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The SEC voted in December to require more US Treasury bonds to be centrally cleared in order to improve market resiliency, and it continues to propose major reforms to that market. These reforms are getting significant attention in the press and sparking a debate on financial news and social media platforms. Emerging markets investors might be forgiven for paying little attention to market structure developments in US Treasuries, but ignoring these developments is a mistake. 

1) February Jobs Report

The big macro data point last week was the US employment report, which offered both upside and downside surprises.

The National Bank of Serbia opted to hold benchmark interest rates unchanged at 6.5% for the eighth consecutive meeting, citing global uncertainties and persistent inflationary pressures as the rationale. This restrictive policy is at odds with its Central European peers, some of which are already several rate cuts deep into their easing cycles, but we applaud this prudent approach for Serbia.  

Serbian inflation fell to 5.6% year over year in February, but forecasts do not show inflation dropping into its target band of 3% +/- 1.5% for a few more months.

1) The Shift from EVs to Hybrids

A recent Financial Times article explains how Toyota has been hesitant to significantly invest in fully electric vehicles (EVs) over the past few years, favoring hybrids instead.

The South African government announced an unconventional strategy last week that involved tapping into its gold and foreign exchange reserves in an effort to temper its growing debt burden. While investors initially cheered this financial maneuver, we are more skeptical. Unfortunately the government announced this strategy without clearly outlining the governance of the framework. We break down the transaction and potential drawbacks below:

1) NVIDIA Delivers Again

Fueled by its H100 chip, which has become the industry standard for AI development, NVIDIAs’ earnings have risen more than 700% from a year ago.

Kenya’s upcoming $2 billion Eurobond payment due in June 2024 had been a cause of concern for many investors as the maturity quickly approached. However, in mid-February, a pivot in the country’s approach to raise funds quickly alleviated investors’ anxieties: Kenya successfully issued $1.5 billion through an international bond sale that was well oversubscribed, and used the cash to buy back 96% of its 2024 obligation at par. In our eyes, the government’s decision to issue was a smart move and a crucial step towards alleviating short-term risks for the country. It greatly reduces the event risk surrounding the impending Eurobond maturity and creates room for policymakers to turn their attention to a policy agenda that puts the country on a better and more sustainable path moving forward.

1) One Company is Driving Most of the YTD Russell 2000 Growth Return

An interesting phenomenon happening within small caps this year is the dominance of Super Micro Computer.

1) Why Central Banks May Be Reluctant to Declare Victory Over Inflation

This Financial Times article highlighted a few reasons global policymakers may hesitate to declare that inflation is under control. Most notably, economic strength, particularly in labor markets, may be too good.

Did you hear that sound? That was the sound of Vroom’s engine shutting down. If you’re not familiar with the name, Vroom, was, an online-only used car retailer, which along with Carvana and several other upstarts, aimed to disrupt the incumbent “old-school” auto retailing model. With the announcement that Vroom is winding down its e-commerce operations, we looked back at our Q2 2021 portfolio letter. In it, we compared the business of Vroom to one of the incumbents, AutoNation, through the lens of our three margin of safety investment criteria: business economics, financial condition and valuation.

At the time, both businesses were valued at roughly the same market value, approximately $5.5bn, so we posed the question: if you had to pick one of these two businesses to buy, which would you choose?