The AltFi Fintech Index roars into life with a return of 20.1% in January

Publicly traded fintechs have started to bounce back from a torrid 2022. Investors will be hoping that the rally lasts the whole year and not just the first month.

Image source: Pexels/Burak The Weekender

What is ‘fintech’?

This question has puzzled the AltFi team for several years as interest in the sector has continued to grow along with more and more entrepreneurs looking to innovate and digitize financial services, banking and money.

And don’t forget the avalanche of venture capital.

Recently, we have been working with the AltFi Fintech Index, a portfolio of approximately 60-70 fintech companies around the world that are listed on public stock markets.

Our aim is for the aggregation of these companies to illustrate the trend and demonstrate whether – or not – the sector can represent a financial return away from the hefty VC-implied valuations.

The stock market isn’t always right, of course, but it shows what investors really think.

In recent years, fintech companies have grown up from scrappy start-ups to, in many cases, public companies with a stock exchange listing.

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 number of other companies that enable some of the most famous fintech names are also participating in the general fintech trend, so we’ve included them as well.

From 01/02/2023 to 01/31/2023, the AltFi Fintech Index returned 21.8 percent, as more positive sentiment began to return to risk assets.

The return was nearly three times higher than the MSCI World Index, which tracks a broad range of globally listed companies, which rose 7.1 percent in dollar terms.

Hut 8 Mining, a Canadian bitcoin miner, achieved a 151 percent increase in its share price in January 2022, the best performer in the AltFi Fintech index in January.

It saw a 16.7 percent growth in the number of bitcoins successfully mined during the period compared to December, according to Seeking Alpha.

The company also recently announced a merger with US rival Bitcoin Corp, which will create one of the largest global bitcoin miners.

Somewhat amazingly, almost every component of the AltFi Fintech index saw a share price increase in January.

Only four companies saw their share prices decline during this period out of 62 names, reflecting the broader market shift in sentiment.

Drill down

January saw continued positive sentiment return after a torrid time for equities in 2022.

While most asset classes lost money last year, as inflation rose from historic lows and global instability increased due 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 the expectation of – the central banks’ actions.

Due to the ongoing inflationary trend, investors expected central banks to “squeeze the brakes” and make borrowing more expensive. This has historically made growth stocks less attractive as these companies’ future cash distributions occur further into the future than safer assets such as government bonds.

The fintech world, which had become synonymous with not-yet-profitable companies that rely on venture capital funding, was hit the hardest with some fintech companies taking a hit like BNPL vendor Affirm seeing a nearly 90 percent drop in valuation.

This was also noticeable in the private market where investors demanded “cheaper” prices for equity investments in companies’ financing rounds to be compensated for what was perceived as a greater risk.

For example, Klarna, which raised the largest global fintech funding round in 2022 with a raise of $800 million, albeit at a valuation that was reportedly 85 percent lower than its previous funding round in 2021.

A key question is what drives a partial return in sentiment and, by extension, the share prices of listed fintech companies.

“With interest rates still rising, valuations will remain quite difficult for some time. This is likely to keep many of the largest potential M&A transactions on the shelf as investors wait to see if prices fall further,” said Anton Ruddenklau, Global Head of Financial Services Innovation and Fintech, KPMG International.

Over the coming months, we will be releasing more details on the AltFi Fintech Index, including detailed company details, our methodology, a fact sheet and data breakdowns. Pay attention.