Crypto Use Is Taking Root in Emerging Markets
A Chinese family pays U.S. private school tuition in Bitcoin. A Kenyan working in Germany sends a remittance home, avoiding a fat commission. Cambodian villagers buy market supplies via QR code instead of stacks of cash.
While U.S. investors scramble to speculate on the first Bitcoin exchange-traded fund, real-world uses for cryptocurrency are quietly taking root across developing countries, where governments block fiat transactions or middlemen impose exorbitant fees.
“In Africa you might have to fly a suitcase full of cash to trade with the country next door,” says Ray Youssef, CEO of peer-to-peer crypto exchange Paxful. “Bitcoin frees your money from that financial prison.”
Crypto use is expanding in two ways in emerging and frontier markets: from the bottom up through increasingly user-friendly exchanges like Paxful or Binance, and from the top down as governments roll out official digital currencies. An unlikely pioneer in this category is Cambodia, whose Bakong system has attracted six million users since launching a year ago, says Claire Wilson, a partner at Asia-based consultant Holland & Marie.
The bottom-up movement is more what Bitcoin’s founders probably had in mind. Nigerians, for instance, have flocked to crypto transfers for the $25 billion or so they receive annually from relatives abroad, Youssef says.
This gets around an official exchange rate that can be 30% lower than the real black market rate. South Africans use crypto to exceed their government’s limit of one million rand ($68,300) in capital export a year.
China, which combines global commercial reach with strict capital controls, could dwarf other jurisdictions in its appetite for alternative cryptocommerce. “We’re finding a lot of use cases around importing goods where China is the counterparty,” says Kimberly Grauer, director of research at Chainalysis, which follows global crypto trends.
Governments from Beijing to Abuja have fought such erosion of their prerogatives. Now they have “begun to appreciate and explore the benefits of crypto” for their own use, Wilson says.
A key motive is reaching the 1.7 billion adults worldwide who have no bank account, by World Bank numbers. About 70% of Cambodians are unbanked, but most can now connect to a digital network via cellphone.
Thailand should unveil a digital currency next year, with neighbors like Indonesia and Malaysia not far behind. Not to mention China’s digital yuan, which is supposed to go live nationally in 2022. “The technology for digital currencies probably already exists,” Wilson says. “I expect Asia to respond quickly within the next five years.”
An accelerated mashup of bottom-up and top-down crypto expansion is under way in another unexpected geography: El Salvador, which made Bitcoin legal tender last month. Paxful’s Youssef smells opportunity in a country where remittances provide a fifth of gross domestic product. “People were a little scared at first, but now their hearts and minds are open,” he says.
Other observers see more misery in store for Salvadorans, as Bitcoin’s value pitches and rolls with the mood of faraway First World investors. “Imposing the use of Bitcoin on people in a low-income country is not a good policy measure,” says Paola Subacchi, who teaches international economics at Queen Mary University of London.
However the El Salvador experiment works out, digital money is finding applications beyond gambling, with emerging markets in the lead.
Cars Are Getting Smarter. This German Chip Maker Is Poised to Gain.
German chip maker Infineon Technologies should be benefiting from booming demand for its technology, as global economies bounce back from Covid-19 restrictions.
The Munich-based semiconductor giant (ticker: IFX.Germany) designs, manufactures, tests, and sells the brains that control computers used in autos, industrial machines, and consumer electronics.
But in February, a severe winter storm and resulting regional power outage forced a key manufacturing facility in Austin, Texas, to temporarily shut. Then, in June, an outbreak of coronavirus shuttered portions of a plant in Malaysia.
The company said that lost volume wouldn’t be made up until 2022. Infineon shares lost more than 15% of their value between February and July, but have bounced back, rising 5% in the past month to a recent 37.95 euros ($44.17). The stock is up about 21% this year.
The business fundamentals are still good, and the stock now could offer a buying opportunity. The number of products that use semiconductors will continue to increase by at least 6% to 8% annually over the next few years, predicts Berenberg analyst Tammy Qiu.
