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Have commodities reached an inflection point?
Capital Markets
<p>This week the Federal Reserve announced that it would delay the interest rate liftoff yet again, but while everyone seems concerned about nominal rates—the federal funds rate, in this case—real rates have already risen about 5 percent since August 2011. This “invisible” rate hike is much more impactful to commodity prices and emerging markets than a nominal rate hike, which is simply the “tip of the iceberg.”</p> <p>Since July 2014, the U.S. dollar has appreciated more than 20 percent. This has had huge implications for net commodity exporter countries, both developing and emerging, which typically see their currency rates fluctuate when prices turn volatile.</p> <p>But why does this happen?</p> <p>The main reason is that most commodities, including crude oil, metals and grains, are priced in U.S. dollars. They therefore share an inverse relationship. When the dollar weakens, prices tend to rise. And when it strengthens, prices fall, among other past ramifications, as you can see in the chart below courtesy of investment research firm Cornerstone Macro.</p> <p>Indeed, commodities have collectively depreciated close to 40 percent since this time a year ago and are at their lowest point since March 2009. We might very well have reached an inflection point for commodities, which opens up investment opportunities.<br /> Net Commodity Exporters under Pressure<br /> The number of developing and emerging markets that are dependent on commodity exports has risen in recent years, from 88 five years ago to 94 today, according to the United Nations Conference on Trade and Development (UNCTAD). Many of these countries—located mostly in Latin America, Africa, the Middle East and Asia—have a dangerously high dependency on a small number of not only commodity exports but also trading partners.</p> <p>For many suppliers, China is the leading buyer. But the Asian giant’s imports have been slowing as its economy transitions from manufacturing to services and housing, forcing many net commodity export countries to rethink their dependency on China.</p> <p>This is the position Indonesia finds itself in right now. As much as 50 percent of its total exports consists of crude oil, palm oil, copper, coal and rubber, all of which China has historically been a vital importer. A stunning 95 percent of Mongolia’s exports flow into its southern neighbor, according to the World Factbook. And for Chile, commodities represent close to 90 percent of total exports, about 25 percent of which goes to China.</p> <p>But countries needn’t have such a high dependency on commodit</p>
China’s QDII2 set to launch
Asset Management
<p>China’s policy makers take the long view. During the past five years the momentum for renminbi internationalization and increased cross-border investment has picked up, most notably with the introduction of the Shanghai-Hong Kong Stock Connect program late last year.</p> <p>On Friday, the People’s Bank of China (PBoC) approved the latest channel for private individuals – those with at least Rmb1 million ($158,000) – to diversify their portfolios with foreign assets.</p> <p>“The central bank gave the official nod to QDII2, the version of the qualified domestic institutional investment scheme for individuals to launch in the Shanghai Free Trade Zone (FTZ). This will allow eligible wealthy investors to invest in overseas real estate, financial assets and direct investments,” reports AsianInvestor. (paywall)</p> <p>In addition, the PBoC will allow onshore managers to set up index fund subsidiaries in the FTZ and has approved domestic managers segregated account subsidiaries to make cross-border investments.</p> <p>No implementation date has been announced yet, but these developments are a sign that its strategy of opening up China’s capital markets and fund industry remain on track.</p> <p>This is despite this year’s wild stock market fluctuations and a host of macroeconomic concerns.<br /> Photo: epSos .de<br /> &nbsp;</p>
The world's best guide to the ride share funding wars: The money behind Uber, Lyft, and Didi Kuaidi
Venture Capital
