Charles-Edouard Bilbault
Global Equities Portfolio Manager
“When”, not “If”
In August, markets continued to be shaken by macro figures. US labor economic data showed slower job growth with excess labor demand disappearing faster than expected. While supporting anticipations of an economic slowdown, this also raised market hopes for last month’s hike to be potentially the last one for this cycle. Fed chairman Jerome Powell remarks during Jackson Hole Symposium on the possibility of further rates hike if appropriate did not deter the market to rebound at the end of the month after a sharp sell off in the first weeks of August.
Over the month, the US dollar showed particular strength, as market overall was particularly risk off with bond yields increasing and equities mostly down. Risk assets overall underperformed in the downward trend but rebounded strongly at the end of August with US dollar strength softening. De-risking went along with strong outflows from digital assets investment, totaling US$277.6m in August(1).
Companies demonstrating solid growth trajectory were highly rewarded during the heights of the earnings season. This was likely best illustrated by Nvidia price action pre and post results, on solid demand for data centers needed to accelerate artificial intelligence projects. Cross fertilization between AI and blockchain continued to show good strength, with investments like Andreessen Horowitz into Story Protocol, a blockchain firm assisting generative AI creators to track and monetize their work.
Digital assets companies benefited at the end of the month from positive developments on the US regulatory side, supporting hopes for digital assets spot ETF approvals by the SEC, becoming more and more a question of “when”, not “if”. Such approval would be a very positive signal for this industry. It would indeed further increase the involvement of large traditional players like BlackRock or Fidelity to digital assets endeavors which market expects to propel wider adoption.
On the portfolio management side, blockchain infrastructure and digital assets buckets were most impacted during the first three weeks of August, reversing some of their outperformance year-to-date – except for Hong Kong listed BC Technology Group who outperformed this month as it got its digital asset platform OSL license uplifted to retail investors. We opportunistically bought on market weakness and namely reinforced our Industrial Uses / Audit Trail bucket. We started a line of Acciona Energias Renovables, a Spanish utility company using blockchain to secure green energy provenance data thanks to blockchain traceability and native audit trail capabilities. We also introduced to the portfolio a Hong Kong listed fintech, Lufax, a leading online lending platform backed up by insurer Ping An using blockchain to secure lending processes, as well as Vobile Group, combining AI and blockchain for online video content IP securization and monetization for clients like Disney, HBO or Warner. Our exposure to Canadian companies was slightly reinforced, with Minehub and Abaxx using blockchain to secure and streamline commodities market processes. At month-end, fund’s equity exposure was 96.9%(2).
Industry news to watch:
Announcements made this month by established companies of blockchain based innovations continued to pertain to various sectors of the economy and enterprise use-cases. Among many others:
- ABN AMRO, Rabobank, 2Tokens et Assetblocks collaborate on a securities tokenisation project for the EU European Blockchain Sandbox. Tokenisation of securities is gaining traction. Significant past issuers include European Investment Bank who worked along with Société Générale, Goldman Sachs, Santander, BNP Paribas, HSBC, Crédit Agricole CIB and SEB or the Hong Kong Monetary Exchange who worked along with Crédit Agricole CIB, Goldman Sachs and HSBC.
- Paypal launches its stablecoin PYUSD, a digital asset fully backed by USD first accessible to its US customers.
- Mercado Libre announces the launch of stablecoin USDC for Mercado Pago Chile 2 million users. In partnership with US fintech Circle, this widens Mercado Pago Chile digital assets access, already open to Bitcoin and Ethereum.
- Grand Theft Auto video game studio, Take-Two Interactive Software, announced the development of their first Web3 game. Developed by the branch dedicated to Web3 ZW3 unit of mobile unit Zynga, this game called Sugartown will use blockchain to namely support the issuance, transfer and storage of NFTs.
