Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Additions to crypto basket; JD Logistics rides the e-commerce bonanza
6 minutes to read
Peter Garnry
Chief Investment Strategist
Summary: May has been tough for cryptocurrencies and our crypto basket has also suffered, but much less than cryptocurrencies themselves, making it the worst performing theme in May. We are adding five new companies to our crypto and blockchain theme basket including the Swedish-based crypto broker Safello Group that has just IPO'ed in Stockholm. JD Logistics have just IPO'ed in Hong Kong providing investors with a pure play on logistics in China which is essentially a play on e-commerce but from a different angle than the typical retailing perspective.
Our crypto and blockchain theme basket has been the worst performing basket this month down 18.1% as cryptocurrencies have experience extreme volatility and an intra-month maximum drawdown of 49.6% in Bitcoin (see chart). The divergence in performance between Bitcoin prices and the crypto theme basket shows that the companies in the basket are not purely driven by cryptocurrency prices. This means that our theme basket provides a different exposure profile to the crypto industry than just speculating on cryptocurrencies.
Safello Group, which is Swedish-based crypto broker, recently IPO’ed in Stockholm, and we are using this IPO as an opportunity to add some new companies to our theme basket. In this update we are adding the five companies Safello Group, Northern Data, Quickbit, Taal Distributed, and Digihost expanding the theme basket to 23 companies representing $97.7bn in combined market value. As the table shows, the median price target is 56% above the current price suggesting that analysts remain very bullish on this industry despite the recent volatility. We do not have a firm view on this industry except that outright speculation is for now the main activity in cryptocurrencies and that the industry still need to prove that it can be other than pure speculation.
| Name | Segment | Market Cap (USD mn.) | Sales growth (%) | P/B | Diff to PT (%) | 5yr return |
| Coinbase Global Inc | Crypto exchange | 51,558 | 139.3 | 48.5 | 57.9 | NA |
| Signature Bank/New York NY | Bank | 14,408 | 2.5 | 2.2 | 16.4 | 92.4 |
| Galaxy Digital Holdings Ltd | Crypto services | 6,009 | NA | 3.8 | 73.6 | 1,115.4 |
| MicroStrategy Inc | Investment firm | 4,813 | 2.0 | 13.2 | 39.7 | 158.7 |
| Marathon Digital Holdings Inc | Crypto mining | 2,570 | 735.0 | 3.8 | 87.7 | -39.7 |
| Riot Blockchain Inc | Crypto mining | 2,398 | 322.1 | 6.5 | 28.1 | 846.0 |
| Silvergate Capital Corp | Bank | 2,990 | NA | 4.1 | 35.6 | NA |
| Voyager Digital Ltd | Crypto broker | 2,982 | 13,223.9 | 29.8 | 64.0 | NA |
| Canaan Inc | Infrastructure | 1,571 | -68.5 | 313.4 | NA | NA |
| Monex Group Inc | Financial institution | 2,028 | 47.0 | 2.5 | -1.2 | 245.3 |
| Hive Blockchain Technologies Ltd | Crypto mining | 1,007 | 12.5 | 16.5 | NA | NA |
| Argo Blockchain PLC | Crypto mining | 848 | 120.0 | 19.5 | 53.4 | NA |
| Hut 8 Mining Corp | Crypto mining | 542 | -26.8 | 2.1 | 109.9 | NA |
| Bit Digital Inc | Crypto mining | 456 | NA | 0.0 | NA | NA |
| Bitfarms Ltd/Canada | Crypto mining | 649 | 7.0 | 25.8 | 47.9 | NA |
| Bitcoin Group SE | Crypto broker | 248 | -44.4 | 6.7 | NA | NA |
| Future FinTech Group Inc | Blockchain e-commerce | 227 | -81.5 | 4.2 | NA | 79.8 |
| DMG Blockchain Solutions Inc | Investment firm | 125 | NA | 12.4 | NA | NA |
| Safello Group AB (*) | Crypto broker | 57 | 49.4 | NA | NA | NA |
| Northern Data AG (*) | Infrastructure | 1,793 | 253.7 | 10.8 | 69.8 | NA |
| Quickbit EU AB (*) | Crypto payment services | 137 | NA | 4.3 | NA | NA |
| Taal Distributed Information Technologies Inc (*) | Blockchain platform | 134 | NA | 3.0 | 60.8 | 310.9 |
| Digihost Technology Inc (*) | Crypto mining | 125 | NA | 2.3 | NA | NA |
| Aggregate / median | 97,677 | 29.8 | 5.4 | 55.6 | 202.0 |
Source: Bloomberg and Saxo Group
* Added to theme basket on 28 May 2021
** Infrastructure segment means physical computing applications for crypto mining
How much more upside is there in logistics?
The logistics industry is enjoying rapid growth these days with container freight rates and shipping companies rallying again this year (listen to today’s podcast for more colour on these topics). JD Logistics, a logistics spinoff from the Chinese e-commerce giant JD.com, had its first day of trading today in Hong Kong following its $3.2bn IPO capitalizing on the trend of rising profitability and growth. The company grew revenue 47% y/y in 2020 to $10.6bn and EBITDA to $903mn with the EBITDA margin expanding 3.2%-points and is for now a pure play on Chinese logistics which is expected to continue growing rapidly over the coming years as e-commerce continues to grow in China.
We are planning to launch a logistics theme basket next week and we have previously written about the industry highlighting that it has delivered outperformance against the general equity market for over a decade. It seems there are some intrinsic dynamics in the logistics industry that creates a lot of shareholder value. The L&G E-commerce Logistics ETF is up 128% from the lows last year highlighting the massive inflow of capital into this theme. Given the outlook on global supply chain bottlenecks which are expected to last at least the rest of this year, we have a positive view on logistics companies.
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