Morning Toast March 30th

Tesla doing better than Elon | Jack Ma next in line to solve hunger.


The Nasdaq stumbled for the second day straight, as rising bond yields banged up the tech sector, further cementing the oldest rule in the book - that growth stocks don’t like rising rates and rising bond yields. 

Shares in the Chinese e-commerce giant Alibaba popped after it announced the most extreme restructuring in its history: it’s going to split up into six business units (“mini Alibabas,” the FT writes) that could IPO separately.

Tesla has seen $200 billion added to its market cap in 2023, marking the strongest start to the year in its history.

Stock Spotlight

Tesla has gained over $200 billion in market value during the first three months of the year.

The EV company's stock enjoyed its best weekly performance in history in January.

Tesla's strong quarter started with a rally in the tech sector and the company's cost-saving efforts.

As we know EVs have been taking the world (quietly) by storm, with Electric Vehicles (EVs) becoming more popular by the minute! Automakers are revving up production and more consumers are hopping on board the eco-friendly bandwagon. In fact, a BloombergNEF report predicts global EV sales to go from 3 million in 2020 to 14 million in 2025, with a whopping 54 million sold by 2040. Talk about a charge forward!

The Electric Vehicles market is on track to hit some serious revenue milestones! Statista reports that revenue in the EV market is expected to reach an impressive US$2.04 billion by 2023, with an annual growth rate (CAGR 2023-2027) of 22.27% propelling the market volume to reach a projected US$4.56 billion by 2027. Looks like the EV industry is going full throttle towards an electrifying future!

Stock Spotlight

Apple is getting into buy now, pay later.

It has never been easier to trick yourself into paying $250 for a pair of jeans, as Apple rolled out its buy now, pay later (BNPL) service yesterday. The feature, Apple Pay Later, was introduced to randomly selected Apple Pay users and will become available to more customers over the next few months.

Those users can use Apple Pay to buy something between $50–$1,000, which is repaid in four payments over six weeks with no interest or fees.

Some think it’s a weird time to get into BNPL, but given Apple is one of the world's most affluent brands, they know their client base are the top percenters who will continue to spend....they just might need a little more help. 

If we look back to peak Covid, when BNPL companies were hotter than a Swedish sauna - in 2021, Swedish BNPL company Klarna was Europe’s most valuable fintech startup at a valuation of $45.6 billion. The same year, Block (formerly Square) bought the Australian BNPL company Afterpay for a staggering $30 billion.

By mid-2022, as rising interest rates strained BNPL companies’ business models, and regulators started cracking down on potentially predatory lending practices, those valuations dropped off significantly. 

The lesson and the opportunity here. As these stand-alone BNPL providers drop like flies, but BNPL spending continues, it’s clear that BNPL is not a sustainable stand-alone business model...but when added to a string of already impressive features to support broader product usage, at the same time filling the now giant gap in the market, products like this will likely soar.

Sustainability News

Since stepping down from his executive chairman role at Alibaba in 2019, Jack Ma has reportedly been on an international fact-finding tour to find solutions for solving food crises.

According to the WSJ, Ma’s tour has included stops in the Netherlands and Thailand, as well as a tour of Japan’s Aquaculture Research Institute at Kindai University, where researchers have been farming bluefin tuna.

Farming bluefin tuna could help provide a stable supply of a valuable and critical ingredient in sushi and Japanese cuisine, per the WSJ.

Ma’s Japan pit stop is a significant data point in rising global interest in aquaculture innovation, where salmon and trout are farmed as opposed to being fished.

Startups like Ynsect and Innovafeed breed insects that, in turn, are used as feed for the aquaculture industry.

The largest aquaculture-producing countries in the world are in Asia, and together they account for 91% of global aquaculture production. In 2019, the US freshwater and marine aquaculture industry was valued at an estimated $1.5 billion.

In other news...

The release of the eagerly awaited European Sustainability Reporting Standards (ESRS) has hit a speed bump, as the body responsible for drafting the new standards, EFRAG, has announced a delay. The setback comes after EU Commissioner, Mairead McGuinness, called for EFRAG to prioritise its work on the first set of ESRS standards, which detail the rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the EU's upcoming Corporate Sustainable Reporting Directive. 

While the timing of the delay is not specified, EFRAG's Sustainability Reporting Board meeting aims to "discuss the revised work plan after the postponement of Sector standards by one year."

Quote of the day

“SVB’s failure is a textbook case of mismanagement.” 

Quote or understatement of the day - you decide - but this one came from Michael Barr, the Fed’s vice chair for supervision, and other financial regulators testified on Capitol Hill yesterday.

Douugh, did you know?

Lessons from the past

In the last Toast, we reported on the potential of a GFC 2.0. It’s hard to keep up on this one, as again, the sway in investors and commentators has flipped back to saying (or hoping) this won't actually materialise. 

Just in case....let's look at a few strategies investors used during the last GFC to protect their capital. Sorry - no advice here so we can’t get into specifics. 

Numero uno was our old favourite, diversification. Investors recognised the importance of not putting all their eggs in one basket. Instead, they spread their investments across various assets and sectors, including equities, bonds, and real estate. What we're already seeing today is a turn to Alternative investments to help achieve this. A new survey from Bank of America, which focused on wealthy Americans with investable assets of $3 million or more, found that 73% of the Millennials and Gen Z-ers (ages 21 to 42) do not believe it’s possible to achieve above-average returns by relying solely on traditional stocks and bonds. As a reflection of that view, only 25% of their portfolios are allocated to stocks. That is in stark contrast to the 55% allocation older investors have to equities. Only a small group of the younger investors—16%—have allocations to alternatives (16%). Still, they’re three times more likely to own alts, like private equities, commodities, real estate or other tangible assets, than older investors, only 5% of whom have such allocations

The second strategy, known as hedging, involved these investors keeping a keen eye on potential risks. When they noticed signs of trouble, they took action by using financial instruments such as options, futures, and swaps to offset potential losses from their other investments. This approach effectively created a safety net for their capital, ensuring that it was less exposed to the negative impacts of the crisis.This one is for the sophisticated investors and not for the fait hearted. Not to worry there are ETFs and funds out there that do all this for you...leave it to the experts. 

Finally, the third strategy used by these astute investors was a focus on quality. They sought out investments in well-established, financially stable companies with strong fundamentals, as well as government and high-quality corporate bonds. By prioritising these more secure investments, they aimed to minimise their exposure to the volatile and uncertain market conditions of the GFC. Things have changed here today as well with investors using Sustainability as a measure of quality and a proxy for future potential.

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