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Bond(ing) After Cryptonic Carnage

Published by UAE Business

By Geoffrey Muns

It’s hard for me to ignore the FTX debacle, which may very well have opened the floodgates to the systemic and systematic risks associated with digital assets relative to crypto. In view of this, I thought it prudent to delve on the topics of a couple opportunistic investment avenues that may resonate with investors who have got hit significantly. 

I adopt various strategies to capture alpha and use thematic investing as one of my hedge instrumentations to offset prevailing risks. Thematic investing focuses on predicted medium to long-term trends rather than specific companies or sectors, enabling investors to access structural, one-off shifts that can modify an entire industry. At the cog of thematic investing philosophy lies 3 main trends of rapid urbanization, climate change and resource scarcity, shifting economic power and demographic and social change – all driven by technological breakthrough.

A merging of these global trends is prompting structural shifts in many industries and changing the drivers of company’s earnings. I’ve outlined below 3 main areas where if structured correctly, can yield potentially high returns. 

Technology, media and telecom sectors cover a wide range of companies that deal with different opportunities and challenges in a brave new digital world. Few are regrouping after tremendous pandemic-driven growth whilst others are supporting transformation in global markets. Yet others are capitalizing on their clients’ need for efficiency. In this month’s roundup of the latest trends in the sector, I am going to cover insights into the latest innovations and disruptions in this sector against the backdrop of global economic uncertainty and market volatility.

  • Edu Tech – Digital Learning Growth

Company valuations for companies in the education technology space have settled down, following a pattern similar to other companies offering software solutions that saw a marked spike from pandemic-driven demand but there may be potential for further growth. Though fragmented and challenging to define, the industry is still in its infancy stage. Digitalization of education, global teacher shortages, rising school costs and the need to reskill and upskill workers all support an impressive growth trajectory. This should offset any drag from challenging macroeconomics that could affect national education budgets and consumer spending. Though the industry growth predicted for future years has already been accelerated by about two years because of C-19, the global EduTech market, currently valued at $300 billion, is still expected to grow at an annual rate of 16% to reach $400 billion by 2025, based on HolonIQ data, with K-12 education leading demand.  Global spending on education is about USD 6.5 trillion and expected to rise to USD 7.5 trillion by 2025, with K-12 education the largest and fastest-growing segment. 

  • Telecom Industry Scaling High Returns

Telecom firms have greatly outperformed global equities by over 10% YTD, leading to many investors to think the sector’s status as a cautious play against macroeconomic challenges that have peaked.

Telecoms are trading 30% cheaper than other cautious and defensive stocks, which is a 15-year low. This leads to the premise that the outperformance is set to continue.

While inflation remains the main focus, analysts expect that telecom companies’ declining need for spending on infrastructure will help improve financial flexibility and that accelerating cash flows will feed share buybacks and shareholder dividends. High capital expenditures for telecoms over the next few years should lead to attractive shareholder returns compared with other cautions or defensive sectors.

  • South Asian Sub-Continent Digitalization to Fuel Economic Boom

India’s goal of economic prosperity has centered on leveraging technology as a growth engine and analysts’ prediction that the country will surpass Germany and Japan to become the world’s third-largest economy by 2027. India started laying this foundation for a bigger digital economy more than a decade ago. Now, IndiaStack, a decentralized public utility offering a low-cost comprehensive digital identity, payment and data-management system, could transform the way the country of more than 1 Bio people spends, borrows and accesses healthcare. Increasing digitalization is also expected to bring new momentum to the idea of India as the back office to the world. An increase in outsourced jobs and availability of credit are among the factors that will help India’s GDP to more than double to USD 7.5 trillion by 2031. 

Bond Appeal

The FI market has been on my radar for obvious reasons of interest in identifying a sweet spot entry point. Investors received good news in the form of the latest CPI report, suggested inflation may have peaked in October and the Fed is now more likely to slow down the pace of interest rate hikes. More optimism last week in the form of investor sentiment at its highest levels since December 2021.

While this may be the beginning of the end of the US equity bear market, do not mistake it for the actual end. Investors need to allow this prolonged market downturn to fully play out and make a realistic assessment of the economic slowdown and risks of recession. Historically, when investors’ primary concern shifts from policy and inflation to the health of the economy, the outlook for stocks and bonds often diverges. That’s why investors may be relatively well served by favoring bonds over stocks in 2023. Let’s take a look below;

  • Bond yields have increased – Investors have an opportunity to earn decent income. We expect inflation to be around 3.5% by the end of 2023, and US Treasuries, through the 10-year maturity, are yielding more than that. That means their inflation-adjusted or real, yield could turn positive. Meanwhile, municipal and corporate bonds are providing an extra 1.5-2.5%beyond Treasury yields.
  • Bonds are relatively fairly priced – Tightening cycles, in which the Fed raises rates to bring down inflation, generally do not end before the Fed funds rate is durably above core inflation, suggesting that bond prices have fully adjusted. Once this adjustment is complete, bonds may be viewed as fairly priced. Currently, the futures market for the Fed funds rate is predicting a peak of about 5%, to be reached in April or May. This appropriately coincides with where core inflation is likely to be.
  • Bonds may offer attractive capital gains – Investors who are wary about the economy will likely gravitate toward Treasuries, which would push yields lower and prices higher, meaning it’s possible to enjoy relatively high coupon payments now and potentially sell at a premium later.

In contrast, US large-cap stocks, as measured by the SPX, do not look as attractive;

  • Still too expensive – At current prices and earnings estimates, the SPX is selling at a forward PE ratio of 17. This is not compatible with where rates and inflation are likely to be next year with risk-free long-term rates around 3.5% and inflation above 3% amidst alongside lackluster economic growth. A more reasonable forward PE ratio under these conditions is typically in the 15-16 range.
  • Reward of owning stocks over risk-free debt appears relatively small – Compared to Treasuries, stocks are priced to offer just about 180 pips more, a huge gap from the prior decade’s average spread of 350 pips.
  • Wall Street’s 2023 outlook of US stocks looks disconcerting – Equity analysts currently project that SPX company earnings will be USD 230 per share next year. MS expects USD 195, based on the belief that companies’ extraordinary ability to boost sales and profitability in recent years is unsustainable and may soon reverse.

To call an end to the bear market for US stocks would be a grave mistake IMHO. Investors may have moved on from inflation concerns, but they cannot ignore the economic picture. For now, investors should consider reducing US large-cap index exposure and instead look to Treasuries, muni and investment-grade corporate credit. Keep cool and collect coupon income, just like Bond (pun unintended)!

Risk warning – As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance and the contents of this outlook is not a reliable indicator of future performance. This article/print is protected through international copyright & print laws and may not be reproduced, distributed or copied without exclusive permission from the writer.   

Geoffrey Muns is an Independent Financial Advisor and Planner certified from the UK, US and UAE based out of Dubai for the past 20 years. He also works in the PE/VC space and is a seasoned investment banker having worked with international banks and investment firms in the region. You may contact him at

Photo credit: MayoFi (


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