In 2023, US interest rates remained high, global capital markets experienced ups and downs, and history evolved at an unprecedented pace. At the end of the year, the fund manager will sort out major events in the global capital market and recount the history we have witnessed together.
Firstly, the Federal Reserve continues to raise interest rates
In 2023, the Federal Reserve raised interest rates by a total of 100 basis points. Although the pace of interest rate hikes has slowed down compared to 2022, the target range of the federal funds rate remains stable at a relatively high level. In December 2023, the Federal Reserve hinted that interest rate hikes may have come to an end, and most analysts predicted that rate cuts could be expected in the second quarter or second half of next year. However, renowned Wall Street investor Bill Ackerman believes that interest rate cuts may be earlier than expected.
The high interest rates in the United States have led to an influx of funds into the commodity market. As of now, the size of US money market funds has reached $5.87 trillion, close to the highest level in history.
High interest rates have led to a strong US dollar. In October 2023, the US dollar index briefly surged to 113.3. As interest rate hikes come to an end, the US dollar index has fallen. Generally speaking, when the US dollar is strong, funds tend to flow out of emerging markets and back to the United States. Will funds flow back to emerging markets in 2023 as the US dollar weakens?
2. Bankruptcy of Silicon Valley Bank
After the 2008 financial crisis, the United States increased its banking supervision. People once believed that American banks would not experience another crisis. The bankruptcy of Silicon Valley Bank in March 2023 was a shock.
On March 8, 2023, Silicon Valley Bank announced that it had sold investments worth over $21 billion and borrowed $15 billion, while also selling its $2.25 billion worth of stocks. Despite actively seeking self rescue, Moody's downgraded the rating of Silicon Valley Bank on March 8, 2023. A wave of unprecedented run on funds suddenly arrived. As of the end of business on March 9, 2023, Silicon Valley Bank's customers had withdrawn $42 billion, leaving only a few hundred million dollars on its books.
Why did the problem with Silicon Valley Bank arise?
During the epidemic, with the sharp increase of deposit scale, Silicon Valley banks bought a large number of long-term US treasury bond bonds. With the Federal Reserve raising interest rates, the face value of its bond assets has significantly decreased. With the pace of interest rate hikes advancing, the risk of Silicon Valley banks has been ignited.
On the morning of March 10, 2023, inspectors from the Federal Reserve and the Federal Deposit Insurance Corporation arrived at the office of Silicon Valley Bank to assess its financial condition. Subsequently, the California Department of Financial Protection and Innovation issued an order to take over Silicon Valley Bank, with the Federal Deposit Insurance Corporation designated as the receiver. At this point, Silicon Valley Bank became the second largest bank failure in American history since Washington Mutual in 2008.
The bankruptcy of Silicon Valley Bank did not end the fear of small and medium-sized banks in the United States. On May 1, 2023, the California Department of Financial Protection and Innovation announced the closure of First Republic Bank, which will be taken over by the banking regulatory agency, the Federal Deposit Insurance Corporation. JPMorgan Chase later acquired all savings deposits and remaining assets of First Republic Bank.
III. UBS acquires Credit Suisse
If the rise in interest rates is a significant trigger for the bankruptcy of Silicon Valley banks, then the reasons for the bankruptcy of century old financial groups across the Atlantic are even more complex. On June 12, 2023, UBS announced the completion of its acquisition of Credit Suisse. Credit Suisse Group Limited has been merged into UBS Group Limited, and the merged entity will operate as a banking group.
Credit Suisse was founded in 1856 and has a history of 167 years. It is the fifth largest conglomerate in the world and the second largest bank in Switzerland, with branches in over 50 countries worldwide.
After encountering a series of risk events, this century old financial group fell into crisis. According to the financial report, Credit Suisse had a net loss of 1.7 billion Swiss francs for the full year of 2021 and 7.3 billion Swiss francs for the full year of 2022. In 2023, it also suffered significant losses. Moreover, Credit Suisse disclosed in its 2022 annual report that there were "significant deficiencies" in its financial reporting procedures, and the auditing firm PwC issued a negative opinion on the effectiveness of the company's internal control over financial reporting procedures.
