TheChek News Flow

S&P 500 index declines 4.9% in first three months of 2022

US stocks slumped on Thursday, closing out their worst quarter since the start of the coronavirus pandemic, under pressure from the war in Ukraine, high inflation and what is expected to be an aggressive run of interest rate rises.

The benchmark S&P 500 index fell 4.9 per cent over the three months to the end of March, while the tech-heavy Nasdaq Composite declined 9.1 per cent.

It was the weakest quarter for both, and also the first quarter of losses for the S&P 500, since the first quarter of 2020.

“There are a lot of good reasons for a down quarter,” said Lou Brien, a strategist at DRW Trading. “No matter which way you turn, there is more uncertainty. Which way will the war in Ukraine turn? How will the Fed conduct policy?”

US Treasury bonds have also suffered dramatic losses this quarter: the two-year yield, which moves inversely to price, has risen by 1.58 percentage points, the most since the second quarter of 1984. The benchmark 10-year Treasury yield has increased by 0.82 percentage points, the most since the first quarter of 2021.

The two-year yield, which moves with interest rate expectations, has risen as the Fed increased interest rates by a quarter-point in March for the first time since 2018. Roughly eight more quarter-point cuts are priced in this year as investors bet that the central bank will have to move more rapidly than in previous cycles to tamp down inflation.

A Bloomberg index of total returns from Treasuries had fallen 5.6 per cent this year as of Wednesday’s close, putting it on course to post its weakest quarterly performance since the inception of the index in 1973.

In credit markets, iShares HYG, the largest US high-yield ETF, fell by 5.4 per cent this quarter, its worst performance since the first quarter of 2020. The equivalent investment grade ETF is down 8.7 per cent this quarter, also the worst since 2020.

Asian shares followed the US lower on Friday morning, with Hong Kong’s Hang Seng index falling as much as 2 per cent and Japan’s Topix shedding 1.3 per cent in early trading, before paring back some losses.

Oil prices weakened on Thursday after the US announced a “historic release” of about 180mn barrels from its Strategic Petroleum Reserve in response to a global supply shortage.

The Opec+ group of oil-producing nations said it would aim to raise production by 432,000 barrels a day in May, continuing with the monthly plan agreed last year to gradually replace output cut at the start of the pandemic.

Brent crude, the international oil benchmark, settled at $107.91 a barrel, down 4.9 per cent, although oil prices have risen almost 40 per cent in 2022.

The moves came as data showed that the US Federal Reserve’s preferred inflation gauge — the core personal consumption expenditures index which strips out the volatile food and energy sectors — rose 0.4 per cent in February from the previous month.

The figure marked a moderation from January, but took the annual increase in the core PCE index to 5.4 per cent, the quickest pace in about 40 years.

Staff guidance aims to create consistency in accounting for crypto assets held by trading platforms

WASHINGTON—Cryptocurrency exchanges will soon have to report the digital tokens they hold for customers on their balance sheets, according to Securities and Exchange Commission accounting guidelines released on Thursday.

The guidelines reflect SEC Chairman Gary Gensler’s warning that investors who own cryptocurrency through trading platforms like Coinbase Global Inc. COIN -3.48% are effectively making unsecured loans to those companies

As part of their business, crypto-trading platforms custody, or hold, assets on behalf of their customers. Like publicly traded securities brokerages, they currently disclose the total value of those assets apart from their own balance sheets, which tally up their own assets and liabilities.

The new accounting guidelines instruct publicly traded crypto firms to record the digital tokens they custody for customers as assets and their obligation to the customers as liabilities.

SEC officials said the aim is to introduce consistency to the accounting methods used by such platforms. But the change could also cause the balance sheets of publicly traded crypto exchanges and other SEC-registered entities that custody cryptocurrencies to grow exponentially.

Coinbase, the largest publicly traded crypto exchange, says it held $278 billion of cryptocurrencies and currencies for its customers as of Dec. 31, 2021. But it reported only $21.3 billion of assets and liabilities on its balance sheet.

