Weekly Reads
Weekly Reads - November 6, 2023

Please read the Unison Asset Management Social Media Disclaimer


Lyft’s return to undercutting Uber on price is a concerning developmentfor the fledging company which has reverted to price tactics rather thanimproving their service and matching the breadth of services offered by theirlargest competitor.

In a bid to drum up revenue growth and investor support, Lyft is returning to its classic strategy of undercutting Uber on price. The average price of a standard Lyft ride as of September was more than 4% cheaper than Uber’s similar service according to analytics firm YipitData. This price drop comes after nearly 6 months of similar pricing between the two platforms. In this period Uber has won market share based on its superior service and its breadth of services (Uber Eats, Uber Mobility, Uber One). Lyft, in response, is relying on price to win back lost market share as price-sensitive consumers look to trade down to a lower-price service as macro conditions deteriorate. The issue is this strategy has never been a successful one in the long term with Uber easily matching pricing and generating better profitability than Lyft, which remains a smaller platform focused solely on ridesharing. In the recent few months, Lyft has regained 200 bps of market share yet the company remains extremely unprofitable with management signaling aggressive pricing going forward. While this aggressive pricing will likely impact Uber’s ability to sustain its profitability trend short-term, Uber is set up to survive a long-term pricing war. Uber has diversified their business over the last few years and focused on improving platform stickiness via the Uber One subscription which incentivizes users of both sides of the business (Eats and Mobility) to strictly use Uber. Regardless of what happens in the short term, Lyft remains in a perilous position fighting an uphill battle against a behemoth that has many levers it can pull to stay price competitive while continuing to take market share across all its business segments. 

South Korea’s ban on short-selling is a head-scratching decision that is more rooted in politics than it is in making their financial markets more attractive to global investors.

South Korean stocks rose after the country imposed a ban on short selling with regulators citing the negative impact of the trading tactic on South Korean markets. The ban is for eight months (until the end of June 2024) and was set to appease retail investors who have complained about short-selling by institutional investors ahead of elections in April. While regulators explained this move as a way to protect retail investors from institutional investors, the ban seems politically motivated due to its correlation to general elections within the country. The previous bans on short selling by regulators correlated with big events such as the financial crisis of 2008, the euro-zone debt crisis and U.S. sovereign downgrade in 2011, and the start of the pandemic in 2020. The most recent ban was driven by no such event making it likely that it was driven by political reasons rather than as a mechanism to protect retail investors. Short selling remains a tiny portion of the Korean market accounting for just 0.6% of the KOSPI’s market value and 1.6% of KOSDAQ’s. Regardless of the reason behind the ban, this decision might have lasting repercussions with many indexes refusing to upgrade South Korean equities and preventing South Korean markets from reaching developed market status. Institutional investors are less likely to invest in the country due to low confidence in being able to make investment decisions on “mispriced” markets and stocks. Short selling remains vilified throughout South Korea and parts of the world, but it plays a key role in keeping financial markets transparent and rebalancing “mispriced” stocks that are driven by unsustainable tailwinds, market hysteria, or illegal activity.

Hedge funds aggressive buying of U.S stocks last week reeks of over optimism with traders jumping back in due to rate speculation rather than fundamentals.  

Hedge Funds bought U.S. stocks at the fastest pace in two years as traders speculate that the U.S. central bank rate pause will continue. Last week was the largest five-day buying spree since December 2021 as investors flocked to the information technology and consumer discretionary sectors. Long positions in information technology reached their highest level in eight months. This buying spree left short sellers in a tough position with many short sellers covering their positions, sending stocks higher. This fever pitch unsurprisingly did not include health care or financial stocks which remain widely hated and were net sold during this rally despite the reasonable valuations of both sectors. While this short-term trading is meaningless in the long-term, it is interesting that this buying frenzy focused on information technology which remains expensive relative to the market and the consumer discretionary sector that is sensitive to consumer demand and the macroenvironment.