China takes a U-Turn

Dear TFH member,

Welcome to a new week!

Here’s what you need to know about the past week in four headlines:

Before then,

A Snapshot of the Markets last week:

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1.??????China’s U-Turn

2.??????Microsoft about to hit a huge road block

3.??????Great times for investors betting against Tesla

4.??????CBN introduces a new cash withdrawal limit

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1.??????China’s U-Turn

In what is rare in China, the Chinese people won last week. How? After days of previously unthinkable protests, the Chinese government has retreated on its Zero Covid policy. This policy involved strict lockdowns in areas even where small covid cases were reported. This would continue until zero infections are reported. Yet, the policy was not fully effective so far as Covid cases have been rising.

Some of the easing measures include the restriction of lockdowns to buildings or floors; allowance of inter-province travel; no PCR test allowed before using public transport and other public utilities except at school and hospital etc. In what is a major shift since March 2022, international arrivals are now allowed.

So, what are the economic implications?

First, opening up China suddenly has near-term public implications as it is predicted that there may be a skyrocketing of Covid cases. On other hand, opening up offers hope for the poorly performing domestic economy. The lockdown of key cities such as Shenzhen and Shanghai have led to a below-expected growth of 3.9% in 2022. Unemployment has also risen in the Chinese economy.

Now, this Zero Covid relaxation policy might unread public spending and consumption and affect sectors such as hospitality, travel and consumer goods. The global economy might also grow as tensions on supply chains will be reduced thus, addressing inflation. Companies with China as the heart of their supply chains such as Apple and have experienced reduced manufacturing due to the zero covid policy can expect a bounceback.?

2.??????Microsoft about to hit a huge road block

For devoted readers of The Finance Hub Newsletter, you must have read, in some of our past editions about Microsoft’s proposed $69 billion acquisition of Activision Blizzard, a gaming company.?This deal, if completed is going to be Microsoft’s biggest acquisition ever. Some weeks ago, we reported however, that Competition and Markets Authority (CMA) in the UK expressed anti-competition concerns about the deal.

Now, like the CMA, the Federal Trade Commission, the competition regulator in the US has voted to sue to block the deal. The FTC stated that the deal gives Microsoft “the means and motive” for harming competition. The reason for this is that Activision games might no longer be offered or offered poorly on non-Microsoft gaming consoles such as that of Sony and Nintendo. This situation would then ultimately harm consumers and distort the market. What is next? A legal battle in the court.

Some context

You see, the competition concerns are very relevant because of the way the gaming industry works. Someone creates or develops a game (games developer), gives it to someone (games publisher) and it is played on devices or consoles. Activision is the developer of popular games such as Call of Duty, World of Warcraft, Candy Crush etc. Till now, these games have been playable on different devices/consoles. Now, with this deal, there is the fear that Xbox, Microsoft’s gaming console, might be the console of choice to play all these popular games. This would then harm owners of other consoles and create a monopolistic situation. Sony, the owner of PlayStation, for one, has taken a critical stance against the deal.

Also, this deal will make Microsoft the third-biggest gaming company. With that, one would expect many competition regulators in major economies to scrutinise the deal. Recently, BigTech companies have been under antitrust scrutiny in the United States. And the Biden regime has taken a hard stance on monopolies. If this deal fails, Microsoft will pay a breakup fee of $3bn.

3.??????Great times for investors betting against Tesla

Due to the uncertain macro- economic climate, Tesla is having one of its worst years in a long time and the hiked interest rate (devised by the Federal Reserve to curb the inflation) does the company no favours. The economic uncertainties sprout from the resurgence of covid in China, coupled with the energy crisis in Europe. The resultant effect is that investors are now looking to reduce their most risky asset positions such as technology stocks.

After Tesla’s stock took a dip on the 8th of December Elon Musk came out to say "Macro conditions are really difficult: energy in Europe, real estate in China & crazy Fed rates in USA…" The decline in Tesla’s stock price could also be attributed in part to Elon Musk’s acquisition of Twitter. Since the acquisition, Musk has focused all his efforts and concentration to rebrand Twitter and this might have come at the expense of Tesla.

Short-sellers happy

It has proved to be a great year so far for investors who have bet on Tesla's short-term stock market crash.?The electric vehicle maker is presently one of the companies making short-sellers happy on Wall Street.In finance, short selling an asset means investing in such a way that the investor will profit if the value of the asset drops.Tesla’s stock value has fallen by more than 49% this year, amounting to a loss in market capitalization of about $550 billion.

4.??????CBN introduces a new cash withdrawal limit

Last week Tuesday, the Central Bank of Nigeria announced that it would be slashing the over-the-counter cash withdrawal limit for individuals from N500,000 to N100,000 and that of corporate organisations from N3 million to N500,000.

The decision was announced in a letter signed by Haruna Mustafa, the director of banking supervision at the CBN. The revised cash withdrawal limit comes after the launch of the redesigned naira notes by President Muhammadu Buhari on the 23rd of November, 2022, and in line with the new cashless policy of the CBN.

This decision was however met with a lot of criticism as many condemned the policy saying it would grossly affect small businesses and the economy. If we further consider that Nigeria has one of the highest rates of unbanked individuals (6th in the world) we shall find that the criticism might be justified.Unbanked individuals are heavily reliant on cash for day-to-day transactions. In Nigeria, most rural communities do not have access to banks and this calls the efficacy of the policy into question. The jury is still out.

WRITTEN BY:

Peter Abegunrin

Adeyemi Akinyemi

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Till we see again next week.

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