Good afternoon, it is 30th June 2020 and here is your economic and market update from BlackBee.
Today we focus on:
- Investor appetite for Infrastructure Investments
- Hopes for an economic rebound on Wall Street
- Wirecard puts spotlight on the Audit Industry
Infrastructure investments are typically tied to public goods, with their revenues less vulnerable to economic cycles or changes in monetary policy. In addition, the revenues associated with Infrastructure investments are often linked to inflation, thereby protecting the real returns of the investment for investors. Flattening yield curves increases the attractiveness of raising longer-term capital in general. This has increased investors’ appetite for making longer-term investments, which is typically the time horizon for infrastructure-related projects. Investment returns of core infrastructure assets tend to be relatively independent of business cycles and could, therefore, be a good allocation choice in the current environment.
Monday saw stock markets in the US and Europe close higher on the hope that higher coronavirus cases in the US could be contained with the economy rebounding quicker. In the US, the S&P 500 closed 1.5% higher, while the Nasdaq increased by 1.2%. In Europe, the Stoxx Europe 600 index increased by 0.4%, while in Germany the DAX 30 index was the best performer, with an increase of 1.2%. More positive economic data raised hopes of a recovery, with Chinese industrial profits rebounding in May and Eurozone businesses showing signs of recovery, albeit slow. Some markets closed lower, however. In Japan, the Topix Index closed 1.8% lower, while the Hong Kong Hang Seng Index closed down 2% and South Korea’s Kospi Index closing down 1.9%.
German payments company Wirecard has filed for insolvency, causing a collapse in its share price after admitting that €1.9bn of cash probably never existed. The crisis came to light last week when Wirecard’s auditors, Ernst & Young, refused to sign off on accounts for the company, having been unable to locate the missing €1.9bn. Ernst & Young which had audited Wirecard for a decade failed for over 3 years to request crucial account information where the company claimed to have cash. Many customers are now potentially facing the fallout of this, but it could do more damage to the wider industry. Over the past few years, challenger banks have taken market share from traditional players. This crisis has the potential to do more reputational damage and make would-be customers reconsider their appetite for such platforms, particularly where larger sums of money are involved. The events at Wirecard are not a good news story for Ernst & Young, or indeed the audit industry. While Ernst & Young has sought to cast itself as a victim, having been deceived by Wirecard, the events will likely shine a light on what services auditors should be providing in terms of assurances that fraud isn’t being committed within a company.
Best & Worst Performers of Large Cap Stocks on Monday
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Global Market Update
(as at close of markets 29/06/2020)