“We’re going to see a very expanded balance sheet on both the debit side and credit side for crypto exchange operators,” said Vivian Fang, associate accounting professor at the University of Minnesota.

The SEC’s new guidance for crypto-trading platforms contrasts with the approach used by brokerages such as Charles Schwab Co. Inc. Those firms are allowed to leave the value of client assets off their own balance sheets because of legal precedent that has established that, in the event of bankruptcy, the assets belong to the clients.

The law is less settled in the case of crypto, SEC officials say.

The crypto industry has grown rapidly in recent years thanks to a flood of Wall Street market participation and venture-firm funding. But despite the rising popularity of digital tokens, the market remains largely unregulated.

While the technology behind cryptocurrencies enables people to transact directly with each other using digital wallets, most investors access the market through centralized trading platforms like Coinbase, FTX or Kraken.

In such cases, those platforms hold customers’ bitcoins or other tokens in their own wallets.

“The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties,” SEC staff wrote in a bulletin released Thursday. “These risks can have a significant impact on the entity’s operations and financial condition.”

Outbreak at elderly-care facility suggests hidden impact on China’s financial center; ‘Orderlies, nurses and doctors, we’re all infected’

HONG KONG—Many patients have died in recent days at a large Shanghai elderly-care hospital that is battling a Covid-19 outbreak, according to people familiar with the situation, a sign that a new wave of infections is hitting China’s financial capital harder than authorities have publicly disclosed.

Shanghai’s government hasn’t reported any Covid-related deaths or outbreaks in its hundreds of elderly-care centers since cases began climbing in the city in March.

Six replacement orderlies at the city’s Donghai Elderly Care Hospital, brought in after previous caretakers were sent away to quarantine, told The Wall Street Journal that they had witnessed or heard of the recent removal of several bodies from the facility, where they said at least 100 patients had tested positive for Covid-19.

One orderly said he was tasked with posthumously dressing a male patient who had died on Monday night after he was infected with Covid.

“I was scared to death. I said, ‘Look, look, those are for dead bodies,’” another orderly said, recalling the sight of half a dozen hearses parked at the hospital gate at night.

Separately, the son of a patient at the hospital said that his father had died within the past week, a friend of the son told the Journal, adding that others who had visited the hospital reported seeing the bodies of at least a dozen deceased patients.

More than half a dozen users on several of China’s major social-media platforms have also posted messages alleging unreported deaths at the hospital in recent days.

It couldn’t be determined whether the deaths were caused by Covid infections or other chronic illnesses. The hospital doesn’t publicize data on deaths, making it difficult to compare the recent rate of patient deaths with previous periods. Some relatives of patients said their loved ones were left unattended after infected caretakers were quarantined.

City health officials haven’t acknowledged the rapid spread of infections at the facility. The government reported two new Covid cases at an address matching that of Donghai Hospital on March 16 and 17. In subsequent days, the government listed the address as a location where infections had been reported, but didn’t say how many cases were recorded.

Calls to the hospital president’s office and the general office rang unanswered Wednesday and Thursday. Spokespeople for the Shanghai municipal government and Pudong district, where the hospital is located, didn’t respond to requests for comments.

The reports of the deaths at the elderly-care facility, located in southeastern Shanghai, come as the city of 25 million battles a record surge in Covid-19 cases fueled by the fast-spreading Omicron BA.2 variant. Local authorities reported 5,653 new cases on Thursday after reporting close to 6,000 the day before. Officials imposed staggered lockdown measures earlier this week.

Public health experts have warned about the danger Omicron poses to China’s elderly population, with barely half of people over 80 having had two or more doses of vaccine. With four million residents above age 65, Shanghai is home to one of China’s largest, and oldest, urban populations.

Elder-care facilities have been the starting point for numerous deadly outbreaks, including New York at the beginning of the pandemic, when Covid infections in nursing homes led to nearly 4,000 deaths. Outbreaks in nursing homes in Hong Kong this year have led to record death rates in the former British colony, where vaccination rates among the elderly are also low.

