Holmes & Home: Theranos, Markets & Kenya's Rebased GDP.
When Theranos went down, it was a learning point for investors, we talk about Elizabeth Holmes, Kenya's rebased GDP figures and the usual cup on markets.
Hey Hisa Fan,
The past week was mixed for us, with Gamestop releasing its quarterly financials and the decline of the S&P 500 Index. Also in the week, once seen as the “next Steve Jobs”, Elizabeth Holmes was set to begin the next chapter of her life.
Let’s dive in!
Lizzie Homie.
You might have heard of Elizabeth Holmes within the past 10 years. Ms Holmes, the “woman after blood or the next Steve Jobs” was the founder of Theranos, a biotech company (Was it?) in 2003.
At the peak of valuation, Theranos, a company built on numbers was valued at around $10 billion. Ms Holmes had raised over $900 million from the seed round of capital from investors, with Elizabeth Holmes retaining the majority share ownership and CEO of the company, this put her in full control.
Elizabeth Holmes had hoped to revolutionize the medical world. With Theranos, she hoped to develop a printer-sized machine that required only a drop of blood and could process hundreds of blood tests in pharmacies across the world.
Long story short, in 2018, the SEC came raining on Holmes and her COO husband, Ramesh "Sunny" Balwani for one of the largest Silicon Valley Wire Fraud. The SEC had started following Theranos after an expose by By John Carreyrou, a journalist at New York-based, Wall Street Journal.
Theranos was formally dissolved in September 2018, investors sued the company and in 2019, the SEC formally charged Elizabeth Holmes and her Husband (COO) Sunny, with counts of Fraud.
In Damages
The Walton family, the founders of retail giant Walmart provided $150 million.
Billionaire and investor Rupert Murdoch invested $125 million.
Former U.S education secretary Betsy DeVos and her family put in Theranos $100 million.
Members of Atlanta's billionaire Cox family.
Mexican tycoon Carlos Slim also stand to suffer big losses.
Members of a South African diamond dynasty
Why does this matter?
In many cases, investors tend to invest in areas because of influence. This has been the case when it comes to pyramid schemes (investments that provide high returns from out of the blues).
The case of Elizabeth Holmes, a 19-year-old dropout from Stanford, managed to convince even some of the world’s renowned investors to invest in a non-viable product has become a learning step for Silicon Valley, this should be the case for you too.
While the Theranos debacle is juicy from a bystander standpoint, it clearly was financially devastating for those who bought into and put their investments into the hype.
Investors should always ensure they take their time before rushing in investing with unlisted, unknown and even in some listed securities. Get to understand the business and as soon as you start seeing flashes of red lights, run, never look back.
Home
Too much of Holmes. Let’s jump back home! After a long delay, Kenya’s Secretary of Finance finally released the rebased GDP figures.
According to the data, in 2020, Kenya’s economy contracted by 0.3%, the worst economic performance for the country in 29 years! The contraction was attributed to reduced activities in key sectors such as the hospitality industry, education, and manufacturing.
Agriculture remained the dominant sector, accounting for 23% of the total value of the economy in 2020, registering a 4.6% growth in 2020 compared to a 2.3% growth in 2019.
National Treasury rebased the country’s economy, changing the base year from 2009 to 2016.
This pushed the nominal GDP upwards by 4.84 per cent to Kes 10.75 trillion ($97.72 billion) from Kes 10.25 trillion($93.18 billion) in 2019.
The tourism sector was most hit, shedding by 44% in revenue as visitor numbers plunged more than 70 per cent to just over half a million impacted by the coronavirus pandemic.
Kenya’s construction industry however grew 11 per cent, an indication from the major projects being done in the East African nation like the SGR, LAPPSET project and even the Nairobi Expressway project.
Does it really matter?
GDP figures are some of the most important figures in understanding a country’s financial position. Just like we get to ask for a company’s financial statements, the GDP figures do the same for a country.
This can help in understanding the economic growth of a country and thus the investment scope of the country.
Markets
Global - Looks like labor day wasn’t as good, as markets resumed to the short trading week all turned red, with the S&P 500 leading a blood-bath for investors on wall street. The small real estate sector led the decliners in the S&P 500 Index as longer-term interest rates increased, while consumer staples and utilities stocks held up best.
Gamestop Corporation released their financials on Wednesday with the earnings note accessible from our earlier newsletter.
Local - On the local front, the All-Share Index of the Nairobi Securities Exchange (NASI) and the NSE 20 share index posted weekly gains of 0.4% and 1.9% to close the week at 180.14 and 2,063.44 respectively.
Market turnover also rose marginally by 1.6% to Kes 2.0 billion while the total number of shares traded fell by 17.2% with 65.3 million shares exchanging hands.
Coffee Break… The Infrastructure Bond.
In the fixed income markets, the results of Twenty One-Year Treasury Bond Issue No. IFB1/2021/021 were related on Wednesday and CBK approved the market-determined coupon rate of 12.74%. The bond performed beyond market expectations, with a 201% oversubscription rate. The central bank of Kenya (CBK) accepted Kes 106 billion from the Kes 75 billion which was floated by the treasury.
The oversubscription could be a sign of increased liquidity amongst investors, but could also mean investors are looking for areas to invest in outside the local equity markets.
What Cowries are we collecting this week?
Oracle - [NYSE: ORCL] Oracle Corporation will be reporting Q1 earnings today, September 13. 23 analysts forecast earnings of $0.973 per share compared to earnings of $0.930 per share in the same quarter of the previous year.
Our cowry collectors will keep watch to see what effects the earnings will have on Oracle Corp which close Friday at $ 89.68.Alibaba Holdings Limited [NYSE: BABA] - Alibaba, the Chinese e-commerce giant will be holding its Annual General Meeting on Thursday. On the table will be the recent Beijing's clampdown on allegedly monopolistic practices by tech companies including Alibaba.
Apple Inc [NASDAQ: AAPL]- If you think you’re keeping the doctor away, then watch out for Tuesday when Apple Inc is expected to unveil the iPhone 13 lineup and the next-generation Apple Watch.
Manchester United Plc [NYSE: MANU] - Clearly, Cristiano Ronaldo’s return to Old Trafford pushed the share to gains, but will the English football champions defend their earnings? Let’s wait for Friday when Manchester United Plc will release their financials.
Well, whether you’re watching Holmes or Investing from Home, Hisa will be here to keep you posted on Markets, News & Data via our in-app community.