On March 19, 2023, the Swiss federal government announced that Credit Suisse would be acquired by UBS. The acquisition price is 40% off the market value calculated from the previous trading day's closing price. In addition, this merger and acquisition transaction has broken many conventions and sparked controversy in the global capital markets.
The century old shop was forcibly married by the Swiss government to UBS, marking the end of the 167 year history of Credit Suisse.
4. ChatGPT "Explosive Red"
Artificial intelligence company OpenAI launched GPT-3.5 in November 2022. This public prototype quickly gained attention and accumulated 1 million users in just 5 days. By January 2023, its user base had exceeded 100 million, making it the fastest growing platform in history. The powerful features of ChatGPT have shocked the world, but it has also caused a series of problems. For example, there are issues with the authenticity and accuracy of ChatGPT information, as well as the computational power requirements for large-scale model operation with massive parameters.
ChatGPT has sparked industry interest in developing large models. The battle for big models has already begun, with Google, Facebook, and others joining this unavoidable AI competition. People's enthusiasm for artificial intelligence has spread to the capital market, and the "Seven Heroes" of the US stock market have been soaring all the way, supporting the beautiful trend of the US index for the whole year.
However, in November 2023, OpenAI staged a "palace battle drama", adding drama to the original "hardcore" technology. Sam Altman faced a "back stabbing" incident, with 90% of employees resigning and OpenAI almost being purchased for 0 yuan by Microsoft. In the end, Sam Altman was able to return as CEO to resolve the crisis. The powerful features of ChatGPT have sparked people's thinking about AI regulation: how to regulate the incredibly powerful power of artificial intelligence and develop it in a direction that is beneficial to human well-being. This philosophical proposition has been pushed before us.
V. Wall Street worries about the sustainability of US debt
As of October 2023, the total national debt of the United States exceeded $33 trillion, setting a historical record. Data shows that in 2022, the national government debt of the United States accounted for 129% of nominal GDP, the highest level in history.
Although inflation has slowed down and interest rates have fallen in recent weeks, and debt pressure has slightly eased, the sustainability of US national debt has become a "gray rhino" for the US economy.
The budget model (PWBM) of the Wharton School of Business at the University of Pennsylvania concludes that the US debt may become unsustainable and there may be potential or obvious defaults, with its debt ratio expected to reach between 175% and 200% of GDP.
According to the latest benchmark assumptions from the Congressional Budget Office (CBO), by 2050, the national government debt of the United States will reach 170% of GDP. US financial institution Lubbomai believes that if the bond market is concerned about these long-term forecasts and responds, interest rates may rise faster, further exacerbating the crisis of debt sustainability.
Some research institutions believe that the US government may default on its debt in the next twenty years. In the long run, the future of US treasury bond bonds as the pricing anchor of the global capital market is a question for global investors.
6. The world's largest cryptocurrency exchange - Binance Link "sky high fines"
On November 21, 2023, the official website of the US Department of Justice announced that Binance Holdings Limited admitted to involvement in suspected money laundering, unlicensed remittances, and sanctions violations, and agreed to pay a fine of $4.3 billion. Meanwhile, Zhao Changpeng, the founder and CEO of Binance, admitted to failing to maintain an effective anti money laundering plan and has resigned from his position as CEO of Binance.
As part of the plea agreement, Binance agreed to be confiscated of $2.5 billion and paid a criminal fine of $1.8 billion, totaling $4.3 billion. Binance also agreed to retain an independent compliance inspector for three years to correct and strengthen its anti money laundering and sanctions compliance program.
The US Department of Justice pointed out that Binance has not implemented an effective anti money laundering plan. For many years, Binance has allowed users to open accounts and conduct transactions without submitting any identity information other than email addresses.
With the world's largest cryptocurrency exchange recognizing penalties, the challenges posed by cryptocurrencies to anti money laundering have been pushed to the forefront.
Seventh, the Nikkei 225 Index hit a 30-year high
On November 20, 2023, the Nikkei 225 index rose by 0.8% to 33853.46, reaching its highest point since March 1990, but later regained its gains.
