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  • Vested Shorts : Nvidia’s $12B move, Topix’s 22% surge, EU’s EV standoff, Revolut’s $2.3B revenue, and the $84T US wealth transfer

Vested Shorts : Nvidia’s $12B move, Topix’s 22% surge, EU’s EV standoff, Revolut’s $2.3B revenue, and the $84T US wealth transfer

by Parth Parikh
July 6, 2024
4 min read
Vested Shorts : Nvidia’s $12B move, Topix’s 22% surge, EU’s EV standoff, Revolut’s $2.3B revenue, and the $84T US wealth transfer

In today’s edition

  • Nvidia’s China strategy
  • Topix surges to record
  • Chinese EVs still in demand
  • Revolut doubles revenue
  • Shift in wealth dynamics

Market Snapshot

The US economy added 206,000 jobs in June, slightly above expectations but below the previous month’s revised 218,000, stabilising near pre-pandemic levels. This shift nudged the unemployment rate up to 4.1%, fueling speculation that the Federal Reserve might cut interest rates soon.

Investors are looking forward to insights from Fed Chairman Jerome Powell’s upcoming congressional testimony on monetary policy. Despite his recent dovish stance on inflation, the Fed’s minutes suggest a cautious approach to any rate cuts. 

Last week, the S&P 500 and Nasdaq demonstrated strong performance, with the S&P 500 rising in every session over nine of the past eleven weeks, and the Nasdaq posting significant gains for the fifth consecutive week, reflecting robust investor confidence amidst evolving economic conditions.

Stock market closing data for the week of Jul 1st to Jul 5th, 2024

News Summaries

Despite US export controls on its top-tier AI chips, Nvidia (Explore: NVDA) is set to generate significant revenue from China by selling its H20 chips, designed to comply with current regulations, with projected sales reaching $12 billion. This amount surpasses last year’s total revenue from its China operations, which included various products. The H20, priced between $12,000 and $13,000, is being shipped in large quantities and is expected to sell over one million units, nearly doubling the sales of Huawei’s competing Ascend 910B chip. Nvidia’s adaptation to export restrictions demonstrates strategic resilience, ensuring continued engagement with the Chinese market, where prior to export controls, China constituted over a quarter of Nvidia’s revenues. Despite a reduction to around 10% of total sales due to these restrictions, Nvidia’s broader revenue from China has grown, showing a robust demand for its compliant AI technology amidst tighter US trade policies.

Japan’s Topix index (Explore: FLJH) recently exceeded its peak from the bubble era, setting a new record high and showcasing a broad-based rally. Year-to-date, the index has achieved impressive gains of nearly 22%, outperforming the S&P 500. This rise is supported by nearly all of the 33 industry sub-indexes, with automakers contributing significantly. Financial sectors such as banking and insurance have also excelled, buoyed by the prospect of interest rate hikes from the Bank of Japan, which could enhance profitability through better lending margins and bond investments. The blue-chip Nikkei 225 has paralleled this growth, reaching new highs fueled by a global tech rally and a weaker yen, which has historically benefited exporters. Despite concerns over the yen’s decline potentially harming exporters and overall economic health, the market’s upward trajectory is further reinforced by investor confidence and corporate governance reforms, which are becoming a significant focus for improving market standards.

Despite a general slowdown in the European electric vehicle (EV) market, where total EV deliveries fell by 12% to 13,390 vehicles in May, Chinese car manufacturers like BYD Co. (Explore: BYDDY) maintained an 8.7% market share, mirroring their performance from the previous year. This steadiness comes as the European Union introduces provisional tariffs up to 48%, significantly higher than the current 10%, aimed at curbing the influx of lower-cost Chinese EVs. The resilience of Chinese brands in the face of declining overall demand is largely attributed to their competitive pricing and advanced battery technology, which continue to attract buyers amidst the scaling back of local subsidies. These factors have helped Chinese EVs sustain their presence in the market despite broader economic pressures and the looming threat of increased import duties, which could potentially escalate trade tensions between China and the EU.

Revolut Ltd. experienced a significant financial upturn in 2023, with its revenue soaring to £1.8 billion ($2.3 billion), nearly doubling due to a substantial rise in interest income from £83 million ($106 million) in 2022 to £500 million ($640 million). Despite this revenue boost, the UK-based fintech faced increased credit losses in both lending and non-lending segments, which rose to £46.6 million ($59.6 million), impacting overall profit margins. The clean audit report and timely filing of its financial statements are strategic moves towards securing a UK banking license, enhancing its operational credibility. Moreover, with a 38% increase in staff and the addition of 12 million new customers, Revolut’s growth momentum is underscored by its expansion into personal loans and credit cards in key European markets. The company also indicated readiness for a public listing and ongoing efforts to expand its customer base, projecting to surpass 50 million customers by the end of FY24.

From the World of Crypto

Figure 1: Younger investors’ preferences for investing. Source

The impending generational transfer of wealth in the US is set to reshape the financial landscape, with Baby Boomers ready to pass down about $84 trillion to Gen X and Millennials. This transfer represents a massive shift as Boomers currently possess $78.3 trillion in assets. This redistribution could drastically alter investment habits, particularly as each generation exhibits distinct financial preferences.

Analysis from Bank of America highlights that younger generations, especially those between 21 and 43 years old, are significantly more engaged with digital currencies, with 28% (see Figure 1) already investing in cryptocurrencies—contrastingly higher than the 4% participation rate among those over 44. This discrepancy suggests that a large portion of the inherited wealth could potentially flow into digital assets as younger heirs invest according to their preferences.

With around $20 trillion expected to be directed into cryptocurrencies, the market could see a profound impact, possibly increasing the total market cap significantly. This surge in capital flow into digital assets could not only elevate the value of cryptocurrencies like Bitcoin but also transform the investment landscape, making digital assets a mainstream financial instrument for future generations.

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