Head of Equity Strategy
Summary: Alibaba shares down 7% as Ant Group IPO has been suspended due to China revising its regulatory framework telling Ant Group that it will be subject to rules governing financial holding companies. This IPO has all the prestige as it is the world's biggest ever and thus Ant Group will most likely comply with the Chinese government and thus although the timeline is uncertain we do believe the Ant Group IPO will move forward.
Ant Group, formerly Alipay, was supposed to have been the world’s biggest IPO raising $35bn and estimates suggesting a market value of around $315bn, but yesterday the exchanges in Shanghai and Hong Kong announced that the IPO is suspended due to changing regulatory rules without stating further details. It has since leaked that on meetings between Ant Group, China Securities Regulatory Commission and State Administration of Foreign Exchange, the company was told that it will be subject to laws governing financial holding companies including capital, leverage and liquidity ratios. In other words, Ant Group was trying to run a financial company without regulation according to the interpretation of the Chinese government and its agencies regulating the banking sector. Alibaba, the largest shareholder of Ant Group, shares are down 7% in Hong Kong trading stabilizing after opening down 10%.
It seems like a fair critique as the banking sector is an integrated part of the government’s policies through the credit impulse so Chinse government cannot have a privately-owned company running a larger and larger part of the money market and payment system in China. The discussions are at the highest levels of government due to the size of this IPO which according to estimates are oversubscribed 284 times. In our view the prestige for China in this IPO will make it come through with Ant Group complying to the government’s rules, but the timeline is obviously uncertain.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
