RESEARCH AND ANALYTICS

In 2013, Netflix began to release all episodes of a show at once, giving birth to the cultural phenomenon known as "binge-watching". The rising trend of binge-watching has certainly shifted our consumption habits, as 60% of young Americans aged between 13-17 years and 69% of adults aged between 18-29 years, have been found to indulge in TV shows or films in one sitting, according to a survey. A decade earlier, we were binging on VHS, VCDs, and DVDs, and now the medium has changed to mobile, laptops, and smart TVs. Netflix has also gone beyond "binge-watching" to "binge-racing," wherein fans complete a new show on the very same day it's released. Undoubtedly, we all must have "binge-watched" the latest Money Heist in one go, too.

However, there is another side to the story. Binge-viewing is believed to offer us an escape from the toils of daily life since binge-viewing a TV show produces a continuous stream of dopamine in our brains. There is a very fine line between enjoying and abusing, and, like any form of dependence, studies have shown that "binge-watching" shows might actually be less enjoyable and less memorable than watching new episodes on a weekly basis.

More importantly, the effects of heavy use of streaming platforms such as Netflix, Hulu, and Amazon Prime have been reported to include depression, weight gain, chronic illness, sleep disorders, and even a decreased libido. Netflix's CEO, Reed Hastings, himself, has admitted that Netflix is actually competing with users' sleep to make money. And they have been very successful so far, as is evident from the increase in their paid subscribers, which grew from 71mn in 2015 to 204mn in 2020.

The copper-to-gold ratio has a long history of exhibiting a strong correlation with the US 10-year Treasury yield. However, there have been periods in the past when the correlation drifted highlighting the potential market risks.

In the last decade, such disconnect emerged in 2012/2013 with the bond market pricing potential recession/deflation. Similarly, disparity appeared in 2018 due to an increase in the US Federal Funds Rate. In both scenarios, the S&P 500 Index experienced a sell-off of around 7% in the next two months. In the aftermath of these instances, a correlation between the 10-year yield and copper to gold ratio returned to normal. A similar scenario played out, as the economic recession caused by the COVID-19 lockdowns led to the reappearance of such a disparity during 2020. What followed was a nearly 21% drop in S&P500 in the subsequent months. The long-term correlation was restored with the spread between the copper-to-gold ratio and the 10-year yield began to narrow over July 2020 and March 2021. However, the correlation appears to be drifting away from normal with the spread widening at present.

Despite elevated US inflation and the Fed’s taper talks gaining ground, the 10-year Treasury yield has been falling since March 2021. This raises a question whether the current drift is indicating recession risk ahead or the 10-year Treasury will recoup to restore the long-term relation?

While the global education sector constitutes ~6% of global GDP, it remains under-digitized with a <4% share of global digital spends. The situation is changing as Education Technology (EdTech) spends are expected to grow at a healthy CAGR of c.12% over 2020-2025e, reaching USD c.400bn. Increase in mobile penetration, internet access, and the ever-evolving learning models are driving the long-term digital investments by schools and universities, along with growing demand for upskilling. Sensing the potential, the Venture capital (VC) firms have been lapping up the opportunities with global VC funding jumping astronomically c.30x from USD 500mn in 2010 to USD 16bn in 2020. China was the lynchpin attracting >60% of the global VC funding in 2020.

The tables turned around recently when China proposed regulating its EdTech industry with measures such as asking K-12 focused companies to go non-profit. This put a break on public and private fundraisings, and merger & acquisition activities by EdTech companies casting a shadow on China’s USD 100bn industry with 1H21 funding (USD 1.9bn) dropping to the lowest level since 2017.

With China staring at an aging population, the overarching objective of the crackdown is to improve birth rates by controlling the exorbitant education costs as Chinese families are believed to spend more than half of their annual income on a child’s education. Whatever the objectives are, the regulations bring uncertainty and eventually will have a bearing on VC investments in regulation-prone emerging markets, at least in the short term.