Market commentary: Dec 2022
Welcome to 2023 and goodbye 2022!
As we begin the new year it’s interesting to reflect on 2022 and look ahead to 2023. High inflation, rising interest rates, Russia invasion of Ukraine, energy crisis in the UK, Queen Elizabeth II died, China zero covid, COP27, Football world cup… All in all, 2022 was a huge year and one that hasn’t been particularly enjoyable for investors. Market values for shares and bonds are both down since the peak in December 2021 - not a great time if you needed to sell but a reasonable time to be adding money to portfolios. What do we know about the year ahead? Cashflow from interest will be higher thanks to higher interest rates, inflation remains in the driving seat, the interest rate trajectory is unknown, and speculators won’t learn a thing. The big question is will we see share markets bottom out and the start of the next bull market?
One of history’s great financial swindles?
Sam Bankman - Fried (SBF) is 30 years old. He founded FTX in May 2019 and by November 2022 he was reportedly worth US$17 billion. Now he’s bankrupt.
FTX is (was) a crypto currency exchange - a bit like a bank but customers deposit crypto currency into digital wallets. It was one of the biggest exchanges and considered one of the most stable. It also issued 250 million crypto tokens named FTT – created out of thin air. At one point these were selling for US$80 each (US$20 billion in total). In November 2022 rumours circulated about the amount of cash FTX had on hand. When SBF was unable to quell these fears, investors rushed to pull their money out at once. Around a million people missed out and have lost US$8-10 billion. SBF was arrested and charged with running ‘a house of cards’ in ‘one of the biggest financial frauds in US history’.
As we all wondered, at best crypto is gambling, at worst it’s financial swindle and exploits the gullible and greedy.
Semi-conductors, Taiwan, and China
It seems there is no end to the world’s appetite for semiconductors. They are the backbone of technology and demand is expected to multiply for years to come. A new car uses as many as 3,000 semiconductors. It’s easy to see that the country that dominates global manufacture of semiconductors will hold power. Taiwan Semi Conductor Manufacturing Corp (TSMC) is currently the world’s most valuable semi-conductor company. China’s leader Xi Jinping has identified semi-conductors as one of the key areas he wants to achieve self-sufficiency and is investing hundreds of billions of dollars. There are concerns that China plans to reunify Taiwan by force – and control TSMC. This development is seen as an economic and national security threat by the US and its allies who are now taking reactive steps to improve their own capabilities and to slow down China’s ambitions.