Shanghai Donghai is a 20-year-old facility overseen by a state-owned food conglomerate with 1,800 beds and an orthopedics ward that also treats younger patients. The city’s biggest elderly care center by capacity, it reported zero Covid infections in 2021.

In a post published March 25 on its verified Weibo account, the hospital said that it had been sealed off 13 days earlier, and that positive Covid cases would be transferred, but didn’t say when the outbreak started.

Zhang Aizhen, an orderly who has worked in the hospital for more than a decade, said she was put on a bus on the night of March 19 with dozens of staff, including nurses and doctors, after she tested positive. She said she spent a week in a quarantine hotel, before being moved to a makeshift quarantine center in a stadium last weekend.

“Orderlies, nurses and doctors, we’re all infected,” she said.

Roughly four dozen replacement orderlies have been hired by the hospital over the past two days to replace caretakers who had been quarantined, according to people familiar with the situation. Many of the replacement workers weren’t told of conditions in the hospital before being hired and were shocked to be tasked with caring for so many Covid-positive patients, the people said.

One orderly helped remove the bodies of dead patients from the hospital for three days in a row before he himself tested positive and was taken away to quarantine, according to a co-worker.

On Saturday, a former employee of a Shanghai-based film production company wrote in a widely shared post on Weibo that her grandmother had been transferred from Shanghai Donghai to another hospital after testing positive for Covid. She also wrote that another patient at Shanghai Donghai, the 94-year-old grandmother of an acquaintance, died last week after contracting Covid.

The claim couldn’t be independently verified by the Journal, and the user didn’t respond to a reporter’s inquiries.

Joy Zhu, a resident living in the west part of Shanghai, said he couldn’t locate his 92-year-old grandmother, Chen Xiuyue, for several days after her caretaker and doctor from Shanghai Donghai were both put under quarantine.

On Saturday, another hospital called to inform him that Ms. Chen had been transferred three days ago and was safe, although she had tested positive for Covid, he said.

“I was very worried,” Mr. Zhu said of the sudden change imposed on his grandmother, who suffers from Alzheimer’s. “I was concerned she might reject a strange caretaker.”

Replacement orderlies at Shanghai Donghai said they were required to sleep in the same room as Covid-positive patients in dirty conditions that attracted mice. Some have since gone on strike.

Disruptions to other parts of the city’s healthcare system have also turned deadly.

Shen Ruigen, a 77-year-old retired doctor, died alone in an intensive-care unit on Monday after a positive Covid test led him to be quarantined for 48 hours without the dialysis he needed to treat his chronic kidney disease, according to family members.

Mr. Shen suffered a heart malfunction, which may or may not have been related to the delay in his dialysis treatment, a doctor later told his son, Shen Jie, in a recorded phone conversation reviewed by the Journal.

In another recorded conversation provided by the family, an official with the local center for disease control struggled to explain why they couldn’t save his life.

“We can’t do much if the hospital refuses to take the patient,” the official said. “We can’t force them.”

More artists experiment with digital tokens but critics question valuations and ultimate worth for fans

DJ Justin Blau was opening up for his superstar peer Avicii on a beach in Mexico when he met the Winklevoss twins, who introduced him to bitcoin. “It couldn’t get more cliché than that,” he says of his 2014 meeting with the Harvard classmates of Mark Zuckerberg, who have since become blockchain evangelists.

As a university student, Blau dropped his finance studies and turned down an internship at asset manager BlackRock to pursue a DJ career. Years later, he has combined his dual interests — music and finance — into a business aimed at disrupting the record industry through blockchain technology. On Tuesday he teamed up with longtime friend Diplo, the popular electronic musician, to sell 20 per cent of the streaming royalties of a song to fans in the form of digital tokens.

