SVB
We’re going to keep our discussion of Silicon Valley Bank (SVB) short. It’s easy to draw parallels to the GFC but, penciling in the maths, it looks like depositors should get back 80% of their their money (80 cents on the dollar). This isn’t bad! The bigger worry is the reputational damage done to tech – companies like Roblox had ~5% of their cash pile banked at SVB, Rocket Lab had aprox. 7.80% of their cash with them. Roku had a stunning ~28% of their cash with SVB. They’ll probably get back 80 cents on the dollar but the bigger damage is reputational: it doesn’t look good to be losing shareholders money by putting a bunch of their cash at an unregulated bank. The other thing to note is SVB’s total (declared) exposure is relatively small — about ~$180B give or take. The larger question we have is if there’s a larger contagion on the way — we’re avoiding crypto ’til the cows come home. Crypto group Circle has a $3.3B exposure to SVB – another question is, where does the already hard-to-bank crypto sector go now? We expect further fallout in the crypto sector as a result. Our preference for banks remains JP Morgan in the US — well capitalized and with a strong balance sheet.
The S&P 500 has retraced back to its lows at the start of the year – as of writing it has returned a meagre +0.98% YTD. This seems fair: you could be forgiven for thinking that equities had shrugged off the worst last year’s sell-off. It’s worth remembering that market cycles take time to play out. Valuations remain high – Microsoft trades at an undented 23x earnings. We love Microsoft – it’s office suite has remained strong (even as the work-from-home trend fades) and Azure goes from strength to strength in the cloud computing market. But it’s hard to justify buying MSFT at 23x earnings when we’re looking at 5.50-6.00% terminal rates and competitors like Alphabet trade at a mere 15x earnings. Suggest adding Alphabet and holding MSFT.
Pushpay’s would-be buyers have until 5PM today to make a new offer. Likely another extension may be agreed upon, but keep in mind that BGH’s funding is due to expire early this week. What is the likelihood that BGH and Sixth Street walk away? Trading down -0.81% as of writing, as the market weighs the probability.
We still see value in commercial property REITs like Kiwi Property Group (trades at a ~35% discount to NTA even after property revaluations). They’re well positioned to take advantage of continued consumer spending as the owner of “best in class” Sylvia Park whilst they’re insulated from the pain of the home mortgage sector. Scales is trading lower than our “buy” target price – as of writing it can be picked up for $3.23 per share – we view the stock as oversold due to the cyclone; most of its crops are unaffected.
What Markets will be Watching this Week
Tuesday
Westpac Consumer Confidence
US CPI (Inflation) data
Thursday
NZ 2022 GDP
Friday
Eurozone CPI (Inflation) data