Short Position - Cryptocurrency, YTL Cement, vaccination

Stacks of bitcoins sit near green lights on a data cable terminal inside a communications room at an office. - Filepic

Unregulated cryptocurrency markets

ELON Musk’s recent U-turn on bitcoin is illustrative of the unregulated environment that cryptocurrencies operate in. This week, Musk, the founder of Telsa Inc, said on Twitter that his electric car company would no longer accept payment in bitcoin. He cited environmental reasons.

But it was only in February when he said Telsa would buy US$1.5bil (RM6.19bil) worth of bitcoin and soon after said that the company would start accepting bitcoin as payment.

The positive comments had driven up the price of bitcoin, while his more recent negative comment drove it down, wiping out billions in bitcoin’s market capitalisation.

Elon MuskElon Musk

In the real or regulated world, making public statements about the fortunes of publicly traded entities can get you in trouble with the regulators.

What is also puzzling is that the knowledge that bitcoin mining being pollutive is not new. It has long been reported that bitcoin mining consumes as much electricity as some entire countries.

So it is strange that Telsa officials did not know that before promoting the use of bitcoin earlier this year.

Now Musk has set his eyes on promoting more environmentally friendly cryptocurrencies or “green coins” which no doubt will see surges in their prices as a result of his endorsement.

To be sure, most bitcoin and cryptocurrency traders are aware and even celebrate the fact that cryptocurrencies operate in an unregulated market.

The problem will come when traditional investors, who are used to the protection that securities laws and regulators impose on traditional financial markets, start to dip their hands into cryptocurrencies.

They ought to be aware that trading in the latter is a different ball game. While cryptocurrencies do seem to offer handsome returns – just look at the price rise of bitcoin since late last year – they also operate in an entirely different eco-system from what we are used to.

Having the dry powder

YTL Corp Bhd’s decision to consolidate its cement operations under Malayan Cement Bhd seems like a natural move to capture the synergies of two similar companies engaged in the same industry.

With the cement business still being hurt by sluggish demand, getting cost synergies will be the right move to take.

But the bigger picture of the RM5.2bil deal is that it moves cash up to YTL Corp from one of the companies it controls, and going by what YTL Corp has done in the past, having ample amounts of cash may see it take advantage of a business opportunity.

YTL Corp controls both YTL Cement Bhd and this past week, it announced that the latter was being sold to Malayan Cement, a company that YTL Corp too controls.

The RM5.2bil deal, which is still subject to adjustments, will be settled via RM2bil in cash, RM1.408bil through the issuance of 375.5 million new ordinary shares in Malayan Cement and RM1.75bil through the issue of 466.7 million new irredeemable convertible preference shares (ICPS) in Malayan Cement.

The strategic realignment will foster value creation for shareholders of Malayan Cement and allow investors to invest directly on a focused basis in Malaysia’s leading building materials company, it said.

The deal will allow for leveraging of shared expertise, experience and resources. Malayan Cement aims to eliminate overlapping functions whilst continuing to deliver seamless solutions to customers, achieving economies of scale and enhancing its market presence.

While improving the prospects for its cement business, the deal boosts YTL Corp’s cash reserves by RM2bil from the current RM10.9bil. The YTL group has over the years paid big money for regulated assets that offer stable and predictable income streams.

But having a massive war chest will provide the group with the heft to take advantage of any opportunity that can come its way, especially when assets may go up for sale during the current pandemic.

Vaccination is key

THE pandemic has taught us a few lessons. Firstly, a country that has the virus under control is the one that will register huge gains in economic activity.

China’s gross domestic product (GDP) is testimony to how controlling the pandemic will result in a substantial economic recount.

There is a base effect in China’s first-quarter GDP numbers as it was hit first by the pandemic.

In Malaysia’s case, the base effect will take hold in the second quarter after the economy shrank by 0.5% in the first quarter of this year from the same period in 2020.

Malaysia went through the movement control order (MCO) 2.0 during the first quarter of this year and even though it is MCO 3.0 during the second quarter, its effects will not be as telling economically as what it was under MCO 1.0 in 2020.

The need to keep the economy moving is essential but there will be a price to pay for the control of movement. Furthermore, the high daily case numbers are also serving as a natural inhibitor for people in resuming their normal lives.

Getting the number of infections down fast is important, and hopefully, that will start to take place once the supply of vaccines starts arriving from the middle of June onwards when it is projected that incoming supply will be larger than the pace of vaccinations.

Getting vaccinated is also important in getting economic activity moving again, given the number of mutations of the virus that keeps hurting recovery plans of any country.

It is hoped that with the pace of vaccinations rising to eventually more than the nine million plus that have indicated they want to be protected against the vaccine, the economy can start moving strongly in the third quarter and not rely on a base effect to register strong growth numbers.

The meaningful improvements are basically getting unemployment numbers down, income up and a return to as much as possible to what it was like pre-pandemic.

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