchtoSeptemberrally

“defiedbelief”,producingoutlandish

valuationsevenbytech’sstandards.

Tesla,theelectriccarmaker,whosestock

“sextupled”,wastheposterchild.Now

it’slostathirdofitsvalueinaweek.

TheroutinUStechstockssaw$2.3trninvaluewipedoffinjust

twodayslastweek,saidCityAM,andthefallscontinuedthis

week.Anxietyaboutvaluationshaslongbeenmounting,said

FilipePachecoonBloomberg.Butwhatmayhavetriggeredthe

drubbingwere reports that“hugeoptionsbets”may have been

fanningthegainsoverthesummer. Allthemoreso,whenit

emerged that theso-called“NasdaqWhale” bettingbigon

derivativeswasnoneotherthanSoftBank,foundedbyMasayoshi

Son,whose buyingof “call” options–theright topurchase a

financialinstrumentatafixedpriceat afuturedate–was

reportedbytheFTtohavereachedanotional valueof$30bn.

“Wouldyoutrustthemanwhodidso

muchtopromoteandfinanceWeWork”

• thetroubledoffice-spaceprovider–
  “totakehugeshort-termpuntson
  yourbehalf,”askedNilsPratleyinThe
  Guardian.SoftBankinvestorscertainly
  weren’timpressed.Despitereportsthat
  “paperprofitsfromitsadventure”hit
  $4bn,theywipedalmost$9bnoffthe
  Japanesetechincubator’sshares,and
  thesell-offquicklyprovedcontagious.

ButSoftBankalonedoesn’thavethe

clouttocausetheructionswesaw

lastweek,saidPatrickHoskingin

TheTimes.Itmayhavebeennicknamed

theNasdaqWhale,butitisa“tiddlerinthisocean”.Still,the

“opacityandcomplexityofthederivativesmarket”hasn’thelped

matters.“WallStreetmaynotbeadisorderlymarket,butit

doesn’tfeelentirelyorderlyeither.”Therearecertainlyechoes

hereofpastdisasters,suchastheJapanese 1 980sstockbubble

andthe 2000 dotcomcrash,saidAndrewParlinintheFT.

“Disruptive”stocks with “real orperceivedexposureto the

cloud,digital payments,electric vehicles,plant-based foods,or

anythingto dowiththe stay-at-homeeconomyhaveallshotup

meteorically”,forcinga“delinkingbetween fundamentalanalysis

and share prices”. Thisisalmost certainlyabubble –and, given

the USFed’s“thunderousasset purchases”,it’slo oking“firmly

on tracktobeoneof the biggestin stockmarkethistory”.

Issue of the week: the techbubble

MasayoshiSon:sharesinSoftBanklostalmost$9bn

Making money: what the experts think

●Brexitreturns

Brexit came“roaring

backintothepicture”

lastweekendas aresult

of reignitedfearsofa

“no deal” outcome,

saidConnorCampbell

of Spreadex.Theeffect

on thepoundwas

immediate.Itslumped

0.9%against thedollar

on Monday,tumbling

to $1.315,andby

midweekhadfallenaslow as$1.29.The

fallgaveanimmediatefilliptotheFTSE

100, whichis packedwith blue-chip

companies makingsubstantialoverseas

earnings,said HarryRobertson in City

AM.Butasthe week woreon,eventhe

Footsiestarted feeling thestrain,asBrexit

tensions were augmented bythe continuing

sell-off on Wall Street. “Itisalmost

inevitable thatthe perceivedprobability

of ‘nodeal’ willescalate over the coming

weeks,” wrote Goldman Sachsanalystsin

anote. Time totake cover?

●Comparativecalm

A1%fall in sterling inasingledayis

a“notable event”, said Nils Pratley in

TheGuardian.“But let’ snot overstate

matters.” After all,the poundhas risen

by 15%againstthe dollarsince the middle

of March.Ifanodeal does start to look

probable aheadof the15October deadline

for an agreement on tradewith theEU,

currency markets will

doubtless“throw a

tantrum”.TheDutch

BankING forecasts

thatthepound

(currentlytradingat

aroundg1.10)would

“fallto parity” with

the euro.“Financial

marketsareoften

terrible atreading

politicalevents –they

certainlyfailedto see

Brexit coming. Butfor now,we cansay

this:investorsstillexpectaBrexitdeal.”

●Silverlinings

Gold investorsaren’t theonlyones

whoreckonthatthe “fiat cash systemis

headedforcollapse”, said Eddie Spence

on Bloomberg. Investors inits“cheaper,

more volatile cousin” silverhave also

hadabrilliantfew months: the pricehas

skyrocketed 51%sofar this year. “Silver’s

got its animalinstincts back,” said Ned

Naylor-Leyland, whomanagesLondon’s

MerianGoldandSilverFund.Physical

silver barsare in short supplyand,due

to scarcity,investorsare paying“far

more than thespotprice”toget hold of

AmericanEagle andCanadian Maple

Leaf coins. “I’ve been standing there

waving onthetop ofahillfor the last

20 years,”continuedNaylor-Leyland.

“Suddenlyeveryone’s pointingtome

saying: ‘That man’sagenius.’”

The price of silver has risen 51% this year

Cornishgold?

Teslasharesmighthavebombedthis

week,butelsewhereintheelectriccar

marketspiritswerehigh,reported

RachitVatsonReuters.Investors

cheerednewsthatGeneralMotorshas

joinedforceswithelectrictruckstart-up

Nikolatobuildapick-uptocompete

withTesla’sCybertruck.Thenewsis

likelytobeanotherboostforlithium,

whichisusedinthebatteriesofelectric

vehicles.Indeed,demandforthesoft

whitemetalis“settosurgeoverthe

nexttenyears”,saidHenrySanderson

intheFT.That’sgreatforproducersin

Chile,AustraliaandChina.Butcouldit

also“powerCornwall’srevival”?

Aformer investment banker, Jeremy

Wrathall, wants to revive the county’s

“long-forgotten” lithium industry. As he

points out, Cornwall is home to the

UK’s only known legacy mine, which

was active during WWII. Cornwall is the

“most under-explored mineral province

of Europe”, said Mike King of the

Cornwall Development Company. But

the question, said Henry Sanderson,

is whether the county “could sustain

acompetitive low-cost lithium industry

onascale needed to meet the UK’s

expected demand for batteries”.Arival

company, British Lithium, is already

digging near St Austell. And new

extraction technologies, backed by Bill

Gates’s Breakthrough Energy Ventures

fund, could unlock further deposits.

However there’s bound to be consider-

able opposition from environmentalists,

local landowners and visitors.

Theunmaskingofa“Nasdaqwhale”hastriggeredareckoningfortechstocksonWallStreet.Isthereworsetocome?