FT : Australia’s IAG denies exposure to Greensill after share plunge

Australia’s IAG denies exposure to Greensill after share plunge
Insurer’s stock price falls 10% on fears over links to collapsed supply-chain financier

Insurance Australia Group said it had no “net insurance exposure” to policies sold to Greensill Capital on Tuesday in response to a 10 per cent share price slide on concerns over its links to the collapsed London-based finance group.

The Australian insurer told investors the sale of its 50 per cent stake in BCC, a Sydney-based trade-credit insurer, to Japan’s Tokio Marine in 2019 had eliminated its exposure to policies sold to Greensill, a supply-chain finance company.

The market update followed a trading halt announced by IAG on Australia’s stock market after its shares sold off on news that Greensill had filed for administration in the UK and Australia. IAG shares fell 49 cents to A$4.32 (US$3.31) in early morning trade.

IAG said it put in a place a transitional arrangement following the sale of BCC to Tokio in April 2019 that lasted until the end of June 2019, whereby the Japanese insurer retained the risk for any new policies underwritten, net of reinsurance.

“In addition to extensive reinsurance placed by IAG, as part of the sale IAG entered into agreements with Tokio Marine for it to hold any remaining exposure to trade credit insurance written by BCC through IAL [a subsidiary of IAG],” said IAG in a statement.

Shares in IAG recovered some ground following the market update, closing down almost 4 per cent at A$4.62.

IAG, Tokio Marine and the Japanese insurer’s wholly owned subsidiary BCC provided trade credit insurance to Greensill, whose implosion is threatening tens of thousands of jobs among its customers in the UK and Australia.

Last week, Greensill lost a legal battle aimed at forcing the insurers to extend two policies covering $4.6bn of working capital financing — a ruling that precipitated its collapse. Credit Suisse also froze $10bn of funds linked to the firm, depriving it of an important source of funding.

According to court documents released last week, Tokio Marine notified Greensill of its decision to stop coverage in July after it discovered that an underwriter at BCC had exceeded his risk limits, insuring amounts that added up to more than A$10bn. The underwriter was dismissed.

Tokio Marine has declined to comment on its exposure to Greensill. On Tuesday, its share price was up 1.7 per cent during the morning session in Tokyo, with investors yet to price in the risk held by the Japanese group. 

Nathan Zaia, an analyst with Morningstar, said the statement from IAG was reassuring and should help settle market concerns.

“On paper it looks like IAG should not be impacted, but this could still turn into a legal battle between IAG and Tokio Marine,” Zaia said.

However, the collapse of Greensill has spooked investors in IAG.

On Monday, John Hempton, a short selling hedge fund manager, published a blog post disclosing that he had written to Australia’s financial regulators three months ago to flag Sydney-based IAG’s exposure to Greensill.

Hempton, known for his bets against companies such as Valeant Pharmaceuticals and Wirecard, raised concerns about the level of insurance extended to Greensill by IAG, calling it “potentially a solvency risk” for the group in his letter to Australia’s prudential regulator Apra.

Hempton also cited the risk held by Japan’s Tokio Marine. Both companies could be in for a “world of pain”, he said.

Apra declined to comment on Tuesday.

Australian regulators have discussed IAG’s exposure with Greensill. They have also questioned Credit Suisse about its relationship with Greensill, including its financial exposure to the company and its role as adviser on a pre-IPO fundraising that was later cancelled, according to two people with knowledge of the discussions. 

Credit Suisse has appointed McGrathNichol as receiver to a Greensill company in Australia in a bid to secure its interests, including a $140m loan advanced to the finance firm last year.

FT : China M&A surges on Covid recovery as focus shifts inwards

China M&A surges on Covid recovery as focus shifts inwards
Value of domestic deals at $77.5bn marks busiest start to a year on record

Dealmaking within China is running at a record pace, with the value of domestic mergers and acquisitions this year totalling $77.5bn — the busiest-ever start to a year and almost three times the level in the same period of 2020, Refinitiv data show.

The investment frenzy, which gathered momentum in the second half of last year as China’s recovery from the coronavirus pandemic mounted, has come as Beijing has shifted its focus to domestic demand to power its economy amid tensions with the US.

“It is an exceptionally hot period for M&A” in China, said David Brown, PwC head of deals for Asia Pacific. He cited a “perfect storm of factors”, including demand for equity capital by domestic businesses as the economy recovered as well as government policy aimed at reducing reliance on overseas technology and markets.

“A lot of firepower is being directed towards consumer industries and other sectors that benefit from the inward-looking strategy,” Brown said.