“I’m just fascinated with the idea of there being value for the ownership of music,” Thomas Pentz, known professionally as Diplo, told the Financial Times. “The more people behind your record, whether its fans or investors who are interested in the technology, it’s great to have more people on a team.”

In recent months the hype surrounding Web3 — the buzzword for a decentralised, blockchain-powered iteration of the internet — has swept the music industry, drawing the world’s largest music companies to the fray and fuelling hope that non-fungible tokens will become a new source of money for musicians.

To sell an NFT, musicians assign their song, video or other piece of media to a digital token. The token is sold through an online auction enabled by blockchain technology, which keeps a record of the transaction. Beyond songs or images, NFTs could also be used to sell perks such as backstage passes or meetings with stars.

Head-spinning examples abound. Rapper Snoop Dogg in February sold an NFT attached to Bacc on Death Row, his latest album, that reportedly generated more than $40mn in sales in just five days. DJ Steve Aoki claims he has made more money through NFTs than he did from a decade’s worth of advances from record labels.

“Some of these valuations are out of control. As an investor, I’m seeing a lot of it and have to laugh occasionally,” said a senior executive at a major music label.

But after getting knocked over by the internet via the advent of file-sharing company Napster two decades ago, the big music companies are looking to get ahead of technological change this time around, making them willing participants in the market.

Universal Music, the group behind Taylor Swift and Drake, has struck partnerships to create NFTs for its artists — including a virtual band featuring characters from the Bored Ape Yacht Club — as have rivals Sony and Warner.

After spending more than half a billion dollars buying the copyrights to Bob Dylan’s songbook, Universal and Sony are now working with the musician to sell Bob Dylan NFTs. Spotify has been drawing up plans to add blockchain technology and non-fungible tokens to its streaming service, the FT reported earlier this month.

“There’s been a lot of waxing and waning of irrational exuberance around this space”, said Jonathan Dworkin, senior vice-president of digital strategy at Universal. “As the smoke now starts to clear, there’s some really interesting opportunities . . . there’s a real revenue opportunity” he said, pointing to the ways tokens can directly connect fans with artists.

But so far, most participants in music NFTs are crypto enthusiasts rather than ordinary fans, and the market is tiny — taking in just $83mn in primary sales last year, according to industry blog Water & Music.

There are plenty of sceptics. “It feels like the music industry is desperately trying to find a way to insert itself into NFTs without actually thinking: what is the underlying use case?” said Mark Mulligan, analyst at Midia Research.

Mulligan argued it is hypocritical of musicians to sell streaming royalties to fans, after years of complaints over the minuscule payments artists themselves receive in streaming royalties. “If you sell someone a fraction of that fraction, and charge them a lot of money for it because it’s an NFT, I’m not sure how it would be a valid investment.” 

Diplo maintained it is a good investment for music lovers. “For a fan, what you can do is buy merch, you can buy tickets for a concert . . . but really, this is what you’re a fan for. You’re a fan because of the music.”

Most of the $17.7bn worth of NFTs traded last year were for visual art, games and collectibles, according to market tracker Nonfungible.com. While the NFT market itself has shown signs of slowing with daily trading volumes on OpenSea, the biggest marketplace for NFTs, falling since the start of the year, some people view music as a space ripe to break out this year.

Royal, Blau’s company, is among the most prominent of a crop of music blockchain start-ups that aim to revolutionise the industry. Through Blau’s personal connections — and Silicon Valley optimism around blockchain — Royal secured $55mn from investors including Andreessen Horowitz and Peter Thiel, without ever making a pitchbook.

Blau, who last February sold $12mn in NFTs attached to his songs, wants to scale that into a business through which ordinary fans can own music, “as opposed to just record labels, private equity and hedge funds”. 

Royal’s project with Diplo, for example, offers fans the option of paying $99 for a token representing 0.004 per cent of the streaming royalty rights to “Don’t Forget My Love”, the first single from his recently released album. For $999, you receive 0.05 per cent of the royalty rights, as well as an “exclusive DJ mix,” while $9,999 gives you 0.7 per cent of the royalties and a meeting with Diplo at a concert. These tokens do not equate to owning the copyrights to songs.

