In a manner not so different from Hurricane Harvey’s ravaging of Houston last month, the first week of September has threatened to send global markets into chaos.
The month quite literally began with a bang as North Korea tested its largest warhead to date – a 120 kiloton hydrogen bomb – sending ripples of panic throughout East Asia. In South Korea, the Kospi 200 Volatility Index jumped 3.78% in a day, its highest spike since the 11th of August, when Donald Trump threatened Pyongyang with ‘fire and fury’.
As is common in times of uncertainty, the Yen – widely regarded as a safe haven – strengthened 0.9% against the Dollar. This in turn caused Japanese markets to buckle under the pressure, with the Topix falling 0.8% on Tuesday. As expected, the price of gold also rallied, rising to an 11-month high, ending the week on $1,360. US markets were closed on Monday due to Labour Day, however, this did not prevent a Tuesday afternoon sell-off on Wall Street that dragged the S&P 500 down 0.8%.
Although global markets were shaken by North Korea’s most recent nuclear activity, the economic upset was relatively short-lived. The South Korean Won, after an initial stumble, recovered by Tuesday, remaining on track for its highest yearly gains on the Dollar since 2012, suggesting the dip in performance was most likely the result of political uncertainty rather than any real market fear of conflict in the region. Certainly, Trump’s insistence that the US would cut trade links with China if the latter continued to trade with North Korea seems to have been met with as much scepticism as shock.
Staying in Asia, the crypto-currency market was dealt a blow this week as the People’s Bank of China declared Initial Coin Offerings (ICOs) illegal and ordered companies to return nearly $400m to investors in a move that sent the Bitcoin share price down 20% over two days.
ICOs have become increasingly popular in China over the last year, being seen as an effective means for companies to raise capital whilst avoid the costly fees associated with investment banks and venture capital funds. Globally, ICOs have raised $1.6bn already this year, however, as is often the case with crypto-currencies, they have been left especially vulnerable to criminals, with an estimated 10% of ICO revenue having been stolen through phishing scams.
In an economy that is already far from stable, it is hardly a surprise that the People’s Republic has decided to put a temporary end to proceedings, though it is unclear whether central banks around the world will follow suit. In the US, the SEC has refrained from taking a concrete stance on the matter, meaning the focus in the short-term will be on China and whether the PBC can exert any meaningful control over ICOs.
In the UK, Brexit negotiations remained locked in a stalemate this week as the discussion continued to flounder upon the issue of a ‘divorce bill’. David Davis called the proposed £50bn bill ‘nonsense’, while Michel Barnier commented that the UK needed to be ‘taught’ about the consequences of Brexit. He later accused the government of back-tracking on the question of the Irish border in a week that, if anything, has generated more confusion than clarity. The impact of this uncertainty on UK markets is still far from obvious.
On Monday reports by the CBI, EFF and BDO suggested that manufacturing rebounded strongly in August against expectations, with the Purchasing Managers’ Index (PMI) hitting 56.9. The housing market also appeared surprisingly resilient, rising 1.1% in August – its best month this year – suggesting that the cooling of UK house prices since Brexit may be gradually wearing off. Nevertheless, this ‘summer surge’ was not enough to convince the British Chambers of Commerce (BCC) of a revival of the UK economy, declaring on Friday that there was ‘no sign on the horizon of a return to healthier levels of growth’ and downgrading estimates for 2018 to just 1.2%.
Despite the recent political uncertainty surrounding Brexit negotiations in the wake of the General Election, the UK IPO market has continued to improve steadily throughout the year. The first half of 2017 saw £3.8bn raised – an increase in value of about 40% compared to H1 2016, showing signs that UK primary markets may be steadily coming back to life.
Q3 has seen continued improvement, raising £1.28bn so far from eight IPOs, while the rumours of O2 and Logicor flotations before the end of the year – the latter said to be in the region of £11bn – make for a potentially sensational run in to Christmas. However, a lot will depend on whether the government can formulate and execute a coherent plan regarding Brexit negotiations over the coming months, especially in relation to the Single Market. In the meantime, head to the SyndicateRoom website for an exclusive opportunity to invest in The People’s Investment Trust, who launched an IPO onto the UK Main Market on Friday and are seeking to raise £125m.