China’s economic growth accelerated through the end of 2020 and its stock market scaled record highs, setting the scene for a spate of domestic deals that experts said had been fuelled by strong government support.

Dealmaking within China slumped in February last year as the country initiated its first citywide lockdowns as the coronavirus crisis hit. However, activity bounced back as the pandemic receded, rising 30 per cent for the full year to $734bn, according to PwC.

“The sense in China is that everything is under control and commercial players aren’t waiting any more to pull the trigger on deals they may have delayed,” said Ivan Wong, managing director of Deloitte China’s M&A practice.

He noted that technology and logistics deals had been dominant due to the boom in ecommerce during the pandemic.

Recent transactions have included Xinjiang Tianshan, a cement company, buying four regional peers for Rmb98bn ($15bn); the $2.3bn takeover of Kerry Logistics by Chinese courier group SF Holding; and the purchase of Chinese logistics company CJ Rokin by Hong Kong-based private equity firm FountainVest Partners.

“The expectation that Chinese wages and household income will increase at a decent rate, at least back to 2019 levels, is driving growth in deals in China,” said Alicia García-Herrero, chief economist for Asia Pacific at investment bank Natixis.

Geopolitics has also played a role, with Chinese outbound deals the lowest in a decade by value last year, according to PwC. The broad decline in outbound deals from China, exacerbated by strained relations between Washington and Beijing as well as by coronavirus travel restrictions, has sharpened the emphasis on activity at home, Brown said.

“That has redirected a lot of capital that would previously have gone outside the country back into domestic acquisitions,” he said.

Nevertheless, foreign M&A deals targeting China have risen 14 per cent in 2021 compared with the same period last year, to $5.4bn, according to Refinitiv.

US private equity group Blackstone in November announced that it had agreed to buy a majority stake in a logistics park in southern China for $1.1bn, citing “strong momentum driven by ecommerce trends”.

FT : ETF ownership of Tesla climbed to 7% after it joined S&P 500

ETF ownership of Tesla climbed to 7% after it joined S&P 500
Passive investment in the carmaker has been partially driven by its ESG score, which is now under threat

ETF ownership of Tesla rose to about 7 per cent of its market capitalisation last year, after it was added to the S&P 500 and its weighting increased on other popular indices.

Assets invested in Tesla through exchange traded funds rose to $48.5bn by the end of December with 518 ETFs holding Tesla shares, data from TrackInsight show.

“Indices’ importance in the overall marketplace has grown,” said Ben Johnson, director of global ETFs and passive strategies research at Morningstar. 

“Why Tesla comes up and why we keep referring back to it is because I think it’s, by many measures, the most prominent example to date of index manufacturers’ influence on the direction of billions of dollars of investors’ capital worldwide.”

Tesla’s shares reached a record high in December, when investors rushed to buy them ahead of its inclusion in the S&P 500 index.

Johnson said that the decision to include a company in the S&P 500 index, which is “probably the most widely followed benchmark on the planet” with trillions of dollars tracking the index, can have a huge impact on individual companies.

However not every index that includes Tesla among its constituents weights it only according to its market capitalisation. Tesla, which became a household name with its high-end electric vehicles, is sometimes awarded a higher weighting in indices that track companies according to their environmental, social and governance (ESG) ratings.

The MSCI USA SRI index, for instance, is based on the MSCI USA but to satisfy its socially responsible investment aims it includes only 130 companies compared to the 620 constituents in its parent index.

The two indices also give their constituents vastly different weightings — Microsoft, for example, has the largest weighting in the MSCI USA SRI of 20 per cent compared to only around 5 per cent in the MSCI USA.


Tesla’s weighting is also markedly different, accounting for around 7 per cent of the MSCI USA SRI compared to around 1.8 per cent in the MSCI USA.

However that heavier weighting for Tesla is now under scrutiny following its announcement last month that it had made a $1.5bn investment in bitcoin. The news has put pressure on ESG rating agencies and index providers to reconsider their methodology due to the huge environmental impact of bitcoin mining.

“We are learning more than ever about the world around us and we’re recognising the impact of our behaviour,” said James McManus, chief investment officer at Nutmeg, an online investment manager.

“It’s forcing individuals to link some of the factors that they see in their wider life with their investment life and to wonder how much impact they can have by addressing that within their investments,” he added.

MSCI builds the MSCI USA index by choosing the largest companies by market capitalisation in the large and mid-cap segments of the US market, while the SRI version has the same methodology but integrates ESG screenings, said Rumi Mahmood, senior associate in ESG Research at MSCI.

"There's no active decision... it's all rule-based," he added.