Asked whether this is a good investment for fans, Blau said that there is an emotional attachment to the ownership, as well as the possibility of betting on the success of an artist before they become a star. “In real estate . . . if you own a single family home there’s the rental income and then there’s the actual asset appreciation, right?” he argued.

Another longtime music label executive said that some of these projects “haven’t hit because people are concerned about the exploitative nature”, referring to the questionable investment value of streaming royalties.

“There’s a lot of detractors that say: there’s only rich white dudes that are doing this and driving up the price of NFTs.

“But I don’t think we can discount that technology is evolving,” the executive added. “We’ve been in playlist land for the past decade. I think that blockchain tokens are going to be fundamental to our world in 10 years, and anyone that says that’s not true is not looking back on history.”

The luxury Swiss watch brand needs to borrow a leaf from the book of its old rival Rolex

It was just like old times last weekend, when thousands of people lined up around the world to buy a MoonSwatch. Not since the 1980s and 1990s has the launch of a new Swatch watch created such buzz.

The £207 timepiece they all wanted was Swatch’s tribute to the Omega Speedmaster Moonwatch Professional, as worn by American astronauts including Buzz Aldrin when he walked on the moon in 1969. The MoonSwatch, which comes in 11 colours, is a playful pastiche of a clockwork icon that retails for £4,200 or more.

You need luck to secure a MoonSwatch. The Swatch Group, which owns Swatch and Omega, wants to sell as many as possible and has not made it a limited edition. But it managed the first drops at 110 Swatch stores so tightly that it caused a sensation in London and New York, while police were called to control the crowd in Melbourne.

One-off collaborations between luxury and mass brands are two a penny. Since Isaac Mizrahi’s fashion collection for Target in 2003 and Karl Lagerfeld’s for Hennes & Mauritz in 2004, the playbook has become familiar. This year’s crop includes Yeezy Gap engineered by Balenciaga, Adidas x Prada Re-Nylon and Supreme x Burberry: brands now look lonely by themselves.

The obvious way to view the MoonSwatch, and one that Omega has gently encouraged, is that it has done Swatch a favour by co-operating with the stunt. Luxury watchmakers are better known for trying to eliminate knock-offs than for encouraging imitations, but Swatch could do with a new friend.

“Sad to say, Swatch is an ageing brand that has lost traction among young people,” says Oliver Müller, founder of the Swiss advisory firm LuxeConsult. Swatch used to have a magical ability to conjure attraction to its limited edition plastic watches. The first Swatches were released in Zurich in 1983 and queues outside boutiques were soon common.

Swatches were affordable enough to collect and to match various designs with different outfits. Its collaborations with artists such as Keith Haring and Alfred Hofkunst turned into collectibles: one of a limited edition of 121 Kiki Picasso Swatches sold for $28,000 at Christie’s in 1992.

Swatch also had a deeper purpose. Nicholas Hayek, Swatch’s co-founder, rescued the Swiss industry from the “quartz crisis” of the 1970s, when Japanese quartz watches overtook cheap mechanical devices. The Swatch Group not only turned Swatch into its fashion alternative, but consolidated manufacturing of smaller brands that were facing extinction.

Fashion and technologies change, and today’s threat to Swiss watches that sell for $500 or less is the smartwatch, particularly Apple Watch. If you can change the face of an Apple Watch by swiping, swap the wristband to a different colour and track any exercise digitally, who needs quartz?

Swatch still sells about 3mn watches a year, but they are so cheap that the brand means less to the Swiss company that bears its name. Swatch contributed only 3.5 per cent of Swatch Group’s revenues last year, according to Morgan Stanley, with most coming from its Omega, Longines and Tissot brands. It really ought to be called the Omega Group.