There is increasing demand for safer cars with advanced driving features that use sophisticated semiconductors. Infineon is well-placed to benefit from this trend, as the automotive sector contributed 41% of its annual revenue in 2020.
Infineon also is likely to benefit from increased demand in China, where it is market leader for certain types of chips. Its technology is more advanced than local chip makers’, so it is able to charge a 30% to 50% price premium, says Qiu.
“China has always been a big revenue contributor for Infineon, at about 30% of total revenue over the past three years,” Qiu writes in a client note. “Infineon has an unchallengeable competitive position in the country.” She has a Buy rating on the stock, which she estimates could rise 30%, to €48.
Stephane Houri, an analyst at French financial services group Oddo BHF, has a €48 target on Infineon, and says “the momentum is good. The group is well positioned to capture structural growth in its various markets.”
The business has a market value of €47 billion, fetches 25.7 times this year’s expected earnings, and is valued in line with its peers. For the year through September 2020, Infineon posted net income of €368 million on €8.6 billion in revenue, down from €870 million on €8 billion the previous year.
Deutsche Bank analyst Johannes Schaller estimates that revenue for fiscal 2022 could reach €13 billion, up from his current estimate of €12.6 billion.
For 2021’s third quarter through June—the company’s latest reporting period—net income was €496 million on revenue of €2.7 billion. Infineon said that it expects revenue of about €11 billion for fiscal 2021, which ends on Sept. 30. Annual results are to be released next month.
“Infineon is uniquely positioned to shape the two megatrends of today—electrification and digitalization. Both will not happen without semiconductors,” Infineon Chief Financial Officer Sven Schneider tells Barron’s. “Our company is set to continue its profitable growth journey into and beyond this decade, creating sustainable value for all stakeholders.”
If the impact of the two factory shutdowns were removed from the latest quarterly results, Metzler Capital Markets calculates that revenue would have risen about 30%, year over year, while operating margins would have been close to 19%—easily above expectations.
It looks as if the German chip maker is plugged nicely into growth from China and smarter cars.
Conservative billionaire Vincent Bolloré tightens grip on French media
Tycoon’s growing influence could shape the outcome of April’s presidential election, say analysts
When journalists at French weekly broadsheet Journal du Dimanche huddled at a newsroom meeting to discuss the sudden ousting of the title’s editor Hervé Gattegno this week, the atmosphere was funereal.
Many of those present feared that Vincent Bolloré, the conservative billionaire who controls media group Vivendi, was putting his imprint on the newspaper even before his pending takeover of its parent company Lagardère had been finalised.
They had reason to be worried: Bolloré, who made much of his fortune in logistics and transport in Africa and through savvy corporate raids, has a record of overhauling the staff, style and content of his media acquisitions. The tycoon, who comes from a family of traditional Catholics from Brittany, has long believed the French media is too leftwing and has sought to build a counterweight, according to people familiar with his thinking.
At Vivendi, he tamed the irreverent satirical shows of pay-TV operator Canal Plus and then fired its CEO. He used a month-long strike at news channel I-Télé to cull one-third of the newsroom, paving the way to rebrand it as CNews, a news and opinion channel inspired by the US champion of rightwing issues Fox News.
Changes at Lagardère’s Europe 1 radio station over the summer prompted a strike and mass departure of journalists. As Lagardère’s biggest shareholder, Vivendi parachuted in CNews stars to replace several veteran hosts at the once mainstream outlet. He also ordered that CNews be broadcast directly on the station’s airwaves on weekend mornings.
“We share an office building with Europe 1, so we all know what happened there,” said a JDD reporter who spoke under the condition of anonymity for fear of retaliation. “People are very worried that the editorial line will change, just as it has at other media that have gone under ownership of Bolloré.”
Coming as France gears up for next April’s presidential elections, the changes at Lagardère have taken on increased importance.
