Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

The wolves of Market Street

Written by Tom Gillingham, associate partner 
Edited by Adam Shaw, associate partner
28 January 2021

Good morning,

“It’s time to go to the moon.”
 
This sort of vernacular has arguably driven the price of a relatively unknown US medical technology stock – TransEnterix Inc – to a punchy 522% increase over the past month. While boom and bust amongst penny stocks is nothing new, the latest source of share price hype and its reach into more established companies is raising eyebrows.
 
Amidst a blizzard of rocket emojis in certain corners of the internet, previously unknown companies can overnight build up enthusiastic followings that show little or no regard for traditional financial signals.
 
If yelling down a phone on Wall Street in New York was once the popular image of trading, perhaps it needs to be updated to feature all-caps typing on Reddit, which is based on Market Street in San Francisco.
 
In recent months there has been a 21% increase in membership of an almost half-million strong ‘subreddit’ called /r/pennystocks, and discussions elsewhere on the platform aren’t limited to the smaller players.
 
As well as hyping individual stocks, they’ve started to hunt hedge funds.
 
Yesterday, members of Reddit’s ‘Wallstreetbets’ claimed a significant victory after a $13bn hedge fund had to abandon a short position on GameStop with huge losses. Thread members had gleefully piled into the stock, crashing several online trading platforms in the process and on Monday caused its value to increase by 145% in less than two hours. It looks like this is only the beginning, with heavily shorted Pearson and Cineworld the latest to see prices surging after a seemingly inexplicable pile on.
 
Lockdown may be adding fuel to this particular fire, with a new cohort of bored day-traders seeking kicks denied to them by ongoing restrictions. They are enabled by a plethora of app-based trading platforms, many with in-built chat or forum functions that provide further rich habitats for the hypebeasts to roam.
 
Most of these frenetic boosters operate outwith the controls that surround traditional financial advice, and their impact is amplified by an already volatile stock market. Unsurprisingly, there are growing concerns about the ethics and legality of such behaviour.
 
This trend goes far beyond the traditional challenges associated with activist shareholders.  Perhaps smaller listed companies and hedge funds now need to consider how they can communicate with a shouty new wave of Reddit roulette investors.

News

The new UK variant of coronavirus may produce slightly different symptoms, according to research from the Office for National Statistics. A cough, fatigue, a sore throat and muscle pain may be more common in people who test positive for the recently identified UK mutation of the virus.
 
A report from think tanks Ember and Agora Energiewende has found that the UK generated more electricity from renewable sources than from fossil fuels for the first time in 2020. Wind turbines, solar panels, hydro-electric plants and biomass plants accounted for 42% of electricity generated during the year, ahead of the 41% generated by fossil fuels. Nuclear energy accounted for the remaining 17%. (£)
 
The US president, Joe Biden, has said he will strengthen his country’s alliance with Japan to counter growing Chinese military activity in the volatile Asia-Pacific region. During a call with the Japanese prime minister he also made a commitment to defend the Senkakus, a group of islands in the East China sea administered by Tokyo but claimed by Beijing.

Business and economy

The head of the London Stock Exchange Group has warned that the government must move quickly to overhaul the UK’s listing rules if it wants to compete with Wall Street for the next round of tech companies going public. (£)
 
The number of new cars built in the UK in 2020 fell by a third to just under 921,000, according to latest figures from the Society of Motor Manufacturers and Traders. Plant closures in reaction to the pandemic were blamed for the slump, but there was some optimism expressed for an improvement in 2021.
 
A survey has found that shop and office vacancies are rapidly increasing across the UK. Asked by the Royal Institute of Chartered Surveyors, the number of brokers reporting increased office vacancy rates was the highest since the height of the last financial crisis.

Columns of note

Writing in The Guardian Leo Crendrowicz suggests that amidst growing anger about the speed of vaccinations in the EU, the issue may just have been of the bloc’s own making due to the way the vaccines were procured in the first place. The focus on value for money may potentially have come at the cost of speed, something that the UK negated by immediately paying full price to secure early orders.
 
Jenni Russell argues that the UK still isn’t serious enough about mask-wearing in the face of stubbornly high Covid-19 case numbers. In her piece for The Times, she says the government hasn’t been forceful enough on the issue, and that it’s time for a “clear and ruthless masking campaign” to drive better compliance. (£)

Cartoon source: The Times

Markets

What happened yesterday?

London stocks finished down on Wednesday amid ongoing worries about the pandemic. The FTSE 100 fell by 1.3% to 6,567.37, and the FTSE 250 was 0.83% down at 20,278.35.

Sterling had a mixed day, last falling 0.34% on the dollar to trade at $1.37, and strengthening 0.13% against the euro to €1.13.

In the US, the Dow Jones Industrial Average ended the day down 2.05% at 30,303.17, while the S&P 500 lost 2.57% to hit 3,750.77. The Nasdaq Composite was 2.61% weaker at 13.270.60.

In company news:

It was an especially bad day for UK miners, with Glencore sliding 6.67% and Anglo American falling by 6.21%. Meanwhile, Rio Tinto was down 2.96%, Antofagasta fell by 2.95% and BHP was 2.4% weaker.
 
A rare bright spot came from education publisher and former FT owner, Pearson, which gained 13.97%.

What’s happening today?

Finals
Ab Ignitis. S
Oxford Biodyn

Interims
Hansard
Joules Grp
Rank

Trading announcements
Anglo American
Britvic
Euromoney
Intermediate Capital

Int. economic announcements
(00:00) Services Sentiment (EU)
(10:00) Industrial Confidence (EU)
(10:00) Business Climate Indicator (EU)
(10:00) Economic Sentiment Indicator (EU)
(10:00) Consumer Confidence (EU)
(13:30) GDP (Preliminary) (US)
(13:30) Continuing Claims (US)
(13:30) Initial Jobless Claims (US)
(15:00) New Homes Sales (US)

Source: Financial Times

did you know

Reddit is the 18th most visited website in the world.

Parliamentary highlights

House of Commons

Oral questions
Transport (including Topical Questions)

Business Statement
Business Questions to the Leader of the House – Mr Jacob Rees-Mogg
 
Backbench Business
Debate on Holocaust Memorial Day 2021 – Stephen Crabb, Dr Lisa Cameron, Dame Margaret Hodge
           
 
Backbench Business
Debate on the UN International Day of Education – Harriett Baldwin

House of Lords 

Oral questions
Impact of the Trade and Cooperation Agreement on musicians and musical enterprises seeking to work and tour in the EU – Lord German
 
Oral questions
Supporting small businesses affected by increased costs in exporting to the EU – Baroness Quin
 
Statements
Backlog of serious criminal cases in the justice system – Lord Wolfson of Tredegar
Skills for Jobs White Paper – Baroness Berridge
 
Legislation
Telecommunications Infrastructure (Leasehold Property) Bill – third reading – Baroness Barran
 
Legislation
Air Traffic Management and Unmanned Aircraft Bill – third reading – Baroness Vere of Norbiton
 
Statement
Covid-19 Update – Baroness Williams of Trafford
 
Legislation
Financial Services Bill – second reading – Lord Agnew of Oulton

Scottish Parliament 

First Minister’s Questions
 
Ministerial Statement: Scottish Budget 2021-22
 
Stage one debate
Domestic Abuse (Protection) (Scotland) Bill

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