This is the story of Swiss watches since the quartz crisis. Swatch did its job so well that it financed the industry’s move to making luxury mechanical watches: Omega sold an estimated 570,000 watches last year, but its turnover was more than 10 times that of the Swatch brand. The Swiss export half the number of watches they did two decades ago, while earning more.

But Omega has its own problem, which is where the MoonSwatch comes in. The ultimate status symbol for a modern luxury brand is being unobtainable because there are not enough to meet demand. The most salient recent development in Swiss watches is the Rolex shortage: the fact that it has become extremely hard to walk into a Rolex shop and buy one.

Omega and Rolex are old rivals with historic portfolios, from Omega’s Speedmaster and Seamaster to Rolex’s Oyster Perpetuals and Submariners. The awkward fact is that Omegas are now much easier to obtain than Rolexes, although Rolex sells an estimated 1m watches a year, at an average retail price of about $12,500. The MoonSwatch may be sold out but the Moonwatch is not.

Rolex insists that it has not tried to engineer scarcity: it is working as hard as it can to hand make more. But there is nothing like an edition that really is limited to whet the appetite. Omega could achieve the same by reducing production, but what it really needs is to attract a new generation of luxury consumers to its boomer heritage.

What could be better than thousands of people who might aspire to Rolex instead walking around with colourful imitations of Moonwatches on their wrists? Swatch Group is more heavily invested in increasing demand for Omegas than for Swatches and this guerrilla marketing campaign pays for itself.

So, the MoonSwatch has something for everyone. Swatch relives its playful and collectible past; Omega gains a line around the block.

Even mild SARS-CoV-2 infections can amplify a person’s chance of developing diabetes, especially for those already susceptible to the disease.

People who get COVID-19 have a greater risk of developing diabetes up to a year later, even after a mild SARS-CoV-2 infection, compared with those who never had the disease, a massive study1 of almost 200,000 people shows.

The research, published in The Lancet Diabetes & Endocrinology earlier this month, is one of a growing number of studies2 showing that COVID-19 can increase a person’s risk of diabetes, months after infection.

“When this whole pandemic recedes, we’re going to be left with the legacy of this pandemic — a legacy of chronic disease” for which health-care systems are unprepared, says study co-author Ziyad Al-Aly, chief researcher for the Veterans Affairs (VA) St Louis Healthcare System in Missouri.

Al-Aly and Yan Xie, an epidemiologist also at the VA St Louis Healthcare System, looked at the medical records of more than 180,000 people who had survived for longer than a month after catching COVID-19. They compared these with records from two groups, each of which comprised around four million people without SARS-CoV-2 infection who had used the VA health-care system, either before or during the pandemic. The pair previously used a similar method to show that COVID-19 increases the risk of kidney disease3, heart failure and stroke4.

The latest analysis found that people who had had COVID-19 were about 40% more likely to develop diabetes up to a year later than were veterans in the control groups. That meant that for every 1,000 people studied in each group, roughly 13 more individuals in the COVID-19 group were diagnosed with diabetes. Almost all cases detected were type 2 diabetes, in which the body becomes resistant to or doesn’t produce enough insulin.

The chance of developing diabetes rose with increasing severity of COVID-19. People who were hospitalized or admitted to intensive care had roughly triple the risk compared with control individuals who did not have COVID-19.

Even people who had mild infections and no previous risk factors for diabetes had increased odds of developing the chronic condition, says Al-Aly. Of the people with COVID-19 who avoided hospitalization, an extra 8 people out of every 1,000 studied had developed diabetes a year later compared with people who were not infected. People with a high body-mass index, a measure of obesity — and a considerable risk factor for type 2 diabetes — had more than double the risk of developing diabetes after a SARS-CoV-2 infection.

Given the extraordinary number of COVID-19 cases globally — 480 million confirmed cases and counting — the modest increase in diabetes risk could correspond to a drastic rise in the number of people diagnosed with the disease worldwide, if the observed trends hold true, says Jonathan Shaw, an epidemiologist at the Baker Heart and Diabetes Institute in Melbourne, Australia.