<p>In recent days it has come to light that Uber is looking to raise another $1 billion, just three months after its last mega round. It's no surprise that Uber is burning through cash. With local competition in almost every market it operates, the ride-hailing app has made a lot of enemies and needs a big war chest.</p> <p>In the U.S. it competes with Lyft; in China it grapples with Didi Kuaidi; in India it's up against Ola, and in Southeast Asia it has GrabTaxi to deal with. Now it seems these competitors are forming a global alliance to take Uber down. A recent example:  In September Didi and Lyft decided to link their apps. The Chinese firm also invested $100 million in Lyft to seal the deal. The pair are now expanding this tie-up to include GrabTaxi and Ola, squeezing Uber into a global four-way clustercuss.</p> <p>But who are Uber and its backers really up against? A look at the roster of investors on both sides offers a revealing insight on the corporate alliances behind the the battle for dominance in the ride-hailing app space:</p> <p>Main backers of Uber</p> <p> Baidu: This Chinese internet giant is a major rival of Alibaba and Tencent . It has led two rounds for Uber totalling $1.8 billion, including its most recent fundraise for Uber China.<br /> Goldman Sachs: A early investor in Uber's $37 million Series B, this venture capital tourist led a $1.6 billion debt financing for Uber at the start of the year.<br /> Tata: The Indian conglomerate made the decision to bet against local player Ola and invest $100 million in Uber in August.<br /> Microsoft: The Silicon Valley giant got behind Uber in July taking part in its $1 billion Series F.<br /> BlackRock: The asset manager was relatively early to the game, backing Uber's $1.2 billion Series D round.<br /> Google: The search engine behemoth backed Uber via its venture capital unit, taking part in the $37 million Series B round and leading the $258 million Series C in 2013.</p> <p>Main backers of the alliance (Lyft, Ola, Didi Kuaidi, GrabTaxi) </p> <p> Softbank: The mastermind behind the alliance. The Japanese telecoms company backed Didi Dache/Kuaidi Dache prior to their merger earlier this year. It also led a $210 million and $250 million Series D round for Ola and GrabTaxi, respectively, and re-upped with both this year. Softabank also owns an indirect share in Lyft via its stakes in Didi Kuaidi and Alibaba.<br /> Alibaba: The Chinese internet giant and Baidu rival was an early backer of Kuaidi Dache prior to its merger, and led the most recent $2 billion round for the newly formed Didi Kuaidi. It also took part in two rounds for Lyft, including the most recent.<br /> Didi Kuaidi: A taxi app with several VC-backers, its also in invested in GrabTaxi and Lyft.<br /> Temasek Holdings: The Singapore investment fund took part in Didi Kuaidi's most recent $2 billion round. It also led a Series A round for GrabTaxi via its subsidiary Vertex Ventures. It came back for the Series B round in May last year<br /> Tencent Holdings: This Chinese internet firm was an early backer in Didi Dache, prior to its merger. Also took part in Lyft'sSeries E round.<br /> Tiger Global Management: Backed the Didi Kuaidi merger.  Led the Series A round for Ola, and every round thereafter. Took part in two investment rounds for GrabTaxi.</p> <p>&nbsp;<br /> Photo: bfishadow</p>
The 3 craziest IPOs of all time
Capital Markets
<p>TheGlobe.com: 606% Founded by then-Cornell undergrads Stephan Paternot and Todd Krizelman, TheGlobe.com was an online “community” largely known for its spectacular IPO on November 13, 1998.  Originally priced at $9 a share, it’s shares first traded at a whopping $87, then climbed as high as $97 before closing at $63.50.</p> <p>The offering, as reported by the Wall Street Journal, lifted Paternot and Krizelman’s net worth by $73 million and $75 million respectively. Their stakes’ value three years later? $250,000.</p> <p>Exodus Communications: 637% Created by K.B. Chandrasekhar and B.V. Jagadeesh back in 1994, Exodus Communications was the first company to provide high-end web hosting for dot com firms and boasted two projects considered to be frontrunners of modern day cloud computing. Its shares – priced by Goldman at $15 a pop according to MarketWatch – opened at $25 1/8 and never looked back.</p> <p>Unfortunately for the firm however, many of its customers went broke during the collapse of the tech bubble. It filed for bankruptcy protection on September 26, 2001.</p> <p>VA Linux Systems: 698% VA Linux, founded by Larry Augustin and James Vera back in 1993, built and sold personal computers tailored to run Linux as its operating system. Credit Suisse First Boston took it public on December 9, 1999 at $30. It began trading at $299, jumping to $320 shortly after, until finally settling at $239.25.</p> <p>According to the Wall Street Journal, it was the first time an IPO finished above $200 on the Nasdaq, and its debut day performance has yet to be beaten. The firm, in its most recent form, is currently known as Geeknet.<br /> Photo: bfishadow</p>
Rogers: ASEAN ‘in better shape than most’
Hedge Funds
<p>Looking dapper in a white suit and speaking in his usual, cheery form, legendary investor Jim Rogers told Singapore’s Star Online that the U.S. is essentially toast and that the Fed is more or less run by total ninnies. He does have, however, pretty great things to say about the ASEAN region.</p> <p>Photo: Gage Skidmore</p>
Are late stage VCs really getting crowded out?