However, Johnson said index providers could not pretend that their choices over what companies to include in an index were not active ones. “There is a real element of subjectivity. You have a committee that obviously has certain objectives, but at the end of the day, they are the ones responsible for making the call about which stocks are in and which stocks are out,” Johnson said.

Tesla’s bitcoin investment could determine whether S&P Global decides to include Tesla in its S&P 500 ESG index for the first time when it announces its annual rebalancing of the index at the end of April.


Reid Steadman, head of environmental, social & governance indices at S&P Dow Jones Indices, said that the group was not able to disclose whether Tesla would be included, but added that the overriding goal “is to have a return in line with the parent index, while improving from a sustainability standpoint”.

“So the mechanics of it, in terms of selecting the constituents, is that within a given industry group, we rank the companies by their ESG score, and then we start selecting, from the top down, trying to get as close as possible to the 75 per cent market cap coverage.”

Both MSCI and S&P Global have said that bitcoin exposure would not be reflected in ESG metrics this year, but that it might be a consideration in the future.

WSJ : China’s Car Sales More Than Quadrupled in February

China’s Car Sales More Than Quadrupled in February
Sales slumped in 2020 when the country was in the grip of the Covid-19 pandemic

BEIJING—China’s car sales surged in February from a year earlier when the country was at the height of the coronavirus pandemic and consumers were locked down in their homes.

Retail sales of passenger cars last month more than quadrupled to 1.18 million vehicles compared with the year before, the China Passenger Car Association said Tuesday. The jump reflects the low sales during the same period last year. Sales plummeted 79% in February 2020 as many cities were locked down and factories and dealerships were shut.

In February, 97,000 electric cars were sold, CPCA said. That is a more-than-sevenfold increase from a year earlier, but represents a 38% decline on month. Tesla Inc. sold 18,318 Shanghai-made Model 3s and Model Ys last month, the group’s data showed.

Since last year, China has been offering various subsidies and incentives to help boost car sales and mitigate the fallout from the Covid-19 pandemic. In recent months, Chinese regulators have announced more measures, including further relaxing vehicle-purchase restrictions and building more charging facilities for electric cars.

WSJ : NFTs Explained: What’s Driving Prices for LeBron James and Kings of Leon D

NFTs Explained: What’s Driving Prices for LeBron James and Kings of Leon Digital Collectibles
Market for non-fungible tokens, which convey ownership of digital assets, ballooned in 2020

Christie’s is selling digital art. Kings of Leon are offering their latest album as a collector’s item—online. And NBA fans recently drove the price of a LeBron James highlights video into six figures.

Behind all three: a new asset that uses the technology backing cryptocurrencies to create unique “non-fungible tokens.” Collectors can use the tokens attached to these assets to verify the authenticity of everything from artworks to sports highlights.

Bidding for Christie’s first non-fungible token, a digital collage by Mike Winkelmann, hit $3 million with the auction still continuing. The creator of the Nyan Cat meme, which features an animated cartoon cat with a Pop-Tart for a torso, sold an non-fungible token for 300 ether last month, equivalent to nearly $600,000 at the time of sale.

Here is what you need to know about this new market.

What is a non-fungible token and what do they do?
Non-fungible tokens are similar to bitcoin and other cryptocurrencies, with a key difference: while every bitcoin created can be exchanged for one another, these can’t. As the name suggests, non-fungible tokens are meant to be unique.

The tokens act as virtual deeds, conveying ownership of a digital asset. Each one gets uploaded to a digital ledger where it conveys key information: the date it was created, when it was sold, for how much and to whom.

In some designs, these bits of information are conveyed through a cryptographic hash function, an algorithm that takes this information and converts it into an unique identifier. The slightest change in that information would generate a different identifier. This allows would-be buyers to ensure an asset hasn’t been tampered with. In other designs, the metadata is stored independently.

“Think of it like a digital passport that comes with an asset,” said Nadya Ivanova, chief operating officer of BNP Paribas-affiliated research firm L’Atelier. “They allow for this trust and authenticity to be established in a way that we haven’t been able to do before, whether it’s with physical assets or digital assets.”

What do you get when you buy a non-fungible token?
Non-fungible tokens allow people to buy provably original versions of everything from digital art to pop albums.

Unlike other high-price digital gaming accessories, only one person can truly own digital assets backed by non-fungible tokens. Individual investors trading on digital online marketplaces, such as Nifty Gateway or OpenSea, receive a token for the asset to their single address—the unique identifier for a cryptocurrency account that lets other people find the account on the network.

