TEAM Asset Management’s global weekly market review for week commencing 6th March 2023. TEAM Asset Management is a Jersey-based independent asset management company of AIM-listed parent, TEAM plc (LON:TEAM).
The sudden collapse of Silicon Valley Bank caused investors to flee risk assets and seek shelter from the storm in safe haven government bonds last week. The blue-chip S&P 500 and technology focussed Nasdaq indices fell 4.8% and 4.2% respectively.
SVB’s revelation on Wednesday that it was seeking to raise additional capital to cover a $1.8 billion loss it realised from selling its $21 billion bond portfolio triggered a run on its deposits the next day. Within 24 hours, account holders rushed to withdraw $42 billion of deposits and SVB’s share price crashed. On Friday, the Federal Deposit Insurance Corporation stepped in and seized control of the bank. SVB is the largest US bank to fail since Washington Mutual collapsed in 2008.
SVB was formed in 1983 after a game of poker involving founders Bill Biggerstaff and Robert Medearis who had spotted that the burgeoning tech sector was underserved by traditional banks. Within a decade, the Californian bank became a go-to lender for venture capital and tech start-ups but until last week, it wasn’t a well-known name in the wider community.
The failure of SVB should not be systemic but it will have consequences. The share prices of other banks have fallen sharply since Thursday on concerns over the market value of their bond portfolios. They might also need to pay more to attract deposits and US lawmakers are already calling for stricter regulations to reduce the chance of a repeat.
The fallout has been felt most acutely in US regional banks which are more vulnerable to outflows of deposits. US regulators sought to alleviate some of the stresses over the weekend by pledging to fully protect all deposits, including those above the $250,000 already covered by federal insurance. However, the regional bank index extended its 3-day loss to 23% on Monday.
Major UK and European bank share prices have also suffered sharp falls. SVB had operations in the UK and the Bank of England and government held emergency talks through the weekend which led to HSBC acquiring them in the early hours of Monday morning for a symbolic £1.
Silicon Valley Bank UK held £6.7 billion of deposits across more than 3,000 customers and gives HSBC greater exposure to the fast-growing tech and life sciences sectors.
Markets were already on the backfoot prior to the events at SVB after Federal Reserve Chair Jerome Powell warned interest rates are likely to be higher than previously expected at his semi-annual testimonies before Senate and House committees.
Chair Powell cited the resilience of the economy and was backed up on Friday when the monthly nonfarm payrolls report revealed more than 300,000 jobs were added in the US during February.
However, the fallout from SVB has turned interest rate expectations on a dime. Money market futures are now pricing in just one more quarter percent interest rate hike before the Federal Reserve reverses course and starts cutting rates from June.
Away from the banks, Adidas was back under the spotlight last week after it reported a fourth quarter operating loss of €724 million and cut its full-year dividend from 79 to 70 cents a share. The German sportswear manufacturer repeated its warning that it expects to make an annual loss in 2023 for the first time in three decades, in part due to its failed partnership with Kanye West. It currently has €400 million of unsold Yeezy trainers on its books which may be written off or re-purposed.
The surprise performance of Aston Martin, including a podium finish for Fernando Alonso, at the first Formula 1 race of the new season in Bahrain has been widely lauded buts its turnaround programme away from the circuit is at a much earlier stage. The luxury-car maker sold 6,412 vehicles in 2022 and its pre-tax loss more than doubled to £495 million as the costs of producing its Valkyrie hypercar soared. Despite the losses, its shares climbed to a 10-month high. There was better news for shareholders of Greggs which announced a record pre-tax profit of £148 million for 2022. The bakery chain has thrived through the cost-of-living crisis and plans to open 150 new outlets this year across the UK. It has been forced to pass on the higher cost of ingredients, energy and wages to customers but its value offering has enabled Greggs to gain market share from competitors.
Author: Andrew Gillham, TEAM Asset Management, Senior Investment Manager, (email@example.com)