• Matthew Fotheringham

🌎 Crossing the last red line | Indonesia's woes |Largest IPO in history thwarted

November 6th, 2020

Happy Friday!

“Nevada gonna give you up, Nevada gonna let you down”

Unless you have been hiding underneath a rock for the past three days, you’ll know that we had a nail-biting “finish” to what seems to be the closest US Election in history. Congratulations to both parties as at the time of writing both Trump and Biden think they’ve won. We are therefore likely to be in for court battles, recounts, and no counts which, taking into consideration the speed in which some states have been counting, could take years. Hopes therefore for a smooth transition seem to be currently off the cards. Luckily you already know all of this, so we don’t have to talk about it, here are #3things you may have missed...

Did You Know...

Whoever wins the US election, America will see their oldest ever head of state, with Biden 78 and Trump 74.

Can you name the youngest President to be elected? Bonus point if you guess the age (1 point off for every day you are out.)

(Answer below)

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The Last Red Line Has Been Crossed

Since the general elections initially slated in August for this year were postponed because of the Covid-19 pandemic, the opposition parties in Ethiopia have been crying out for parliament to hold general elections… ASAP. Crazy as it may sound, the election was meant to be the country’s first democratic poll in 15 years! The indefinite postponement was approved by parliament in April, but the decision set in motion a constitutional crisis, especially since no exact date was given.

As expected, every opposition party rejected the delay, with the Trigay’s People Liberation Front (TPLF) holding its own election in September in the Tigray region (Fig 1), where... surprise, surprise, TPLF won more than 98% of the seats in the regional assembly.

However, exactly one month ago Ethiopia’s parliament voted to break off ties with the political administration in Tigray and promised that the country will hold its elections no later than October 2021. Ever since tensions between the federal government and TPLF have been escalating and early on Wednesday, heavy fighting - including artillery fire - had broken out in the northern region.

Addressing the nation by TV, the Prime Minister, Aby Ahmed, announced that “several martyrs” had died in the first armed clash and he subsequently declared a six-month state of emergency, as well as ordered the military to deploy to the Tigray region.

There are legitimate concerns that this could spiral into a full-on civil war.

Tigray's population makes up only 5% of Ethiopia's 109 million people, but it is wealthier and more influential than many other, larger regions. Moreover, the Tigray regional army is a well-trained, disciplined force dating back to the 1970s when it led the guerrilla movement that brought the Ethiopian People's Revolutionary Democratic Front coalition to power. Thus, the clash may well be protracted and disastrous, plugging the country into a bitter and bloody civil conflict, meanwhile, it could also inspire further secessionist sentiment in other parts of this country.

The U.S. and British embassies in Ethiopia urged both sides to de-escalate immediately, but the military mobilization has seemed to continue.

FX | The USD/ETB traded at 37.6347 today. Historically, the Ethiopian Birr reached an all-time high of 37.64 in November of 2020.

Feature Article

5 Common Misconceptions CFOs Have When Discussing FX

We have been groomed for hundreds of years to think that the only way for us to manage transactions between two currencies is by using one of the behemoth banking institutions, but one of the most important things to understand is that the FX landscape has changed!! New players and new tools are available for all.

Read More Here


Indonesia Descends into Recession

Not just known for its beautiful beaches and delicious food, Indonesia has made remarkable progress in its social and economic development in the past few decades, however, we live in different times. Since the ’90s, its economy has grown tenfold (Fig 1) and per capita has risen eightfold. Recently, since President Joko Widodo came to power in 2014, Indonesia’s GDP has grown on average 5% per year.

However, since Covid-19 broke out in the various parts of the world and forced governments into imposing mobility restrictions, leading people to stay at home and self-isolate, Indonesia has seen millions of foreigners who used to fly to Bali, suddenly disappear.

The Covid-19 crisis is set to wipe out more than US$10 billion from Indonesia’s tourism revenue this year as leisure travel comes to a near-complete halt, according to the government’s official forecast.

Despite the agriculture sector making up almost 13% of its economy, Indonesia also relies heavily on the tourism sector, which brings millions of U.S dollars into the country’s economy every year. Thus combining these factors has had an increasingly negative impact on the country's GDP.

The fallout for this is that the country has descended into its first recession in 22 years, with Q3 GDP contracting by 3.5%, compared to the same period in 2019. The last time Indonesia slipped into recession was during the 1998 Asian financial crisis.

Apparently, the tourist trap will remain closed as Covid-19 infections are still elevated in Indonesia with the 7-day moving average for new cases at 3,035 as of the 4th November (Fig 2). Looking ahead, GDP in Q4 will likely be weighed down after stringent lockdown measures were reinstated in Jakarta last October after cases spiked.

FX | USD/IDR is one of the most volatile Asian pairs, over 10%/annum. The currency hit a four-month high today on the back of a weaker USD as Democrat Joe Biden inched close to victory in the U.S. presidential election.


China Thwarted The Worlds Largest Ever IPO

What should have been the world’s largest IPO in history ended up being postponed after China suspended Ant Group's $37bn (€32bn) stock market listing on Tuesday with just days to go, in a dramatic move that left investors and bankers holding the bag.

Ant Group is the world's highest-valued FinTech company, and the most valuable unicorn company, which belongs to the Chinese Alibaba Group. Shares of Ant Group were due to begin trading in Shanghai and Hong Kong on Thursday, but now the FinTech company faces at least a six-month delay after Beijing intervention.

In mid-September, China’s banking watchdog issued rules to cap the use of asset-backed securities to fund quick consumer loans, which forced Ant, in particular, to rein in that part of its business. The new regulation limits that sort of funding to four times a firm’s net assets, while Ant currently has 4.7x such debt against its capital. Also, the rules require internet platforms to provide at least 30% of the funding of their loans and to cap loans at Rmb300,000 ($44,843) or a third of a borrower’s annual salary, whichever is lower. Currently, Ant funds only 2% of its total loans with the rest coming from outside sources, such as banks.

The new regulations clearly show that the second-largest economy has become more uncomfortable with banks and FinTechs underwriting consumer loans impulsively, amid fears of rising defaults in a Covid-19-hit economy. China's consumer credit market reached Rmb13 trillion in 2019 and is expected to grow to Rmb24 trillion in 2025 (Fig 1), according to recent research from Oliver Wyman analysis. Furthermore, China’s online consumer credit market reached Rmb6 trillion in 2019 and is estimated to grow to Rmb19 trillion in 2025.

Meanwhile, China's Non-Performing Loans Ratio stood at 1.9 % in Jun 2020, compared with the ratio of 1.9 % in the previous quarter. The chart below (Fig 2) illustrates the massive accumulation of non-performing loans in the country.

After all, the Communist Party has shown Jack Ma, who the boss is.

FX | The CNY traded down 0.27% today breaking a sequence of six trading sessions of gains against the greenback. However, FX markets headed for weekly gains as the increasing prospects of a Joe Biden presidency in the U.S raised hopes of decreased tensions between the White House and Beijing. Thus, this potential positive prospect helped boost the currency to its highest level against the dollar since July 2018.

In Other News

Currency Heat Map

This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.

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Quiz of the week


The youngest person to become president by-election was John F. Kennedy, who was 43 years, 236 days, at his inauguration.

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