It is understood that stocks driving the stock index up include Tokyo Offshore Holdings Limited, which announced strong returns and stock repurchases, and Panasonic Holdings Limited, which is considering listing its automotive related business. As of December 22 this year, the index has grown by approximately 27.11%. Behind this is the strong growth of corporate profits, the continued weakness of the yen, and the market's bet on the Federal Reserve ending interest rate hikes.
Some analysts believe that structural forces in the Japanese economy continue to drive the Japanese stock market, and the market is looking forward to a rebound in Asian markets after the end of the Federal Reserve's interest rate hike cycle, with corporate profits further boosting optimism.
Recently, the Bank of Japan postponed the end of yield curve control, further supporting the Japanese stock market and raising expectations among investors for next year's Japanese stock market.
Eight, Charlie Munger and Henry Kissinger passed away
According to reports, Charlie Munger, a well-known American investor and Vice Chairman of the Board of Directors of Berkshire Hathaway, passed away on the morning of November 28, 2023, at the age of 99. A statement released by Berkshire Hathaway stated that Munger passed away peacefully at a hospital in California, where he lived, just over a month after his 100th birthday on January 1, 2024.
Charlie Munger is one of the most well-known investors in China. As Buffett's partner, his annual "Double Springs" with Buffett at the Berkshire Hathaway shareholders' meeting is the most anticipated annual program for Chinese investors. The quote from "Poor Charlie's Encyclopedia" is the life motto of countless investors.
The day after Munger's death, another legend quietly passed away.
According to a statement released on the official website, Henry Kissinger passed away on November 29, 2023 at the age of 100. He is considered the most powerful US Secretary of State after World War II. From Kennedy to Biden, he served as an advisor to 12 presidents - more than a quarter of all US presidents to date. With a profound understanding of diplomatic history, some believe that Kissinger has changed almost all global relations with his involvement. He has a greater influence on global affairs than many US presidents.
What impressed the Chinese people deeply is that half a century ago, he made a historic contribution to the normalization of Sino US relations with outstanding strategic vision. After his 100th birthday, he visited China again to express his insights on China US relations, which attracted the attention of the international community.
9. Pinduoduo's market value surpasses Alibaba
On the evening of November 29, 2023, the US stock market Pinduoduo rose by over 4%, with a market value of $192.1 billion, surpassing Alibaba and becoming the largest Chinese concept stock in the US stock market.
According to media reports, Jack Ma replied to employees on an intranet post saying: "Please provide constructive opinions and suggestions, especially innovative ideas. I believe that everyone at Alibaba today is watching and listening. I firmly believe that Alibaba will change, and Alibaba will change. All great companies are born in winter. The era of AI e-commerce has just begun, and it is both an opportunity and a challenge for everyone. Congratulations to Pinduoduo on its decisions, execution, and efforts over the past few years. Everyone has done well, but those who can reform for tomorrow and the future will do well." Only organizations that are willing to pay any price and sacrifice are respected. Back to our mission and vision, Ali people, come on! Partner Jack Ma. "
What does the change of ownership of the "first brother" of Chinese concept stocks mean? It is worth pondering by investors.
10. Hong Kong relaunches the "Capital Investor Entry Plan"
On December 19, 2023, the Secretary for Financial Affairs and Treasury of the Hong Kong Special Administrative Region Government, Hsu Cheng yu, announced the "New Capital Investor Entry Plan". According to the plan, eligible applicants must invest HKD 30 million or more in Hong Kong within two years before submitting their application to apply for entry into Hong Kong. The plan aims to launch and accept applications by mid next year. Among them, investors need to invest at least HKD 3 million in the Capital Investor Entry Program investment portfolio, which mainly invests in innovative technologies and other related projects that are conducive to Hong Kong's long-term development.
Xu Zhengyu stated that there are no hard targets for the new plan, and based on the number of previous applications, it is expected that the new plan can bring new funds of HKD 120 billion to Hong Kong. The new plan will help consolidate Hong Kong's position as an asset and wealth management hub, and attract more new funds to settle in Hong Kong.
After eight years, Hong Kong has launched another capital investor entry plan, which may indicate the Hong Kong government's determination to embrace capital without any restrictions and solidify its position as an international financial center.
(Organized by Wu Juanjuan)
