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The AltFi Fintech Index: November's rally

More than 80 per cent of the c.60 constituents of the AltFi Fintech Index made a positive return in November

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The end of 2023 is upon us...nearly.

While 2023 will be remembered for many things, a much-expected recession - and associated economic fallout - will not be one of them. 

An appropriate gauge of this is the vibrant performance of fintech stocks over the year, in particular, in the past month. 

The AltFi Fintech Index, for example, is up 38.3 per cent year to date, more than double the return of the S&P 500.

In the past 30 days the index has jumped a staggering 18 per cent.

Nearly half (29) of the 60 stocks in the index are up more than 10 per cent over this period. Ten are up more than 50 per cent.

These include some exceptional cases such as digital asset miner Hut 8, which having seen the final seal of approval for a merger with US Bitcoin Corp, has jumped more than 1,132 per cent since the start of the year, 330 per cent in the past month alone.

But the trend is clear with only a handful of stocks not joining the rally.

Other high risers in the past month include crypto platform Bakkt (117.58 per cent), BNPL provider Affirm (73.74 per cent), payments giant Adyen (72.52 per cent) and Bitfarms (68.38 per cent).

While the direction of travel for the AltFi Fintech Index in recent weeks has been a high-octane one, overall the index has been volatile over the course of the year.

Much of this has been driven by macro forces, with central banks closely watched for signs high global inflation was being tamed for the rapid series of interest rate rises in major economies such as the US, UK and EU.

This caught many by surprise.

If you go back 12 months, the sentiment was vastly different, with the AltFi Fintech Index hitting an all-time low. 

“2023 defied almost everyone's expectations: recessions that never came, rate cuts that didn't materialise, bond markets that didn't bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight,” Candace Browning, head of BofA Global Research, said.

Now, with the spectre of a new year on the horizon, analysts are becoming more bullish.

“We expect 2024 to be the year when central banks can successfully orchestrate a soft landing, though recognize that downside risks may outnumber the upside ones,” Browning added.

Chris Beauchamp, IG’s Head of Market Analysis, says, the rally has so far been a tech-driven one.

“2023 was the year of surprises for both professional and retail investors, given that the much-predicted recession failed to arrive,” he said.

For the AltFi Fintech Index, two other considerations are important and distinct.

Firstly, many of the index's top performers in nominal terms are crypto-focused or at least exposed.

With the surprise rally in crypto assets this year, this has helped boost these companies' share prices. A reversal in the rally could potentially have the opposite effect.

However, many companies' stellar performance this year - which still has not taken them back to the all-time share price highs seen in 2021 - has been driven by fundamentals such as revenue growth, profitability or narrowing losses.

For example, Wise has is 45 per cent this year off the back of soaring profits.

“Now that central banks appear to be on a glide path to cutting rates next year, we can look forward cautiously to a period of better economic growth that should support global stock markets in the first half of the year,” Beauchamp said.

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