Coinbase, JPMorgan, China Huarong: Investments in the spotlight

(Bloomberg) — Bloomberg Wealth reviews assets that made a splash this week.

Crypto Craze

It was a volatile start for Coinbase Global Inc., the largest US digital currency exchange, which made its trading debut Wednesday. After opening at US$381, the stock initially rose past US$429, giving the company a US$112 billion valuation, before dropping back sharply. It closed Thursday at US$322.75, giving it a market capitalisation of US$64.2 billion.

As Coinbase tumbled, Bitcoin also pulled back, with the largest cryptocurrency dropping from a record high and snapping six consecutive days of gains.

Despite the whipsawing, Coinbase’s listing confirms broader acceptance of digital currencies is gathering pace, despite lingering concerns over their volatility and usefulness as a method of payment. Brevan Howard Asset Management is just the latest money manager said to be investing in digital assets.

What’s next? Expect Coinbase’s fortunes to be tied to currencies like Bitcoin, which along with Ethereum made up 56% of the company’s 2020 trading revenue. The listing is “a watershed and historical event for the crypto industry and will be something the Street will be laser focused on to gauge investor appetite going forward,” said Dan Ives, an analyst for Wedbush.

Others predicted that a higher profile will bring with it more attention from regulators. “As the direct listing on the Nasdaq will reach a wider investment base other than the usual crypto evangelists, investors must expect much greater government scrutiny,” said Nigel Green, CEO and founder of deVere Group.

Banking Boost

Slumping loan demand was not enough to keep JPMorgan Chase & Co. from smashing analysts’ profit estimates by reporting record first-quarter income of $14.3 billion on Wednesday. Shares are up 20% this year.

Like fellow industry giants Goldman Sachs Group Inc., Bank of America Corp., Citigroup, and Wells Fargo & Co., JPMorgan weathered a year of mass layoffs and shuttered business by leaning on Wall Street deals: investment-banking revenue soared 57% as retail investors and trading firms generated billions of dollars in fee income.

As the vaccine rollout continues, there’s also optimism that the end of the pandemic will bring with it a surge in consumer demand as the U.S. emerges from lockdown. “The economy has the potential to have extremely robust, multiyear growth,” Chief Executive Officer Jamie Dimon said in a statement.

What’s next? Expect the strong start to carry over into the rest of the year. “JPMorgan's sizable investment-bank revenue beat signals a strong start to 2021, which we see bolstering full-year profitability even as seasonal trends may weigh,” said Bloomberg Intelligence analyst Alison Williams.

Debt Fears

Investors are more than a little nervous about China Huarong Asset Management Co. , a distressed-debt manager controlled by the country’s finance ministry.

A report Tuesday that it could be facing a restructure sent its dollar notes to a record low. The company was already under a shadow after its former chairman, Lai Xiaomin, was executed earlier this year for bribery.

China Huarong borrowed US$23.2 billion from overseas markets that had assumed important state-owned enterprises would always be backstopped by the government. Now that core tenant is in doubt and ripples are starting to be felt through the wider Asian credit market.

With China taking an increasingly tough stance on reining in risks to financial stability, the lack of official government comment on the embattled firm has investors in limbo. However fears of a near term default eased Thursday on reports China Huarong has prepared funds to fully repay its Singapore dollar note.

What’s next? “Investors need clarity,” said Thomas Wu, head of Asia fixed income at Pictet Wealth Management. “The information vacuum is weighing on the bonds”. Yet Citigroup Inc. analysts said in a note to clients Thursday they think fears of a full-blown meltdown are likely overblown. “The more likely policy outcome seems to be to remind investors of these risks but keep the fallout well contained,” Citi analysts wrote.

Brought to Heel

For a sign of just how quickly things can change in China, consider the case of its once golden tech industry.

In a set of landmark announcements in the past seven days: Alibaba Group Holding Ltd. was slapped with a record US$2.8 billion fine for abusing its market dominance, the Chinese government ordered an overhaul of Ant Group and regulators summoned 34 of the country’s largest internet companies to warn them “the red line of laws cannot be touched.”

Beijing gave the 34 companies a month to conduct internal reviews and eradicate monopolistic practices. Many have rushed out statements pledging to comply though it remains unclear what specific actions the authorities will require.

It’s all part of a broad campaign to rein in China’s tech giants who after years of aggressive and unconstrained expansion had come to assume an outsized dominance.

What’s next? “The golden days are over for China’s big tech firms,” said Mark Tanner, founder of Shanghai-based research agency China Skinny. “Even those who haven’t been targeted to the same extreme will be toning down their expansion strategies.”

Still Grounded

European airlines EasyJet Inc. and British Airways both say they are optimistic travel will bounce back for their crucial European summer season.

EasyJet Plc said Wednesday it’s ready to ramp up flights from May given enough demand while British Airways CEO said he’s hopeful highly profitable trans-Atlantic flights will reopen soon. European travel and leisure stocks are up 20% this year on hopes the vaccine rollout will spearhead a travel revival

In good news for the travel industry, the European Union governments reached a deal on technical standards for vaccine passports this week. That’s the first step towards implementing a system that could hopefully allow travel without quarantine to resume.

The data though shows there is still a massive way to go. Carriers are now expected to end 2021 offering about two-thirds the number of seats they did in 2019 and few countries, even where the virus is under control, are anywhere close to 2019 levels, according to Bloomberg’s new flight tracker.

What’s next? “There maybe light at the end of the tunnel, but it’s a very, very long tunnel we’ve still got to go through,” John Grant, chief analyst at aviation data specialist OAG said.

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