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The Cambridge Weekly – 22nd May 2023


22nd May 2023


Perspective News, The Cambridge Weekly

The Cambridge Weekly – 22nd May 2023

Big tech stocks increase is ‘artificial’ 

Last week we wrote that markets were facing growing risks. Since then, and at the time of writing, equity markets have generally headed higher. Japan has been enjoying a particularly good run with the Nikkei 225
making gains every day since last Wednesday. This has occurred despite some disappointing economic data and a weakening currency (we’ll return to the currency moves in a moment). However, the most notable
moves have been in US stocks, with the large-cap tech names doing very well in aggregate.

Emerging market currencies suffer a downdraft

Global investors are nervous about the prospects for emerging markets (EM). EM currencies – which tend to best reflect the sentiment around underlying EM economies – sunk to a three-week low last Wednesday,
as measured by MSCI’s weighted index. The reasons for this pessimism are varied. At the high level, slower-than-expected growth in China is weighing on the outlook for EM demand, while financial stress in the US
has reduced available capital and hit investor risk appetite. At the individual level, Turkey’s election returned a stronger-than-expected showing for President Erdogan – an unpopular figure with international investors – while the energy crisis in South Africa has deepened. And importantly, South Africa’s geopolitical tension with the US on suspected covert arms exports to Russia has made international investors nervous.

A closer look at the new wave of bankruptcies

Bankruptcy famously happens slowly, then all at once. The popular misquotation of Hemingway (the character in question actually says “gradually, then suddenly” when asked how he went bankrupt) is about an individual business collapse, but it could just as well apply to the wider economy. A week ago, seven large US businesses filed for Chapter 11 bankruptcy, including names such as Envision Healthcare and Vice Media. According to Bloomberg, US courts are set to receive the highest number of large bankruptcy submissions for any week this year. Looking at US bankruptcy filings in total – including small caps – this year is on track to be the busiest since 2010.

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