Many marketplaces also provide a digital rendering of the asset, whether it is an image file depicting a work of art or a video of a basketball highlight. Some artists, like Mr. Winkelmann, work with the buyers of these tokens to display digital art in the physical world, whether that is through a digital frame or projecting the painting on a building.

Why are non-fungible tokens getting so much attention?
The first non-fungible tokens started appearing late 2017, according to research by NonFungible.com and L’Atelier. The market has expanded in three years and attracted the attention of big names such as Christie’s and the NBA. Rock band Kings of Leon recently announced it would release an album as a non-fungible token, effectively letting someone own the first edition of the digital collection.

The newfound attention on digital collectibles has boosted prices. The average cost of digital trading cards on the platform Gods Unchained rose by 69% to $18.24 by the last quarter of 2020 from $10.82 in the first quarter, according to data from NonFungible.com. The average cost of digital real estate in the online game The Sandbox rallied 88% over the same period, to $59.19.

Jack Dorsey, Twitter Inc.’s chief executive officer, is currently auctioning off his first tweet as a non-fungible token. Bidding through the platform Valuables had reached $2.5 million by Monday.

What is the ethereum network?
Many of the non-fungible tokens being created are on the ethereum network.

While bitcoin’s blockchain was created to store transaction values and track the movement of bitcoin between accounts, the ethereum network has a broader focus. Ethereum acts as a software platform where developers can store computer code for other blockchain projects.

That makes it much more flexible, allowing it to facilitate the exchange of items beyond cryptocurrencies. Ethereum is used to create financial contracts and applications for computers and mobile phones.

How big is the non-fungible token market?
The non-fungible token market ballooned over 2020, climbing to a market value of at least $338 million, from about $41 million in 2018, according to a report by NonFungible.com and L’Atelier. The surge in interest led to the expansion of online marketplaces.

The market remains a fraction of bitcoin’s size, despite the high prices being fetched for some non-fungible tokens. The value of all bitcoin in circulation was $926 billion on Monday, with one bitcoin worth $49,677.39.

What is the risk in buying a non-fungible token?
Crypto assets have gone through their share of frenzies over the years, with whipsawing prices causing investor losses.

In 2017 and 2018, many poured money into cryptocurrency startups through a controversial fundraising method called initial coin offerings. Such booms preceded a rise in trading groups that manipulated the price of cryptocurrencies, causing losses for others.

The value of these digital collectibles depends on the assumption that someone else is willing to pay more for it than you did, analysts say, noting similarities between their big gains and recent social-media-fueled frenzies in meme stocks like GameStop and Koss that led to heavy losses for some individual investors.

“There are people who have been conditioned by cryptocurrencies to believe that just the fact that it can be owned makes it valuable,” said Jorge Stolfi, a computer science professor at Brazil’s State University of Campinas. “People just 100% believe that this thing has value, but in fact it doesn’t because there’s no way to get value out of it except for selling it to another investor.”

(ZH) 'King Of SPACs' Warns "Bunch Of Busted IPOs/Mergers" Ahead

'King Of SPACs' Warns "Bunch Of Busted IPOs/Mergers" Ahead

A little less than a month ago, Chamath Palihapitiya was crowned "The King of SPACs" by Bloomberg...
As volumes of new SPAC issuance soared...
This weekend, the billionaire VC faced some tough realities, noting that "the point is that this stuff is hard and I, like you, am not perfect and trying to learn, be resilient and keep fighting. Markets, in the near term, are volatile and unforgiving but they ultimately always direct gains to valuable companies doing valuable things":
As the entire SPAC/IPO market tumbled into bear market territory...
Source: Bloomberg
During his podcast on Saturday, Palihapitiya warned that:
“The SPAC market has taken a real beating."
“If you have one or two more months of this where all of a sudden bonds look better… you’ll have a bunch of busted IPOs or mergers.”
As Bloomberg reports, rising bond yields have been unkind to growth stocks. Their impact on the special purpose acquisition companies has been downright cruel. The SPAC boom has become the Spacpocalypse. Nobody should be surprised.
Dozens of SPACs are now trading below the $10 price at which they sold shares. That’s more like how things should be. In a “normal” market, SPACs would sell for roughly the per-share value of the cash they hold, at least until they’ve announced a deal. Yet until recently many SPACs were immediately trading at a large premium to their cash holdings. That didn’t make much sense. Was it really likely they’d all find attractively priced deals that would justify paying so much?
And hedge funds are starting to take advantage of this trend by shorting SPACs:
“Once they become operating companies, you’re seeing certain [ex-SPAC] securities that have bubble-like characteristics,” Jonathan Segal, co-chief investment officer of Highbridge Capital Management LLC told a JPMorgan Chase & Co. podcast last month.
“We’re finding ways to make money on the short side in that space, and I think others probably are too.”
Bloomberg concludes: The SPAC market has gone through cooling off periods before. The good news is that there’s less risk of losing money with SPACs trading closer to the value of the cash they hold. However, wannabe Wolfs of Wall Street still hoping to launch theirs could find they’re too late. The party’s over, at least for now.

