By Daniel Lanyon on Thursday 16 February 2023
Listed fintech has started to bounce back after a torrid 2022. Investors will hope the rally lasts for the whole year and not just its first month.
What is ‘fintech’?
This question has perplexed the AltFi team for a number of years as interest in the sector has continued to grow alongside ever more entrepreneurs looking to innovate and digitalise financial services, banking and money.
And don’t forget the avalanche of venture capital.
Recently we have been working on the AltFi Fintech Index, a portfolio of c.60-70 fintech companies around the world that are listed on public stock markets.
Our goal is for the aggregation of these companies to epitomise the trend and demonstrate whether - or not - the sector can represent a financial return away from the heady VC-implied valuations.
The stock market’s not always right, of course, but it does show what investors really think.
In recent years, fintech companies have grown up from scrappy start-ups to in many cases public companies with stock market listings
Many of these names such as Nubank, Coinbase, Robinhood, SoFi and Bill.com will be familiar to consumers (and regular readers of AltFi).
However, a host of other companies that enable some of the best-known fintech names also participate in the overall fintech trend so we've included them too.
From 02.01.2023 to 31.01.2023 the AltFi Fintech Index returned 21.8 per cent, as a more positive sentiment began to return to risk assets.
The return was nearly three times that of the MSCI World Index, which tracks a broad range of globally listed companies, which rose 7.1 per cent in dollar terms.
Clocking up a 151 per cent surge in its share price in January 2022, Hut 8 Mining, a Canadian bitcoin miner, was the best performer in the AltFi Fintech Index in January.
It saw a 16.7 per cent growth in the number of bitcoin in managed to mine in the period compared with December, according to Seeking Alpha.
The company also has more recently announced a merger with US rival Bitcoin Corp, in which would create one of the largest global bitcoin miners.
Somewhat incredibly, nearly every constituent of the AltFi Fintech Index saw a share price increase in January.
Just four companies saw a decline in their share prices over this period out of 62 names, showing the broader market shift in sentiment.
January saw a continued return of positive sentiment after a torrid time for stocks in 2022.
While most asset classes lost money last year, as inflation leapt up from historical lows and global instability increased owing to the Russian invasion of Ukraine, technology-focused stocks were among the hardest hit.
The reasons for this are complex and relate to the actions - or anticipation of - the actions of central banks.
Owing to the runaway inflation trend, investors expected central banks to ‘squeeze the brakes’ and make borrowing more expensive. This historically has made growth stocks less attractive as these companies' future cash distributions occur further in the future than safer assets such as government bonds.
The fintech world, which had become synonymous with not-yet profitable companies reliant on venture capital funding, was hit hardest with some fintech companies hit hard such as BNPL provider Affirm which saw a near 90 per cent fall in its valuation.
This was also noticeable in the private market where investors demanded ‘cheaper’ prices for equity investment into companies’ funding rounds to be compensated for what was perceived to be a greater risk.
For example Klarna, which raised the biggest global fintech funding round of 2022 with an $800m raise, albeit at a valuation reportedly 85 per cent lower than its previous round of funding in 2021.
A key question is what is driving a partial return in sentiment and by extension the share prices of listed fintech companies.
“With interest rates still rising, valuations are going to remain quite tricky for some time. This will likely keep a lot of the biggest potential M&A transactions on the shelf as investors wait to see if prices come down even further,” said Anton Ruddenklau, Global Head of Financial Services Innovation and Fintech, KPMG International.
In the coming months, we’ll be releasing more details on the AltFi Fintech Index including granular details on companies, our methodology, a factsheet and violations of the data. Stay tuned.
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