Tiger Brokers: A marquee M&A deal as global inflation ‘stalks markets’
Tiger Brokers is a global brokerage platform that gives Australian investors simple access to ASX and US stocks. Listed on the Nasdaq, the trading group’s Australian division is offering zero brokerage on both US stocks and ASX shares for the first three months.
Things are getting rocky on global markets as the main themes so far of 2022 – conflict, high energy prices and higher inflation – continue to stoke volatility.
Are global central banks behind the curve when it comes to raising interest rates?
That’s one of many risk events that markets are trying to price, and until there’s some certainty it could give rise to some more wild swings in equity prices.
For now, traders on the Tiger Brokers platform are sticking with familiar names – the leading global EV manufacturers and well known tech giants.
But as Tiger Brokers’ chief strategist Michael McCarthy notes, the prospect of inflation “continues to stalk global markets.”
“Bond and currency traders have been unequivocal in their responses, and the US Federal Reserve has clearly signalled a 0.5% lift in US cash rates at its May meeting,” he said.
So far, this major change in the global investment environment has had less impact on share markets, with many indices holding near highs, or showing modest pullbacks.
However, “it may mean share investors need to catch on to what other markets are clearly reflecting, and a lift in market volatility is another sign of potential corrective moves in stocks”, McCarthy said.
How should investors respond?
“The ‘right’ response depends on individual circumstances, but may include offsetting share market risks through buying protective put options, going long on volatility indices (such as VIX) or rotating into more defensive stocks and sectors,“ McCarthy said.
As global stock markets try to cling to their recent highs, Tiger Brokers clients – both equity investors and options traders – have stayed focused on the world’s most high-profile EV player, Tesla.
The company’s major shareholder, Elon Musk, is rarely out of the news, and the most recent week was no exception.
Since recently announcing a stake in social media platform Twitter, Musk (the world’s richest man) quickly put together a multi-faceted debt and equity package to buy the whole company and take it private.
Earlier this week, Twitter’s board approved of the proposal. So with pressure on global stocks (including Tesla), Musk has forged ahead with a ~$50bn deal for the company.
For McCarthy, the initial rationale for Musk’s Twitter bid “is unclear”.
“The numbers suggest, and Mr Musk has confirmed, that the interest is ‘not economic’,” McCarthy noted.
“This is fitting, as Twitter last turned a quarterly profit in early 2021, and its last yearly profit was in 2018.”
“Operating costs continue to rise while revenues are under pressure — a particularly unattractive combination.”
With those unfavourable metrics, it was “very unlikely that Twitter was on private equity’s radar”, McCarthy said.
Instead, Musk’s primary justification for the acquisition is in defence of free speech.
“A regular contributor, Musk has used the social media platform to promote himself and his business, at times drawing unwanted attention from groups such as the SEC.”
However, the takeover bid “appears to fly in the face of a trend towards greater accountability from platform providers for the content they host”, McCarthy said.
Commentary so far suggests that a newly privatised Twitter will ease restrictions on content, potentially putting it on a collision course with regulators around the world, and leading to speculation that former US president Trump will be welcomed back.
In that context, the strategic importance of the Twitter acquisition “is apparent only to Elon Musk at the moment”, McCarthy said.