The company’s media outlets — which include society magazine Paris Match as well as JDD and Europe 1 — are closely followed by the business and political elite and are seen as influential in shaping public opinion.
Emmanuel Macron appeared on the cover of Paris Match eight times during his long-shot bid for the presidency in 2017, and his ministers frequently grace the cover of JDD on Sundays to make announcements that set the political agenda for the week.
“The JDD is one of the strongest tools of political power in France, so it is no accident that these changes are happening just before the elections,” said one former employee.
The paper has a circulation of about 150,000 but punches above its weight in terms of its influence, while Paris Match sells about 550,000 copies a week.
Bolloré’s growing influence in the media could influence the course of the next election by showcasing cultural and identity issues rather than topics like the economy or environment, analysts say. CNews has already helped launch one of its star presenters, the far-right polemicist Eric Zemmour, into politics.
Espousing an anti-immigration agenda and lamenting what he sees as France’s decline, Zemmour has come from nowhere since summer to poll in second place in behind Macron as a potential presidential candidate and pushed established far-right contender Marine Le Pen into third place.
Bolloré, who has traditionally supported centre-right causes and is close to former president Nicolas Sarkozy, has not publicly backed Zemmour but is said to appreciate many of his ideas, including on crime, according to people familiar with his thinking.
“Bolloré has gone step by step to furnish the radical right a place to express themselves, and they now have access to mainstream media outlets,” said Virginie Martin, a political-science professor at Kedge Business School in Paris. “They never had that before and that kept a glass ceiling over far-right politicians like Jean-Marie Le Pen and Marine Le Pen.”
If regulators approve Vivendi’s bid for Lagardère, Bolloré will in effect control France’s biggest pay-TV operator, Canal Plus; its biggest book publisher, Hachette; the widely watched 24-hour news channel CNews; Europe 1 radio; JDD; Paris Match; and a dozen other magazines.
Academics and historians have expressed concern about the concentration of media ownership in France, not only in Bolloré’s hands but also those of other wealthy proprietors. The Bouygues family own the biggest private broadcaster TF1 and are seeking approval to buy smaller rival M6. Telecom tycoons Patrick Drahi and Xavier Niel, and LVMH boss Bernard Arnault, also own key outlets.
“Bolloré is not the first rich person to invest in the press but he stands apart for how he weighs on the editorial line of his outlets,” said media historian Christian Delporte. “There is a political project behind all this.”
Officially the departure this week of Gattegno, who was editor of both JDD and Paris Match, was decided by Lagardère CEO Arnaud Lagardère, and the head of the news, Constance Benqué. But several people inside the group said Bolloré pushed for the change.
Vivendi and Lagardère declined to comment.
Gattegno was replaced by Patrick Mahé at Paris Match and Jerome Bellay at JDD, both of whom were named as general managers. Two deputies were promoted to editor in chief.
People who know Gattegno describe him as a controversial but brilliant editor known for defending Sarkozy in his legal woes and taking a hard line against normalising the far-right in France.
No reasons were given publicly for his departure. But some speculated that among the factors were his critique in an editorial of Zemmour as a “prophet of doom” and the decision to put the 63-year-old married father of three on the cover of Paris Match last month embracing his 28-year campaign adviser Sarah Knafo.
“Bolloré wanted his head,” said one company executive. “And he got it.”
What the GameStop saga revealed about US markets
SEC report challenges many of the narratives spun about the trading frenzy in retailer’s shares
The financial markets establishment massively underestimated the retail revolution in US stock markets.
For evidence, look no further than the 45-page myth-busting staff report issued this week by the Securities and Exchange Commission on January’s GameStop saga.
For those with short memories, this was one of those rare markets events that was chaotic and frankly fun enough to spill beyond the financial press.
