In this week’s Commercial Awareness update we discuss South Korea’s Bitcoin clampdown, the pound’s post-Brexit high, SoftBank’s IPO, Carillion’s liquidation and the fall of GoPro.
South Korea’s Bitcoin Ban
The value of Bitcoin dropped $2,000 (13.5%) in value on Thursday after South Korea announced plans to ban trading the cryptocurrency. This move follows stories of local cryptocurrency exchanges allegedly avoiding tax and being used for gambling. The Justice Minister is currently drafting legislation which will ban Bitcoin trading through exchanges - however, this will require a majority vote in the National Assembly that could take many months. There are currently more than ten exchanges in South Korea and the new found demand for the currency could lead to an increasing number gambling addictions, the government fears. There was more bad news for the cryptocurrency market, as legendary investor Warren Buffett said he would never invest in Bitcoin or similar currencies, and they were in for a fall.
It’s an asset which people are buying because they believe it will return a profit, rather than doing something useful. Other assets (a share in a company in the service sector or a house) creates value in terms of a product or service - which has an intrinsic value. Bitcoin has a market capitalisation of $238 billion, but is this just an investment bubble?
Questions to ask yourself… How does trading in a cryptocurrency differ from other forms of trading? What role does regulation play in trading? How can an investment bubble occur?
Pound hits post-Brexit high
Last week the pound hit a post-Brexit high of $1.37 against the dollar, after gaining 1% in Friday trading. This new found confidence in Sterling came on the back of a report by Bloomberg that the Spanish and Dutch Finance Ministers have agreed they’re willing to back a soft Brexit deal. There’s no official confirmation of this, but it didn’t stop the markets reacting positively to the news.
The pound rose to $1.49 on the eve of the EU Referendum back in June 2016, but dipped as low as $1.21 at the start of 2017. The surge in the value of the pound wasn’t the only reason for its relative success last week. The American dollar is at a three-year low, after a poor start to 2018 and political worries in the country.
The pound was 0.2% up against the Euro, which also gained against the dollar last week. There are fresh hopes that Angela Merkel will be able to form a coalition government in Germany, after formal negotiations were agreed between Merkel’s Christian Democrats (CDU) and their former partners, the Social Democrats (SPD).
It wasn’t all good news for the UK economy last week, as it was announced that consumer spending fell by 0.3% compared to the previous year. In December, household spending declined 1%, rounding off the worst year for consumer spending in the UK since 2012. Despite e-commerce spending rising by 2%, a substantial fall in face-to-face spending meant the year was down overall.
Questions to ask yourself… What would a good deal look like for the European Union? What impacts on consumer spending?
Companies to watch
The Japanese technology company SoftBank Group plans to list its mobile phone business and raise $18 billion dollars - potentially becoming one of Japan’s biggest ever IPOs. In its plans, it will apply for the Tokyo Stock Exchange in the Spring and then look to list on an international exchange - possibly London - in the Autumn. The firm plans to sell around 30% of the outstanding shares in the mobile phone business to investors, keeping the remaining 70%. Commentators believe the money would be primarily to fund acquisitions of foreign technology companies, turning it into an international company.
SoftBank has already shown appetite for foreign investment and in December agreed a $7 billion deal with ride-hailing app Uber for a 15% stake. This deal is expected to be finalised this month and this isn’t the only ride-hailing app they’ve backed - China’s Didi Chuxing is among SoftBank’s investments.
Creditors of the failing construction company Carillion have announced that last-ditch talks with government officials have collapsed, and now the company has gone into liquidation. Carillion is the UK’s second largest construction company and is heavily involved in the HS2 project, as well managing 900 school buildings in the UK and £200 million worth of prison contracts. The firm has debts of £1.5 billion and a pension shortfall of £500 million. The major banks owed money by Carillion have said they will not bail it out without government involvement. The firm employs 43,000 - 20,000 of those in the UK - whose jobs could be under threat after this collapse.
This has brought to light wider problems with how the government outsources major contracts to private companies and the selection process surrounding this. It is likely the government will launch an inquiry into its processes surrounding external contracts. The Cobra committee is due to meet to discuss the ramifications of the Carillion collapse.
Last week, shares in GoPro dropped 20%, as the firm announced its sales in the fourth quarter of 2017 dropped 40% compared to the previous year. The once prolific miniature camera has now said it will lay off 250 of its staff and exit the highly competitive drone market. Since its peak in 2014, GoPro’s share price has fallen 90% as a result of declining sales. The poor performance can be attributed to both a general fall in demand, but also increasing competition - last year Google released its own Google Clips to compete with the once dominant GoPro.
The share price did recover slightly after CEO Nicolas Woodman suggested he would be open to a takeover bid, if the opportunity arose.
Questions to ask yourself… Should the government bailout Carillion? How can GoPro turnaround their fortunes?