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Europe Stocks Tumble to 5-Month Low; Futures Slide: Markets Wrap

Adam Haigh and Todd White
·3 mins read
Europe Stocks Tumble to 5-Month Low; Futures Slide: Markets Wrap
Europe Stocks Tumble to 5-Month Low; Futures Slide: Markets Wrap

(Bloomberg) -- European stocks dropped to a five-month low and U.S. equity futures slumped as rising coronavirus infections and tougher lockdowns added to worries about the economic hit from pandemic.

The Stoxx Europe 600 Index sank 2.5% after German Chancellor Angela Merkel proposed closing bars and restaurants for a month to curb the spread of the virus. The selloff across Europe was broad, with banks and travel shares seeing the steepest declines.

Haven assets, such as Treasuries, the dollar and yen rose. S&P 500 futures sank 1.5% and the VIX Index, a measure of U.S. equity volatility, climbed to the highest level since June.

“We’ve been warning investors over the last few days in particular to maybe pare back a little bit of their strong risk position,” Laura Fitzsimmons, JPMorgan Australia’s executive director of macro sales, said on Bloomberg TV. “As you see the odds start to wane a little bit more for Biden, maybe that continues a bit more. We all remember four years ago when markets were very much surprised.”

Markets in the U.S. and Europe have slumped this week as virus cases surge and American lawmakers fail to agree on an economic aid package before the election next week. Analysts are also warning about increased volatility in markets ahead of the vote, with some saying that a contested election is still a possibility.

In Asia, stocks fared better. The MSCI Asia Pacific Index was flat on Wednesday, and markets in South Korea and Shanghai posted modest gains. In China, indicators tracked by Bloomberg showed the recovery continued to display mixed signals while remaining broadly steady in October.

Elsewhere, oil retreated back below $39 a barrel after an industry report pointed to a bigger-than-expected increase in U.S. crude stockpiles.

Microsoft Corp. slipped in extended trading on Tuesday. The company’s first-quarter revenue climbed a better-than-projected 12%, strengthened by corporate demand for cloud-computing services to support customers’ remote workers and move more of their business online.

These are some events to watch this week:

Bank of Japan and the European Central Bank have monetary policy decisions Thursday, followed by briefings from Governor Kuroda and President Lagarde.The Chinese Communist Party’s Central Committee holds its plenum through Friday, where it’s expected to chart the course for the economy’s development for the next 15 years.Brexit negotiating teams have started intense daily talks, and these are likely to continue as both sides push to finalize a deal by the middle of November.The first reading of U.S. third-quarter GDP Thursday is anticipated to be the strongest on record following a record dive in the prior quarter as many businesses were shuttered by the pandemic.

Here are the main moves in markets:

Stocks

Futures on the S&P 500 Index fell 0.8% as of 8:50 a.m. London time.The Stoxx Europe 600 Index fell 2.1%.The MSCI Asia Pacific Index dipped 0.1%.The MSCI Emerging Market Index declined 0.4%.

Currencies

The Bloomberg Dollar Spot Index climbed 0.3% to 1,164.99.The euro declined 0.3% to $1.1761.The British pound fell 0.3% to $1.3004.The Japanese yen strengthened 0.1% to 104.27 per dollar.

Bonds

The yield on 10-year Treasuries declined one basis point to 0.76%.The yield on two-year Treasuries dipped less than one basis point to 0.14%.Germany’s 10-year yield decreased two basis points to -0.63%.Britain’s 10-year yield fell one basis point to 0.222%.

Commodities

West Texas Intermediate crude declined 2.2% to $38.08 a barrel.Gold weakened 0.2% to $1,903.89 an ounce.

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.