But the findings might not translate to other groups of people. The US veterans in the study were mostly older, white men, many of whom had elevated blood pressure and were overweight, putting them at high risk of developing diabetes, says Gideon Meyerowitz-Katz, an epidemiologist studying diabetes at the University of Wollongong in Australia. But that risk is much lower in younger people, he says, and higher in some other ethnic groups.

And it’s possible that some people in the control group had undetected mild or asymptomatic COVID-19 but were never tested, potentially skewing the data, Al-Aly adds.

Other factors might also be contributing to the apparent rise in diabetes among people who recovered from COVID-19, says Shaw. Existing cases of diabetes might have gone undetected until people sought medical care for COVID-19.

Early in the pandemic, researchers raised concerns based on anecdotal reports in young people and children that SARS-CoV-2, like other viruses, might damage cells in the pancreas that produce insulin, triggering type 1 diabetes.

But data on a link between SARS-CoV-2 infection and newly diagnosed cases of type 1 diabetes remain mixed. Several studies5–7 have found no evidence that the disease is causing the uptick in cases of type 1 diabetes in younger adults or children. And a laboratory study published in February also challenged the idea that SARS-COV-2 destroys insulin-producing pancreatic cells8.

A lingering question is whether the metabolic changes observed in people who had COVID-19 persist after one year. More research is needed to clarify long-term trends in new-onset diabetes at a population level and to tease apart what might be causing them, says Shaw.

doi: https://doi.org/10.1038/d41586-022-00912-y

Shanghai extends Covid lockdown

Shanghai will extend strict lockdown measures in many parts of the city that were expected to resume normal life today, as the Chinese financial centre ramps up efforts to contain an outbreak of largely asymptomatic cases of Covid-19.

Under measures announced by city officials yesterday for the eastern Pudong area, which includes Shanghai’s financial district, all residents living in compounds where positive cases have been found will be confined to their homes for an additional 14 days.

The measures will effectively extend for many residents a broad four-day lockdown of Pudong that began on March 28. Shanghai’s western Puxi area, which includes the historic centre and famous Bund waterfront, will also start its own four-day lockdown today.

In Hong Kong, a top official signalled renewed dedication to mainland China’s tough zero-Covid policy, despite recently easing some restrictions.

The new holding is meant to protect a number of Italian manufacturers in the supply chain that help create garments and accessories by leading global luxury brands.

MILAN — Matteo Marzotto believes “beauty will save the world.”

In his efforts to protect a number of Italian manufacturers that help create apparel and accessories for leading global luxury brands, the entrepreneur is investing in a new project, a holding company called Minerva Hub.

The group was presented on Thursday by Marzotto and his partners — Franco Prestigiacomo, chief executive officer and founding partner of Xenon Private Equity, and Gianfranco Piras, president of XPP Seven.

Minerva Hub stems from the fusion of XPP Seven and Ambria Holding, which Marzotto formed last year, as reported, taking majority stakes in Italian companies Zeta Catene and Galvanica Formelli, both located in the Arezzo, Tuscany area. Zeta Catene produces more than 2,000 types of chains of different shapes, sizes and materials, such as brass and silver, as accessories for bags and shoes. Galvanica Formelli offers metal details, components and galvanic treatments for fashion accessories.

XPP Seven was founded in 2019, and grew to comprise Koverlux (based outside Bergamo); Quake (near Vicenza); Sp Plast Creating (Fermo), and Zuma Pelli Pregiate (Pisa). Koverlux is a leader in surface finishing for the fashion and accessories business, touted by Marzotto as the only company able to apply multiple finishes, from lacquering to flocking or engraving, to a single object. Quake is a specialist in automatic embroideries; SP Plast deals with the transformation of plastic materials, mold design and construction and product engineering, and Zuma is a tannery specialized in precious hides.

Xenon, which Marzotto praised for having an industrial vision, was the “catalyst,” he said, and will have a majority stake in the holding, headquartered in Milan.