TV, radio and the full range of non-specialist media were abuzz with the tale of an audacious assault by a plucky band of online warriors, who fired up the shares in a downtrodden US consoles retailer and claimed the scalps of bearish, too-clever-by-half hedge fund managers in the process. Then nerdy trading rules and blocked markets plumbing kicked in to stop them trading.
Depending who you believe, it was Occupy Wall St, it was David and Goliath, it was yet another example of the suits rigging the system against the little guy, or it was an outbreak of investment fever that quickly collided with reality.
The SEC’s report suggests that few if any of those interpretations are quite right. But it also makes clear that this event put the markets infrastructure under serious strain and undermined the principles of a stock market based on a “system of mutual trust and participation”. Whatever you think of GameStop, its share price should reflect those disagreements, and not market disruptions, the SEC says.
It is worth bearing in mind what kind of company GameStop is here. Avalon Penrose, a comedian, told me earlier this year that she once went to a GameStop store to exchange for cash a stash of video games that she had found in a bin (She didn’t get much money for them). Have-a-go traders nostalgic, contrarian or visionary enough to love the stock beg to differ, but at the time of the frenzy at least, this was not generally considered an exciting investment prospect.
Some of the facts and figures the regulator has pinned to the GameStop rally are breathtaking. Seemingly out of nowhere, with social media chatter about the stock bubbling up, the SEC says the number of people trading GameStop shares each day shot up to nearly 900,000 by January 27. That is equivalent to the entire population of Liverpool.
In the final full week of January, around 100m GameStop shares traded each day, up 1,400 per cent on the average from 2020. The shares gained 2,700 per cent from January 8 to 28. A clutch of other so-called meme stocks got tangled up in the rush.
The David and Goliath analogy kicks in with the notion that online day traders, flush with boredom and spare cash from pandemic lockdowns, were deliberately targeting hedge funds that were betting against the company.
The SEC is not so sure that humbled hedge fund managers scrambling to unwind their bets really drove the stock higher, whatever the amateur traders believe.
At some points, yes, professional short sellers did cover their positions by buying back GameStop shares after wearing “significant losses”. But, the SEC adds, such buying was “a small fraction” of overall buying volume and the price continued to hold up even after the short covering would have been exhausted. “It was positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock,” it says.
The SEC also reinforced the message from Robinhood, the retail broker at the centre of this drama, that it did not switch off trading in response to pressure from shadowy hedge funds. Instead it paints a picture of a poorly understood clearing and settlement system that was simply unable, under its own rules of risk management, to keep facilitating the huge wave of one-way bets.
Whether any of this will change the mind of bombastic retail traders is another matter. Clearly, some are still bitter. Earlier this month, Citadel Securities decided to fight back with a sassy series of tweets after facing a barrage of outlandish online conspiracy theories regarding the supposedly Machiavellian market influence of its principal owner, Ken Griffin. Some tweeps and redditors seem convinced that Griffin orchestrated the GameStop affair to his own advantage, theorising that he pulled the strings that led to the stocks’ later descent back towards earth.
His Wikipedia page was temporarily altered to allege, among other things, that he was friends with “that one guy without a nose from Harry Potter, and the entire SEC department”. Sharp-suited public relations executives for Citadel Securities have a job on their hands to keep up with what the company has called “baseless theories”. It looks like Griffin does not know Voldemort after all.
Another GameStop will roll around at some point. Before it does, the SEC urges market participants to “reflect” on what went right and wrong in an effort to be better prepared. In other words, the system should strive to accommodate trading in markets now showing “broad participation”, even when the professionals consider it to be irrational. Citadel Securities’ PRs might also have some tips for the next supposed villain of the story.
Bottega Veneta Mounts a Buzzy Fashion Show in Detroit—But Why?