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Its revenue per user is just 121 yuan, still small compared with traditional financial institutions.Digital financial services contributed more than half of Ant's overall revenues in the six months ended June 30.Its largest business is now what it has dubbed CreditTech, providing credit to consumers and small businesses, surpassing payments and generating 39.4 per cent of its revenue in the six months ended June 30.Ant is the largest online provider of microfinance services in China in terms of total outstanding credit balance originated through its platform, according to consultancy Oliver Wyman.Management likens China's banks to the arteries of the economy, financing growth. They see Ant as the capillaries that transmit funds to the extremities of the economy, small businesses and individuals.Ant originates loans, 98 per cent of which are then underwritten by financial institutions or securitised. As of June 30, it was working with about 100 banks, including all policy banks, large national state-owned banks, all national joint-stock banks, leading city and rural commercial banks, international banks that operate in China, as well as trust companies.Its platform takes just three minutes to process a loan and 1 second to disburse the loan, with zero human intervention.The consumer credit and small business credit balance in China could swell to 50 trillion yuan by 2025, and Ant has only tapped about 4 per cent of this huge market so far.In investment services, Ant has partnered with 170 asset managers, as well as banks and insurers, to provide wealth management products to its customers. As of June 30, the so-called InvestmentTech segment had 4.1 trillion yuan in assets under management sold through Ant's platform.The insurance business also is a growing segment, accounting for 8.4 per cent of its revenue in the six months ended June 30.Ant is the largest online insurance services platform in China in terms of premiums generated, according to Oliver Wyman. It has relationships with about 90 insurers in the mainland, representing about 52 billion yuan in premiums generated and contributions through its online mutual-aid platform Xiang Hu Bao in the twelve months ended June 30.China's online insurance premiums will hit 1.9 trillion yuan by 2025 at a CAGR of 38.1 per cent, said Oliver Wyman. Ant's premiums are still under 1 per cent of this fast-growing pie.QR codes for WeChat Pay (left) and Alipay, whcih dominate the mobile payments market in China. Photo: Reuters alt=QR codes for WeChat Pay (left) and Alipay, whcih dominate the mobile payments market in China. Photo: ReutersHow does Ant compare with Tencent Holdings?Alipay and Tencent's WeChat Pay command a virtual duopoly in China's mobile payments, which accounted for US$15.9 trillion in transactions in the second quarter, according to the most recent data from the People's Bank of China.There were 30.1 billion mobile transactions alone in the mainland in the second quarter, a 26.9 per cent increase over the year-earlier period.The two players had an aggregate market share of 90 per cent of third-party mobile payments in China at the end of last year, according to Mizuho Securities.It is difficult to directly compare Alipay to Tencent's WeChat Pay as Hong Kong-listed Tencent does not break them out separately but WeChat Pay is included in its fintech and business services division.In 2019, Alipay generated a higher average transaction size - 483 yuan versus 183 yuan at Tencent's payment affiliate Caifutong, according to Morningstar analysts. Ant also generated a gross margin nearly double that of Tencent's fintech business last year.Other differences also remain between their payments businesses. Not least, WeChat Pay is integrated into WeChat while Alipay is a stand-alone app, linked to consumers' bank accounts.A figurine of Ant's mascot sits on a desk at the company's headquarters in Hangzhou. Photo: Bloomberg alt=A figurine of Ant's mascot sits on a desk at the company's headquarters in Hangzhou. Photo: BloombergWhat are Ant's emerging growth drivers?Future revenue drivers include Ant's blockchain business, dubbed Antchain, as well as international expansion and merchant services.Ant started to explore blockchain's potential around six years ago and has been investing in the technology ever since. It has taken the lead globally in terms of technical capability and developed around 50 commercial applications.In March, Simon Hu, Ant's chief executive, released a three-year plan to open up Alipay as an online gateway for businesses ranging from retailers to hotels, working with 50,000 independent software vendors to digitally upgrade 40 million merchants.Ant's management predicts that the 80 million small businesses it serves today will swell to 163 million by 2025.Analysts sent research to