Venture Capital
<p>The creeping feeling that hedge funds and other traditional public market investors are pushing late-stage venture capitalists out of later funding rounds has been around for some time. But is this really the case?</p> <p>A recent report by CB insights takes a closer look at this phenomenon. Anecdotally at least it appears that the larger VC deals are becoming more competitive with players like Tiger Global Management, a hedge fund, and Wellington Management, a mutual fund manager, among those becoming increasingly active in VC.</p> <p>But the actual data offers a mixed picture. A look at first time deals involving four of the largest late-stage VC firms — DAG Ventures, Institutional Venture Partners (IVP), Meritech Capital, and Technology Crossover Ventures (TCV) — over the last two years shows that while DAG and Meritech have indeed participated in fewer late-stage deals, the reverse is true of IVP and TCV.</p> <p>The data also shows that late stage VCs are not fleeing to mid-stage rounds, as one might expect, but are instead remaining disciplined in spite of increasing competition from new entrants. That said, the rush to late-stage VC deals by outsiders, from both ends of the spectrum, shows no sign of slowing down. Y Combinator, a seed-stage accelerator, and KKR, which is historically a buyout shop, both now have growth funds, for example.</p> <p>Late stage VCs have on the whole have stuck to their the investment mandates, but if this trend continues they could be tempted to make some earlier bets</p>
Daily Scan: Chinese stocks off lows after Caixin PMI reading shows economy slowed a little less
Capital Markets
<p>Asia launches into November on a remarkably strong note. Many markets in the region saw the best monthly performance in October in six years on the back of promised stimulus from European and Asian officials. Investors will be reading the economic tea leaves to determine whether the markets will go from strength to strength. In any event, China watchers were euphoric last week after the government announced an end the one-child policy for everyone with some commentators expecting a big gain for real estate and consumer goods relating to child rearing. But there was also a hint of caution: Some think that Beijing has missed the boat to deal with its generational imbalance. Asking parents to raise more than one child may be an economic impossibility. The markets in Asia will also be keeping a close eye on the likelihood of an interest rate hike in the U.S. A bevy of Federal Reserve officials are speaking this week plus the U.S. will be reporting on the state of the job market in October on Friday -- the first official data point from last month.</p> <p>Here's what else you need to know:</p> <p>China trims losses after private manufacturing report shows growth slowed at more moderate pace. This is a silver lining story. The Caixin PMI for private businesses in China printed at 48.3 for October, better than the expected 47.5. A number below 50 signals contraction. The news offset the official report on state-run businesses were contracting for the eighth straight month with a reading of 49.8. Of course, the FT immediately cast doubt on the Caixin data. The Shanghai Composite was off 0.65% and the Hang Seng slumped 1.04%. The Nikkei tumbled 1.73%, led by weakness in its steel makers. CNBC/fastFT (paywall)</p> <p>Exports in South Korea drop even more than expected to lowest in six years. Exports plummeted 15.8% in October vs expectations of 14.5% as trade with China, the U.S., and Europe weakened. Low oil prices also hurt. South China Morning Post (paywall)</p> <p>China conducted more military exercises in the disputed South China Sea regions. Beijing sent warplanes and naval ships into the area last week where U.S. warships had recently passed, using live fire. The U.S. Pentagon has said it expects to conduct military exercises twice a quarter in the region. Wall Street Journal (paywall)</p> <p>China promises to open financial, telecom markets to South Korea. At a meeting on Saturday, Premier Li Keqiang told a delegation of South Korean executives he expected to forge a low-tariff market worth $1.2 trillion for the two countries. China also said that it would raise by 50% South Korea's renminbi qualified foreign institutional quota to buy A Shares to 120 billion yuan, or $19 billion.  South China Morning Post (paywall)</p> <p>A Russian operated plane crashed over the desert in Egypt. All 224 aboard perished in the accident, which occurred about 20 minutes after takeoff from Sharm el-sheikh. ISIS has claimed responsibility, but the Russian government rejects the assertion. One official claims the plane broke up in midair. The black boxes for the Airbus A321 plane have been recovered. </p>
China's manufacturing activity slides further
Capital Markets