The Italian luxury brand, helmed by creative director Daniel Lee, debarked to Michigan of all places to show its spring collection
Overheard on a plane from New York to Detroit this Thursday: “Are you going to the Bottega Veneta show?” asked one black-clad editor. “No, I just really like cars,” wisecracked a similarly somber-looking retailer. It seemed unlikely that any impetus other than Bottega’s impending event would lead hundreds of fashion-industry folks—some of whom the Italian luxury fashion brand flew in by chartered jet—to congregate in Motor City. Although it’s not a typical stop on the fashion-week circuit, Detroit was once called the “Paris of the Midwest,” a name that dates back to a 1705 letter that Antoine de la Mothe Cadillac, a French trader and colonist, sent his boss, heralding the city’s Parisian potential. (Monsieur Cadillac’s suit of arms, which was not wholly authentic, was eventually loosely translated into the Cadillac automobile logo.)
The excitement around the Bottega Veneta show in Detroit this week was a testament to the heat generated by the brand’s British designer Daniel Lee, the elfin Céline alum who’s turned the once-quiet Italian label into a star for luxury conglomerate Kering. A lover of techno and cars, Mr. Lee said he was “obsessed” with Detroit since he first visited six years ago, and eager to highlight it. Born almost 20 years after Bottega Veneta was founded in 1966, Mr. Lee has made it a shiny destination for conceptual ready-to-wear and Instagrammy accessories, especially ones in the new house shade of glaring green— “parakeet,” as it’s called.
That shade of green is popping up amid the brick facades and industrial buildings of Detroit, as the brand stages one of its “salon” concepts in the city. Part traditional fashion show and part cultural happening, previous salons have appeared in Berlin and London over the past year. Arriving downtown on Thursday, I spotted a woman with long blonde hair carrying a parakeet-colored shopping bag printed with “Bottega Veneta” and almost as large as she was. In Corktown—named for its 19th-century County Cork potato famine refugees—the label installed a three-month pop-up called “the Firehouse,” which will sell its wares alongside art, records and books in partnership with Detroit cultural curators until January 2022. Accordingly, the treasures range from vintage books by the late Detroit poet laureate Naomi Long Madgett to $2,100 Bottega Veneta roller skates, in parakeet of course.
At the show itself, which unfolded at the Michigan Theatre, a crumbling 1926 wonder, parakeet popped up on models wearing short party dresses, shimmering separates and slightly ugly yet covetable high-heeled sandals. In the front row, a paler shade of parakeet appeared on the feather-accented shoes and bag of Lil’ Kim, who along with Mary J. Blige, Kehlani and Burna Boy, was among the many musical attendees. Detroit techno legends Moodymann and Carl Craig contributed music to the show experience.
In an ebullient interview after the show, Mr. Lee said he was eager to make a collection that reflected the city’s history of innovation. So metal threads, a nod to automotive engineering, were woven through some pieces. Elements in rubber—beads, flat sequins and yarns—could recall tires or records in their fabrication. “Everything at Bottega is actually an engineering feat,” said Mr. Lee.
The British designer’s fascination with the U.S., also visible in looks like a Marilyn Monroe-ish dress and some stiff workwear pieces, emerged as a theme. “I really wanted to make an American monument,” said Mr. Lee. He continued, “I was really excited by the idea of ‘what is America?’—workwear, denim, sportswear.”
While Mr. Lee’s intentions appear to be genuinely creative, for brands like Bottega Veneta, the business motivation to engage the American market has never been stronger. In August, Chinese President Xi Jinping gave a speech calling for greater wealth redistribution and curbing of excessive incomes in his country. That rattled fashion conglomerates that have for several years depended on China as a strong luxury market, with a subsequent selloff over a period of two days of 60 billion euros, or $70.26 billion, from the market value of LVMH Moët Hennessy Louis Vuitton, Hermès, Richemont and Kering—the owner of Bottega Veneta. With this frost forming in China, the U.S. market has become more important than ever to luxury brands.
