Spy has been watching his postbox all week for his ticket to The Donald’s inauguration. Apparently the president-elect has been finding it hard to fill his seats with suitable celebrities and therefore, naturally, Spy expected to be invited as part of the rent-a-crowd. The Hong Kong Post must clearly be in disarray, for the ticket, alas, has not arrived. Spy has had to settle instead for a prosperity dinner with overpriced plonk in a glory-faded restaurant in Mong Kok. Still, Spy is unlikely to miss out on much. You can guarantee that every television station from Khartoum to Timbuctoo will be broadcasting repeat clips of the most insensitive and incendiary parts of his speech ad infinitum for the next week. Yes, dear readers, the reign of Donald Trump the First begins tonight and the world is unlikely to be quite the same.
Fund managers, economists and analysts have been scrambling about to find historic comparisons for Trump with previous US presidents in some misguided hope to chart unchartered waters. The name that has come up frequently is Ronald Reagan, the unlikely actor-turned-politician who epitomised the American dream and ignited a decade of growth. BMO Asset Management pours some cold water on any comparison by highlighting the extreme differences in economic conditions at the time of Reagan’s first term and current times.
Reagan benefitted from falling interest rates throughout his two terms which gave a tail wind to everything he did. Trump has probably got the opposite: rising rates; and a mountain of debt to boot.
The sceptics who want to believe that the US recovery has not taken hold, should heed these rather wise words from M&G’s Bond Vigilantes. They point out that “Indeed, a shift in confidence is already underway within the US economy. The chart below shows the jump in small business confidence, a sector that is a strong driver of investment, employment and growth in the US. This swing in confidence is the biggest shift seen on record. Previous jumps in small business confidence mark the end of previous recessions, and point to periods ahead of economic growth for the US”.
Spy has been invited to numerous 2017 outlook events. Every asset manager worth their salt is prognosticating on the future. They have been gazing into their crystal balls and pronouncing on the future like the sages of old or the Oracle at Delphi. And what have they been saying? Well, variations of, “cautiously optimistic but concerned with X”, “moderately positive but worried about Y”, “mildly enthusiastic but looking for a plunge”, etc. etc. Spy was reminded, therefore, of the late, great John Templeton of Templeton Investments who proclaimed in 1994 that bull markets are “born on pessimism, grow on scepticism, mature on optimism, and die on euphoria”. 2016 started with pessimism and finished with scepticism, is 2017 going to give us the optimism or even some euphoria?
Spy has been debating the efficacy of getting the name of a fund right when marketing in Asia. So many western firms stick with the it-does-what-it-says-on-the-tin school of thought and we therefore have such drab names as the XXX Company Floating Rate Note Fund, or the YYY Company Balanced Europe Fund, or the ZZZ Company Global Fixed Income Fund. And yet a visit to Singapore’s China Town with its dazzling array of CNY colours and lights is a stark reminder that in Asia metaphors for abundance should be direct, unambiguous and joyful. Spy’s suggestion for staid fund marketers is to give some spice to your fund name and investment prospectus for the Year of the Fire Rooster. How about the “Successful Investments Everlasting Prosperity Fund” with a target return of “buy yourself a Porsche by next year”. The fund has an implied volatility “of a good night at the casino” and 14 analysts “who all studied feng shui.” Our fund manager “gained a PHD in Jackie Lee movies and is known to give the markets a damn good thrashing when they misbehave.” The benchmark? The average of Xi Jinping’s Mahjong score. Now, that might get you some much need-attention.
The HKIFA has published its end of year statistics for MPF funds. It has a classification of funds called “Lifestyle”. These funds have differing levels of equity exposure. Regardless, every single fund in the lifestyle section, all 115 of them, are negative over the last 3 months. Underperformance by the group of funds versus the Towers Watson benchmarks is staggering. Take, for example, the collection of funds in the 80-100% equity range. The benchmark for 3 months, 1 year and 3 years is -1.57%, 5.12% and 5.09%, yet the average performance is -2.36%, 1.32% and -2.03%. Spy has said it before, MPF investors get a raw deal. Looking down the list of available funds across the board it is a veritable sea of red. Either the charges are too high or the MPF list is where poorly-managed funds go to relax and take a performance break.
The great, the good and the tiresome have been gathered in Davos this week enduring the snow and the fountains of champagne that help those poor policy makers forget the numerous political and economic challenges facing the world. Spy tips his hat to Xi Jinping who has reminded the world that free trade is a positive. He said, “We must remain committed to developing free trade and investment and say no to protectionism.” Spy just hopes that when it comes to the issuing of domestic asset management licenses to foreign firms, Mr Xi and his band of merry bureaucrats remain just as committed…
And of course Davos has to have some Brexit zingers. This from the Mayor of London Sadiq Khan:”[If] businesses decide to leave London, they’re not going to move to Paris, Madrid or Frankfurt, they’ll be going to Hong Kong, Singapore, or New York. So ‘hard Brexit’ is a lose-lose — bad for London, bad for the UK, bad for the EU.” The Spy of course would personally welcome any of the UK financial industry moving to Hong Kong or Singapore.
Rising yields in the bond market are removing old certainties. For more than three decades we have had generally rising bonds and a lowering of yields. Now the animal spirits, to coin a 1980s phrase, seem to have been unleashed and, with it, quite possibly a hot air balloon of inflation. Of 81 global fixed income funds registered for sale in HK, only 17 are positive over the last six months according to FE. The blood is running in the streets. As if to remind everyone that not everything lasts forever, world number 2 ranked tennis player Novak Djokovic, who has won the Aussie Open tennis tournament 6 times and entered as favourite, lost to 117th ranked player in the second round yesterday. Unsettled times indeed.
Spy spotted Pictet stepping up their advertising with a prominent advert at Hong Kong airport.
Until next week….
