Investors Are Running Away From China! 💨

🐺 Hi pack-mates,

This is Howling Markets, , the constellation of stars that guides traders through the financial market’s darkness!

Today we will be covering:

  • Education: What Influences the Price of Cryptocurrencies? 📈

  • Investors Are Running Away From China 💨

  • Bonk Rallied More than 12,000% in Two Months Before Coming Back Down 🚀

  • Equity and Debt Markets Daily Update ⚖️

  •  And more!

Market Watch 👀

Prices as at 7:00 am ET

What Influences the Price of Cryptocurrencies?

Cryptocurrencies are a very unique type of asset whose prices tend to experience high volatility, but only a very few experts have tried pointing the finger at the causes underneath these changes.

A reason why understanding cryptos’ price fluctuations is difficult is that they are not priced as traditional currencies. Fiat currencies are valued based on the relative performance of the national currency with respect to a basket of 6 other currencies.

Additionally, cryptocurrencies are not even priced as stocks, where the main value drivers are dividends, growth, fundaments, intrinsic value, management, and many others.

However, in recent years many studies have started to focus on the issue, and they have come up with two main theories explaining how and why prices change.

On one hand, there are studies such as Cheah and Fry (2015) and Corbet et al. (2018) proposing that cryptocurrencies do not have any intrinsic value and therefore prices only vary based on speculation following a bubble-like pattern.

On the other hand, there are alternative studies such as Bhambhwani et al. (2019), that have identified two criteria as the main crypto price determinants: the trustworthiness and the transaction benefits of the blockchain.

Which of the two theories do you believe to be the most accurate?

Investors Are Running Away From China!

During the past newsletters we have discussed a lot about how the European and American economies are evolving as the tightening policies are coming to a halt, and eventually a stop.

The American economy has responded pretty good, markets are up around 25% YTD, inflation is lower than expected, labor markets are strong and there is a general expectation of a soft landing.

The European outlook is slightly darker as the ECB has announced that they haven’t yet started discussing rate cuts, as opposed to the Feds. As a consequence, there is the fear of a hard landing accompanied by weakening labor markets and a decrease in GDP.

However, while making these considerations we have rarely taken into consideration the most populated continent in the world housing the third largest stock exchange by capitalization, the Shanghai Stock Exchange.

Asia is a very large and fragmented continent with each of its countries being extremely unique. Japan, for example, is still struggling to escape from its decade long deflation issue while China is all another story!

Foreign investors are running away from the country causing a drop in foreign investments by 87%, from $33 billion to just $4.29 billion!

This panic sale of Chinese assets started when the real estate developer company Country Garden announced that they wouldn’t be able to make their bond payments due to the severity of the liquidity issue in the Chinese property sector.

However, many analysts have argued that this issue has spread even outside the real estate market and that it is mining at the foreign investors’ confidence, causing the run.

Such a performance is also reflected by the Shanghai Stock Exchange. We can take a look at it though an ETF that tracks the performance of CSI 300, the capitalization-weighted stock market index that tracks the performance of the best 300 companies listed in the Shanghai Stock Exchange.

Today’s Howling Question

As we briefly talked about before, China’s economic situation is not the greatest when it comes to stock performance or foreign investments.

But how did China’s inflation level react in 2022 to the post-pandemic issues? Which was the Year on Year level of inflation measured at the end of 2022?

a)  -2%

b) 0%

c) 2%

d)  5%

e)  15%

Hint: the answer is particularly surprising!

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

BONK Rallied More than 12,000% in Two Months Before Coming Back Down

Well, well, well, aren’t always these meme coins taking the spotlight in the crypto world!

At its inception in January 2023, Bonk was only regarded as a meme coin based on Solana’s blockchain and mimicking the idea of Dogecoin, one of the first ever meme coins to really take the crypto market by storm.

Because of this, during the first 9 and a half months of its life the price remained relatively constant and characterized by a relatively low trading volume. However, at the beginning of October some rumors about the potential listing on Coinbase started circulating and since then its price skyrocketed.

After it became official, between the 15th of October and the 10th of December Bonk recorded an exceptional price surge of 12,302.80%.

However, unfortunately for the Bonk holders, the price surge did not last long. Starting from the 16th, the price started retracing its gains and it is almost down 50% from its peak.

Do you think that this meme coin will see some more volatility in the future, or do you believe that the price will continue to fall to its original levels?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Thursday the S&P500 came so close to its-all time high that I had to move the label to the top of the red dashed line in my chart!

The stock market’s trading session started in the positive with the price increasing throughout the day approaching its all time high set at $4796.57. However, during the last trading hours the price fell back down, closing below its opening price.

Because the trading session opened with a small gap to the upside, the trading day was still labelled by a green candle and a gain of +0.04%, but the weaknesses are becoming impossible to hide.

Additionally, today the volatility index of the SPX (ticker: VIX) closed up +0.48%, showing an increase in volatility, which is often accompanied by a stock reversal.

The debt market, instead, was way more determined in its direction for the day. After an extremely negative trading session on Wednesday, on Thursday the price closed up +1.21%, confirming the support zone highlighted in the chart and underlying its willingness to go up.

Answer

The correct answer is b) 2%.

This answer is particularly surprising as China’s inflation level remained in the target range of 1% to 3% as opposed to the Eurozone and the United States where inflation increased to almost 10%!

You can check out China’s inflation chart for additional insights on the topic.

Howl-Worthy Memes 😂

🐺 See you next time!

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