And there’s no doubt about it, this stuff sells. At the Corktown pop-up, another one of those oversized green shopping bags sat waiting for a client, stuffed with shoeboxes and stapled with a receipt for $5,800. Those shopping sprees add up, globally: In the third quarter of 2021, Bottega Veneta’s revenue was €363.4 million in the third quarter, up 8.9% compared to the same period last year. “Business has been really strong since Daniel Lee came on board,” confirmed Sam Lobban, the New York-based SVP of designer and new concepts at Nordstrom, which sells the brand at its stores.
Can everyday people, especially in a city as complex as Detroit, view such a successful outsider brand with goodwill? “We have a huge group of people here that love us, I think in a really genuine way,” enthused Mr. Lee after the show. And indeed, the people I spoke to seemed positive about the experience. Chris Schanck, a local furniture designer who created pieces for the pop-up, said he was impressed that Daniel “took the time to look around,” and that he brought “creatives, not suits.” A waiter at one of the lunches organized for the salon, at the Shinola Hotel, said he was excited that “Milan’s biggest fashion house” had chosen to show in Detroit.
Which is not to say that the joy was unmitigated. A woman wearing head-to-toe parakeet green tried on a pair of high sandals at the pop-up on parakeet-green carpeting. “They’re beautiful,” she said. “But they hurt like hell.”
Closing Stock Market SummaryThe S&P 500 eked out an intraday record high on Friday, but it closed lower by 0.1% and snapped a seven-session winning streak. The Dow Jones Industrial Average (+0.2%) set intraday and closing record highs with a modest gain, while the Nasdaq Composite (-0.8%) and Russell 2000 (-0.2%) closed lower.
The broader market looked like the Dow, as the Invesco S&P 500 Equal Weight ETF (RSP 158.51, +0.45) rose 0.3% to record highs. Seven of the 11 S&P 500 sectors closed higher, led by financials (+1.3%) with some earnings help from American Express (AXP 187.08, +9.61, +5.4%).
The communication services sector (-2.3%) was the big loser in response to Snap's (SNAP 55.14, -19.97, -26.6%) disappointing earnings report/guidance, which was attributed to Apple's (AAPL 148.69, -0.79, -0.5%) privacy changes and supply chain issues affecting Snap's advertising partners.
Alphabet (GOOG 2772.50, -83.11, -2.9%), Facebook (FB 324.61, -17.27, -5.1%), and to a lesser extent, Amazon.com (AMZN 3335.55, -99.46, -2.9%) were pressured by Snap's commentary. These mega-cap losses largely accounted for the underperformance of the Nasdaq.
Amazon also held back the consumer discretionary sector (-0.3%) while Intel (INTC 49.46, -6.54, -11.7%) held back the information technology sector (-0.3%) following its earnings report. INTC shares dropped nearly 12.0% amid disappointing margin guidance.
Honeywell (HON 217.40, -7.12, -3.2%), V.F. Corp (VFC 70.74, -3.33, -4.5%), and Beyond Meat (BYND 95.80, -12.82, -11.8%), among others also highlighted supply chain challenges. Honeywell and Beyond Meat provided disappointing revenue guidance.
The stock market for the most part was unfazed by the challenging economic environment. Today's action mirrored consolidation activity with investors possibly more fearful of missing out on further gains. Growth concerns were mainly manifested in Treasury market, which saw some curve-flattening activity.
The 2-yr yield rose four basis points to 0.47% amid increased expectations for the Fed to hike rates sooner than expected due to inflation. The 10-yr yield decreased two basis points to 1.66%. The U.S. Dollar Index decreased 0.2% to 93.62. WTI crude futures rose 1.6%, or $1.28, to $83.77/bbl.
Reviewing Friday's economic data:
- The preliminary IHS Markit Manufacturing PMI decreased to 59.2 in October from 60.7 in September. The preliminary IHS Markit Services PMI increased to 58.2 in October from 54.9 in September.
There is no economic data scheduled for Monday.
- S&P 500 +21.0% YTD
- Nasdaq Composite +17.1% YTD
- Dow Jones Industrial Average +16.6% YTD
- Russell 2000 +16.0% YTD