The market at a glance: Rolling in the deep.
Our pick for this month needs no introduction. Adele's "Rolling in the deep" captures the visceral intensity of navigating unpredictable waters, much like the recent shifts in our financial seas. Just as the song resonates with the profound depth of feeling, the market is constantly pulsing with profound ebbs and flows. The beat and rhythm, mirroring the market's dynamism, set the stage for understanding our current market position.
In recent weeks, the financial markets have experienced a mix of ups and downs, painting a complex picture for investors. Let's break down the key developments of the past month.
At the close of July, there was a sense of optimism that carried into the early days of August. It seemed that investors were energised by the feeling that AI had the potential to fuel everything, including markets. However, as the month progressed, the enthusiasm faded, leading to declines in various market sectors. Just like Adele once said, “We could have had it all, but now we’re rolling in the deep”.
The prices of nearly all assets declined in August, particularly the riskier ones. Equity indices across all regions ended the month in negative territory. Asian markets were the worst performers, as the real estate turmoil in China doesn’t seem to be over. The behemoth Chinese real estate developer Country Garden has defaulted on a major payment which sent ripples through the market. Digital assets also recorded significant losses.
Fixed-income markets were not spared either. This was surprising considering recent actions by central banks, which had implied a possible pause in rate hikes. However, investors had a different perspective. As the US Treasury Department regained its capacity to issue debt and inundated the markets with new offerings, caution gripped the investment community, resulting in higher rates (and losses for investors).
There were few places to hide. Even assets like gold, typically seen as a safe haven in turbulent markets, experienced declines. Is the love affair between markets and investors over? Should we prepare ourselves to witness new lows?
While we cannot disregard the possibility of further turbulences, it is important to put things in perspective:
During the summer, market activity tends to be low, and reactions can become exaggerated due to fewer buyers and sellers. As investors return from holidays, we have witnessed renewed enthusiasm in the markets.
As stressful as news coming from China may be, the situation has not changed dramatically over there. It is also important to go beyond the headlines.
Although there are periods when all assets experience declines, often due to liquidity shortages or external pressures, recent months have shown that diversification remains effective for investors.
In summary, the recent month has been marked by a mixture of positive and negative trends in the financial markets. While some sectors have faced setbacks, there are still rays of hope and opportunities on the horizon. To better appreciate these opportunities, to seize them, it might be helpful to dial back on emotional reactions and adopt a more independent perspective.
Demystification room: Payment default, is it bad doctor?
Country Garden is one of China’s largest real estate developers based in Guangdong China. On August 7th the real estate typhoon defaulted on their payments to creditors which has led to lots of speculation as to the stability of China's economy.
What does it mean for a company like Country Garden, one of the largest real estate developers in China to default on their payments?
Defaults occur when a company or individual is unable to meet scheduled payments or interest obligations on time. A company defaulting on payments signifies a critical point where financial commitments falter. This failure can indicate underlying financial distress and trigger a cascade of consequences. Perhaps the most significant repercussion in this case is the implications this could have on China and the world’s economy.
When a financial default occurs, companies have a few avenues they can explore to get back on their feet.
Amongst the default process, a company typically enters a grace period, offering a temporary reprieve. This is the current situation for major Chinese developers who've been granted an extension until September to rectify their payment lapses. This grace period is commonly attached to a restructuring of debt owed by the defaulting party to their creditors. In essence, borrowers and lenders enter an arrangement to renegotiate favourable or flexible terms to avoid bankruptcy. This may involve:
Agreement on revised terms, such as lower interest rates or extended maturity dates.
Debt-to-equity swaps, where creditors accept the cancellation of a portion or all the outstanding debt in exchange for equity in the company.
Offering a "haircut," where creditors acknowledge that a portion of the debt may not be repaid.
Finding a compromise is often more advantageous for investors than allowing the company to go bankrupt, potentially resulting in the loss of their entire investment. Moreover, in certain cases, accepting changes may provide an opportunity to revitalise not only a company's prospects but also a country's economic landscape.
Let’s talk about wealth: A message from Generation Z.
Hi! My name is Charlie Nicholls, I’m a 22-year-old young professional studying finance and economics, and I am working at Alpian for the week. I was tasked with writing this newsletter and for this section, I want to share something that resonates with me. So, here is my perspective on the unique position my generation is in when it comes to the creation of wealth. So, let’s talk about how my generation is getting rich.
Learning to invest has never been easier. In today’s digital era, the investment landscape is shifting rapidly. With platforms like Instagram, TikTok, Snapchat, and Twitch, young content creators are not only amassing wealth but also becoming educators for budding investors. These platforms have evolved into secondary news sources, providing real-time updates on emerging investment trends, from AI and blockchain to NFTs and many more. Because of this younger generations are some of the first to influence these new markets.
Yet, this new landscape isn’t without its challenges.
I’ve noticed a growing number of young adults and teens getting swept up by online ‘gurus’ promising fast fortunes in areas like real estate, copywriting, and day trading. As someone who's dabbled in many of these fields, I've learned that the reality is quite different. While these ideas have potential, they demand dedicated effort and time, it’s not an instant success. Like investing, it takes patience and hard work to gain the perspective needed to succeed.
In matters as important as money, emotional decisions can have outsized consequences. Day trading is what excited me—researching strategies, and practicing on simulations—but using real money shifted my mindset. Fear of losing hard-earned cash led to emotional decisions, violating the golden rule of investing: Don't let emotions drive investments.
I’m not saying that what you see online is impossible to achieve, I’m saying quite the opposite. With the entire world at our fingertips it's now possible to learn just about anything by yourself. But investing takes time and practice along with due diligence, and commitment to continuous learning and emotion regulation.
Special announcement: We invite you to the music and skateboarding event of the year!
Alpian is excited to partner with the SEGMENT Festival, an event that represents Switzerland's first-ever stop on the World Skateboarding Tour and serves as a qualifying stage for the 2024 Paris Olympics.
We would like to invite all our readers to attend this 3-day event in Lausanne, where you can enjoy top-notch skateboarding, live music, film screenings, and much more. Tickets can be bought here.
All attendees will receive an Alpian-branded bracelet to handle all their payments during the festival. This innovative feature supports our vision for a technology-driven, cashless future.
We hope to see you there!