>>> US Close Dow +0.97% S&P -0.54% Nasdaq -2.41% Russell +0.49%

Closing Stock Market Summary

The S&P 500 decreased 0.5% on Monday, as money continued to flow out of the heavily-weighted growth stocks and into value/cyclical stocks. The former group contributed to the 2.4% decline in Nasdaq Composite (-2.4%), while the latter helped lift the Dow Jones Industrial Average (+1.0%) to an intraday record high. The Russell 2000 gained 0.5%. 

Seven of the 11 S&P 500 sectors closed in positive territory, but it was hard to overcome the continued growth-stock weakness within the information technology (-2.5%), communication services (-1.5%), and consumer discretionary (-0.2%) sectors. The health care sector (-0.3%) was clipped by its biotechnology components. 

The Vanguard Mega Cap Growth ETF (MGK 195.08, -4.45, -2.3) fell 2.3%. The Philadelphia Semiconductor Index fell 5.4%. The iShares Nasdaq Biotechnology ETF (IBB 147.23, -2.92, -1.9%) fell 1.9%. Shares of Tesla (TSLA 563.00, -34.95, -5.8%) gave up an early gain and closed sharply lower to extend its recent correction to 37% from its all-time high.

The S&P 500 was up as much as 1.0% in the afternoon on the back of a pro-cyclical trade that drew support from the Senate passing the $1.9 trillion stimulus bill and news that COVID-19 vaccine shots are running at more than two million per day. The stimulus bill will head back to the House, where it's expected to pass later this week.    

The financials (+1.3%), materials (+1.3%), and industrials (+1.1%) represented the cyclical leadership, although the utilities sector (+1.4%) advanced the most as the market lost some of its cyclical luster in the second-half of the session. The S&P 500 slipped below its 50-day moving average (3825) on a closing basis.  

Separately, another uptick in long-term interest rates, which have risen sharply this year in part due to growth optimism and inflation angst, was attributed by some as a lingering headwind for the growth stocks.

The 10-yr yield increased four basis points to 1.60%, although interestingly, widely-followed money manager David Tepper told CNBC that the 10-yr yield is likely at, or near, the top of a new range due to the higher yields attracting foreign buyers. Mr. Tepper also said stocks like Amazon (AMZN 2951.95, -48.51, -1.6%) look attractive. 

The 2-yr yield was unchanged at 0.15%. The U.S. Dollar Index advanced 0.5% to 92.42. WTI crude futures declined 1.6%, or $1.05, to $65.04/bbl.

Monday's economic data was limited to Wholesale Inventories for January, which increased 1.3% m/m (Briefing.com consensus +1.3%) following a revised 0.6% increase in December (from 0.3%). Investors will not receive any notable economic data on Tuesday.

  • Russell 2000 +11.6% YTD
  • Dow Jones Industrial Average +3.9% YTD
  • S&P 500 +1.7% YTD
  • Nasdaq Composite -2.2% YTD

>>> US After Hours Summary: SFT +9% trades up while SFIX -23% declines on earnin

After Hours Summary: SFT +9% trades up while SFIX -23% declines on earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: SFT +9.4%, WISH +1.1%

Companies trading higher in after hours in reaction to news: NVTA +4.1% (continued strength following mention by Cathie Wood on CNBC), PTON +2.9% (announced expansion into Australian market), SMSI +2.6% (agreed to acquire Avast's Family Safety Mobile Business; launched stock offering), ELY +2.3% (completed merger with Topgolf), CRMD +2.2% (to host regulatory update call for DefenCath), ATSG +1.9% (launched brand realignment)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SFIX -23.1%, CSTL -6.1%, GRBK -5.4%, NCMI -4.4%, BNFT -2.4%, GOGO -1.0%

Companies trading lower in after hours in reaction to news: ACAD -39.2% (in ongoing review for pimavanzserin sNDA, FDA identified deficiencies that preclude discussion of labeling and post-marketing requirements at this time), MGI -9% (announced wind down of partnership with Ripple), RMNI -5.3% (stock offering), AMC -3.3% (continued volatility), SJW -2.6% (stock offering), GME -2.3% (after closing higher by 41%), ITRI -1.8% (commenced offerings of common shares and convertible notes), WHD -1.6% (secondary stock offering)