<p>Manufacturing activity in China shrank for the third consecutive month in October, as the country's economic slowdown shows no sign of reversing.</p> <p>The official manufacturing purchasing managers’ index recorded 49.8 in October, according to data released on Sunday -- a number below 5o indicates a contraction in industrial activity. China's policy makers have cut interest rates six times during the past year and introduced other monetary and fiscal measures to stimulate the economy, but to little avail.</p> <p>"[The economy] has been struggling because of slack domestic demand and overcapacity, contributing to falling international commodity prices and fears about the prospects for the global economy," writes the Financial Times (paywall).<br /> "China’s Communist leadership says it wants to restructure the economy to be less reliant on investment in heavy industry and other capital-intensive sectors and more driven by innovation and consumption."<br /> "But the scale of the economic slowdown and worries about job losses and bankruptcies have pushed the government to focus on the short-term challenges."<br /> Photo: AK Rockefeller<br /> &nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p>
Weekend Scan: Russian plane crashed in Sinai; corporate bonds on track for 4th record year
Capital Markets
<p>Market players are looking ahead to the next week of earnings reports and the first key economic indicator of the month -- the jobs report for October. The U.S. Federal Reserve seems to be on a path to raise rates at its December meeting. A strong jobs report will give the policy makers strength to make the first move higher since 2006. Fitbit, Tesla, Zillow, and the ever-controversial Herbalife are slated to report quarterly earnings this week. Also on board: United States Steel, Walt Disney, and Berkshire Hathaway. Full calendar here.</p> <p>A Russian operated plane crashed over the desert in Egypt. All 224 aboard perished in the accident, which occurred about 20 minutes after takeoff from Sharm el-sheikh. ISIS has claimed responsibility, but the Russian government rejects the assertion. One official claims the plane broke up in midair. The black boxes for the Airbus A321 plane have been recovered. Reuters</p> <p>China, South Korea, Japan meet for first time in three years. At the end of the Sunday meeting, they agreed to meet again -- which is a very good thing.  Yahoo News </p> <p>Investment grade corporate bonds on track for fourth record year of issuance. Total sales for October hit $103 billion, a record for the month. Corporate treasurers are racing to lock in low rates ahead of an anticipated rate hike by the U.S. central bank. Bond issuance slowed briefly in the summer, so underwriters are seeing big demand now. Wall Street Journal (paywall)</p> <p>Hotel occupancy rates on track for record year. Hotels are running at 67.7% year-to-date -- the best ever. Lodging stocks are up 39% from last year. Calculated Risk</p> <p>Turkey's ruling party wins election with 49.4% of vote -- better than expected. The Justice and Development Party bested rival CHP, which garnered 25.4% of the vote. The pro-Kurdish party won the more than 10% needed to claim a role in the Turkish parliament. BBC</p> <p>Kenyans sweep the New York Marathon. Kenya's Stanley Biwott and Mary Keitany took first place in the most famous foot race in the world. for Keitany this is her second consecutive win. ESPN</p> <p>Died: Fred Thompson, age 73. From lymphoma. The former U.S. Senator from Tennessee was also an actor. CNN<br /> You won't believe this:<br /> Vet spends $100,000 to clone dog. Dr. Phillip Dupont says both he and his beloved pooch Melvin were getting older. He wanted to be sure Melvin -- or some version of the 10-year-old Doberman -- would be with him to the end. New York Post<br /> Photo: </p>
Startups are in a bubble: Just look who's investing now -- mutual funds, hedge funds, and the hoi polloi
Venture Capital
<p>Mark Suster over at Upfront Ventures has recently released his 2016 view on the startup market. He answers the question on everyone's lips these days: Are we in a bubble? YES! But venture capitalists can't take full credit for this trend, he says:<br /> If “the market” is driving up prices beyond intrinsic value the main new entrants to the market that have taken a less rational view of historical prices are a series of “non VCs” including corporate investors, hedge funds, mutual funds and crowdsourcing. Note that I’m not absolving my industry, venture capital, from bad behavior. I’m merely pointing out that price drivers are more strongly correlated with outsiders. On the chart below, 78% of the rounds of 80 $1bn+ companies were led by non VCs.</p> <p>&nbsp;</p> <p>The numbers are astonishing: Suster says in the past 18 months, the number of companies worth more than $1 billion zoomed from 30 to 80.  "Either we’ve discovered magical beans and elixir or perhaps we’ve gotten ahead of ourselves on valuation."<br /> Chart: CB Insights</p>