“This is the first time a brand is set up to offer its service to the best Italian know how and creativity, in an effort to avoid the dispersion of the skills built over generations that, on the contrary, we want to enhance and consolidate for the future,” contended Marzotto proudly.

Aggregating the activities of the above mentioned six companies, Minerva Hub has sales of more than 101 million euros, a portfolio of around 1,000 clients and 434 direct employees.

The first goal is to coordinate, integrate and strengthen the activities of these companies to supply top quality products and excellent service, explained Marzotto.

“This is a clear industrial project, to offer a platform that delivers strong artisanal and technological skills integrated with more efficient and flexible production processes, becoming an acceleration of an expansive and modern network of integrated companies.”

The companies under the Minerva Hub umbrella mainly work with the fashion and luxury industries, but also with the design, sportswear, cosmetics, jewelry and automotive sectors.

Prestigiacomo said three potential additional acquisitions are in the pipeline to be completed by the end of the year. While he declined to provide a figure for the initial investment in forming Minerva Hub, he said it was “almost equivalent to the holding’s sales.” He also underscored that Xenon, conversely to most private equity funds, operates within “an extremely long time frame” and exit strategy. “We will continue to invest until we can grow the industrial project.”

“Italy has missed the opportunity to consolidate the luxury brands in fashion poles, but its know how has remained unparalleled and Italian artisans and manufacturers find the best solutions to the creative ideas of the brands’ designers. We are here to support the artisans with a more solid, structured and sophisticated organization,” continued Prestigiacomo. He noted that the founders of the companies aggregated under the Minerva Hub umbrella all reinvested in the holding, becoming partners. “They realized we could offer more prospects, more focus and more managerial skills.”

Marzotto said investments will be made to support the artisans in ESG projects to become more sustainable, to trademark new products and to buy new machines, “concretely responding” to the current challenges in terms of innovation, production efficiency and competitiveness. Minerva Hub has also initiated a training project, he revealed. “We are investing in the protection of the skills that need to be passed on to the new generations. We have started an academy within three of the six companies and we will extend the project to all of them. We need to give continuity and this will be done through the help of the artisans with the most experience and outside consultants.”

Piras said a first meeting with Marzotto to propose a deal was held at the Hotel Minerva in Arezzo, hence the name of the holding, but also because Minerva was the goddess of handicrafts, the professions and the arts in ancient Rome. “We reached out to see if there was an interest in joining forces to become problem solvers for the brands,” he said. He touted the uniqueness of the holding, as he contended that other groups that have been formed to support the Italian pipeline did so by “vertically integrating,” while Minerva Hub cross-pollinates across the board, “responding to requests from different sectors.”

He said Minerva Hub will leverage the expertise of Marzotto, named president, as well as that of Marco Casone, who is taking on the role of chief executive officer. Marzotto and Casoni, a former Dondup and Marni executive, have worked together for years, first at Valentino and then at Vionnet. Marzotto is a former investor in Vionnet and Dondup and, before that, he was chairman of Valentino.

There has been brisk M&A activity in Italy’s supply chain, further triggered by the impact of COVID-19, and much of it meant to support the know-how and craftsmanship of the country’s fashion pipeline.

Earlier this month Brunello Cucinelli bought a 43 percent stake of Cariaggi Lanificio SpA, its longtime cashmere supplier.

Last year, the Prada and Ermenegildo Zegna groups joined forces to acquire a majority stake in Filati Biagioli Modesto SpA, which specializes in the production of cashmere and other precious yarns, sharing the goal to ensure continuity of the excellence of the company and to develop their own Made in Italy production chain.

It is similar to the rationale behind Gruppo Florence, the luxury production pole established in 2020 by industry veteran Francesco Trapani through private equity fund VAM Investments together with Fondo Italiano d’Investimento and Italmobiliare. The goal is to supply high-quality Made in Italy products to major luxury fashion brands by acquiring family-owned Italian SMEs.