investors on Wednesday pegging Ant's near-term valuation roughly between US$350 billion and US$450 billion on a like-for-like basis, including the money it is raising in the IPO, according to people familiar with the matter.On a different time frame, JPMorgan analysts are particularly bullish on future growth potential and estimated Ant's market capitalisation would swell to north of US$500 billion post-money.Credit Suisse analysts peg Ant's valuation between US$380 billion and US$461 billion, with a price/earnings to growth ratio between 1.2 times and 1.4 times. They forecast Ant's net profit will hit 56 billion yuan (US$8.4 billion) in 2021 and 75 billion yuan in 2022.Ant Bank is a virtual banking arm of Ant in Hong Kong. Photo: Handout alt=Ant Bank is a virtual banking arm of Ant in Hong Kong. Photo: HandoutHow big is Ant outside mainland China?Mainland China accounted for 95.6 per cent of Ant's revenue for the six months ended June 30, and most of its revenue from outside China was from cross-border payment services.But, Ant and other payment providers are seeking to expand internationally and diversify domestically as the third-party mobile payment industry has become saturated in China in terms of the number of users."Future opportunities would lie in cross-border payment, inbound tourism and overseas markets," said Ben Huang, an analyst at Mizuho Securities.Ant has been expanding overseas for the past decade and is now present across the Asia-Pacific region and in Chinese tourist hotspots globally.It had forged partnerships with local partners in Bangladesh, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines and Thailand as of March 31.Ant also won a virtual bank license in Hong Kong and is applying for one in Singapore.Alipay's in-store payment service is in more than 50 markets globally. Alipay supports 27 currencies and works with over 250 overseas financial institutions and payment solution providers to enable cross-border payments for Chinese travelling overseas, and overseas customers who purchase products from Chinese e-commerce sites.Ant is seeking to expand into products beyond payments as part of its growth strategy. Photo: Reuters alt=Ant is seeking to expand into products beyond payments as part of its growth strategy. Photo: ReutersDo rising US-China tensions present a risk to Ant's business?Ant's business in the US is "negligible", but the company warned the worsening relationship between the world's biggest economies had raised concerns the US may impose "increased regulatory challenges or enhanced restrictions" on Chinese companies.Two years ago, Ant's US$1.2 billion deal to acquire money transfer firm Moneygram International fell apart after a US government panel rejected the transaction over national security concerns.Bloomberg reported this month that the US was considering potential actions against Tencent and Ant over their payment apps. Reuters also reported the US State Department submitted a proposal to blacklist Ant by adding it to the so-called entity list, which restricts the sale of certain technology.Citing potential risks to its outlook, Ant said that restricted items compromise an "immaterial" portion of its technology and software, but any such restrictions could "materially and adversely" affect its ability to acquire technologies that may be critical to its business and impede its ability to access US-based cloud services or operate in the US."In addition, these policies and measures directed at China and Chinese companies could have the effect of discouraging US persons and organizations to work for, provide services to or cooperate with Chinese companies, which could hinder our ability to hire or retain qualified personnel and find suitable partners for our business," Ant said in its prospectus.What is the relationship between Alibaba and Ant today?Alibaba, which owns the Post, and Ant remain closely intertwined despite Alipay being spun off in 2011, a huge competitive advantage for the digital financial services group.Billionaire Jack Ma holds a controlling shareholder of Ant and the co-founder and former executive chairman of Alibaba. Ma controls 50.52 per cent of Ant's shares.Within Alibaba's so-called walled garden, about 70 per cent of the gross merchandise volume generated by its marketplaces in China was settled through Alipay in the twelve months to March 31.Alibaba also pays Alipay a fee, on favourable terms to Alibaba, for payment services to its consumers and merchants. In the financial year 2020, those service fees were 8.7 billion yuan.In February 2018, Alibaba, through its subsidiaries, took a 33 per cent equity stake in Ant, which it still holds. Alibaba has subscribed to Ant shares to prevent the IPO from diluting its stake.This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

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