“In the middle of difficulty lies opportunity ” who else but Einstein, just brilliant

US equities did correct over the past week and made a lot of headlines. However, considering the rise, the correction was, if that was what it was, fairly modest overall. The S&P 500 fell 2% on the week, the Nasdaq tech index falling just over 5%. Some of the big heavyweight tech names taking the brunt of the sell-off, Apple a prime example. Again considering the rise it has enjoyed this year an 8% correction is hardly dramatic.

There was quite a lot of speculation in the press that Softbank, a Japanese multinational conglomerate headquartered in Tokyo, was behind the recent leg of the tech rally. Softbank was created in the early 1980s and whose assets grew as it surfed the tech wave. This included a joint venture in Yahoo, and possibly its most successful investment into Alibaba, turning a $20m investment into $60bn. In the past 10 years it has not been shy of spending the cash chasing the next Alibaba, possibly with mixed success, recently making headlines was its investment in WeWork. Softbank also has stakes in Uber and Lyft.

 In 2017 Softbank launched a 100bn dollar vision fund, according to Forbes investing billions into late-stage start-ups, at what some may consider aggressive valuations. The investment philosophy appears to be “buy high sell higher”. That feels a little like the greater fool theory. The recent bull market in listed tech shares will have done no harm to the valuation of the Softbank’s unlisted holding’s. Softbank has leveraged the vision fund, paying up to 7% interest on its loans, which is noteworthy in itself in a world when savers are starved for income.

As indexes rise traditionally comfort levels rise with it, and that is almost always reflected in the Vix falling. As we pointed out on more than one occasion the rhetoric from central bankers has becalmed investor sentiment pretty much from the start recovery in 2009. With that we have had extended periods of low volatility. That is until a certain virus came along. Over the past couple of months, the Vix index had been warning investors that all was not as it appeared. The index fell on Friday, just modestly, having risen sharply at the start of the week. Until that index trades below its historic average of 20, one has to tread carefully.

The week ahead is a mixed bag of data points, the ECB rate-setting meeting on Thursday probably the highlight. This along with China inflation data on Wednesday. As for the UK house price inflation and retail sales may make some headlines in the Daily Mail.