Auquan’s Weekly Wrap | 13th-17th March: What you might have missed

Three key themes Auquan customers were tracking this week.

US Regional Bank Outflows & SVB Contagion risk

The underlying driver for SVB collapse is the startup funding drought, married with the Fed’s policy of raising rates. There are fears of wide-spreading contagion among other regional banks after Signature Bank collapsed, and Auquan is actively tracking this theme.

  • While the funding environment is unique to SVB, the market fears that SVB’s vulnerability to rising interest rates is paralleled in other banks through an over-exposure to falling bond prices.
  • The recent pace and amount of interest rate hikes have left many banks with little time to reposition their balance sheets. These banks' assets are repriced MTM, creating a maturity mismatch between assets and liabilities.
  • In addition, an inverted yield curve is causing depositors to move cash out of banks to money market funds offering higher rates. Banks are forced to sell some of the longer-duration assets at a steep loss to fulfil customer withdrawals.

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African Swine Fever Outbreak

African swine fever (ASF), a highly contagious and fatal disease with no cure or vaccine, has had a surge in pig farms in China, with other countries, such as Germany, also reporting cases of the disease. ASF has been spreading in several countries, including China, the world’s top pork consumer, Germany and the Philippines.

  • Aside from the food industry, other industries rely on pig derivatives, such as the processing industry uses pig skin and bone for leather, glue and fertilizer and the pharma industry for gelatin and heparin.
  • Smithfield Foods and WH Group have been impacted financially due to the outbreak of African swine fever.
  • Germany reported another case of African swine fever from a farm of pigs on 28 February 2023.  
  • Singapore reported an increase in pork prices due to the outbreak on 11 March 2023.

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Cough Medicine Withdrawal

Due to allergy fears, the UK government withdrew all pholcodine-containing cough and cold medicines from the market as a precautionary measure.

  • Reckitt Benckiser has lost £3bn in value since the withdrawal of its product, Nurofen Plus.
  • GlaxoSmithKline has seen a 3% drop in shares due to the removal of its product, Beechams All-in-One Max Strength.
  • Novartis has recalled its product, Tixylix Syrup for Children.  
  • The Medicines and Healthcare products Regulatory Agency (MHRA) will review safety data on pholcodine before any further decisions are made on April 12th 2023.

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While you’re here…

Portfolio managers use Auquan’s Portfolio Intelligence Engine to maximize the scale and scope of their research to uncover financially material hidden insights ahead of the market.

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