Posted inFSA Spy

The FSA Spy market buzz – 03 February 2017

Woodford speculation; Hang Seng’s sectors; UBP has good results; S&P observations; The Fed cries wolf; Trump on debt; ETF launches; Jupiter advertising and much more.

Spy has found himself back at his desk this week watching the tumbleweed drift by. Hong Kong has been so quiet that pins could be heard dropping all over the city. Emails have resulted in numerous “Hi, I am out of office having a good time skiing on the powdery slopes of Niseko for CNY, sorry to hear that you are working, you saddo”. Well admittedly not the last part, but this is how it has made your poor Spy feel anyway. Instead, Spy is contenting himself by looking forward to that great American tradition of cheering two all-American teams, playing on American soil, with exclusively American players for the “World Championship”. Yes, it Super Bowl time of the year, when Americans will eat as much as they did for Thanksgiving and pray that some minor singer has a “wardrobe malfunction” so they can complain bitterly to Fox News about falling moral standards. Still, if we had a president like Trump we might also be hoping for small mercies, too. For Spy’s money, the New England Patriots will beat the Atlanta Falcons by a modest margin on Sunday and the rest of the world won’t care a bit.

Spy has been playing the game of “Who will come to Asia next?” One asset manager name keeps on popping up: Woodford. Spy has heard from several sources that Woodford is looking to bring some of its funds to Singapore and beyond in 2017. Neil Woodford, who was Invesco Perpetual’s investment superstar, launched Woodford with much media publicity in 2014. AUM has already risen to about £15bn – an astonishing amount in such a short space of time. Neil Woodford’s value-driven and income orientated investing-style has resulted in some fantastic returns over the last 25 years, although 2016 was a particularly tough year of performance for him with a number of poor picks. Woodford has just launched a higher-yielding income fund in the UK, just the sort of fund Asian buyers have a preference for, notes Spy. Watch this space.

Spy is pretty sure that nobody can quite believe their luck: 2017 has begun so well for markets that people want to pinch themselves. Looking at Hang Seng’s best and worst performing sectors, only 3 sectors are negative year to date, and none of those by much. Sector equity, GBP government bonds and HKD money market are all modestly down. Absolutely everything else is already positive for the year. To paraphrase a great song, “What a difference a few months make”. The kiasu spirits appear to be running in Singapore: Its equity sector is up 8.37% for the year, the best performing Asian country on the list.

Spy spotted that UBP had some good results last week and Asia featured in dispatches. “Revenue increased sharply (+24.7%) to CHF 934.6 million, compared with CHF 749.7 million at the end of 2015. This rise was largely due to the increase in interest income, fees and commissions related to expansion, particularly in Asia”, the bank reported. It seems that UBP’s decision to acquire Coutts is paying dividends (separately, Coutts was recently fined in relation to the 1MDB scandal). 

The announcement added, “As of 31 December 2016, assets under management were CHF 118.3 billion, up 7.6% (CHF 8.3 billion) compared to the previous financial year (CHF 110 billion at the end of 2015). This is mainly due to the increase in assets in Asia – a major growth centre for both private and institutional clients.” Impressive indeed.

Is the Fed crying wolf? Last year the market was expecting several more rate hikes after the FOMC managed one small hike last December instead of the four predicted in December 2015. However, if this week’s Fed press conference was anything to go by, Janet Yellen appears to be unfazed by US inflation expectations and happy with modest growth indicating no rush for another hike any time soon. Spy could almost see the doves flying around the room. Will the bond vigilantes do her job for her? Keep an eye on that US 10 year-yield; it was 2.4811 last night. So far, so benign.

There has been a creeping suspicion among intellectuals that Western economic and political superiority has been declining for years in the face of soaring debts and recent unprecedented political uncertainty. S&P has now picked up on this with an insightful comment by Moritz Kraemer, who is a primary credit analyst for the firm. In a note last year he observed, he stated, “At the same time, it may no longer be possible to separate advanced economies from emerging markets by describing their political systems as displaying superior levels of stability, effectiveness, and predictability of policymaking and political institutions.” Indeed. With the EU faltering, protests wracking the US and Brexit, it is very hard to argue with. Focus on companies and let the politics look after itself, says Spy

Two key events to watch this month. The US will almost certainly run up to its debt ceiling in February and reach the astonishing $20 trillion mark. Meanwhile, China is likely to drop below $3 trillion in reserves as domestic spending and the propping up of ailing banks with bad loans saps cash.  Both will be the cause for much muttering by the desk-bound commentariat. Spy himself thinks he would rather be the creditor, albeit with declining reserves. Remember Trump’s election rhetoric, “We owe $19 trillion as a country. And we’re gonna knock it down and we’re gonna bring it down big league and quickly”. This will be fun.

Any idea how many ETFs were launched in the US last year, asks Spy? According to it was 248. That is nearly 5 per week. The one with the longest name was “WisdomTree Dynamic Currency Hedged International Quality Dividend Growth Fund” Snappy. The shortest was the “Wear ETF” which is, you guessed it, all about wearables. Before you rush in and fill your boots up, Spy has just one question to ask, “When did you last use your FitBit and can you find that darn battery thingy?”

According to a report from by the Gold Council, “a four-year high in investment drove price gains and demand growth in 2016. 2016 full-year gold demand gained 2% to reach a 3-year high of 4,308.7 tonnes. Annual inflows into ETFs reached 531.9 tonnes, the second highest on record. Declines in jewellery and central bank purchases offset this growth. Annual bar and coin demand was broadly stable at 1,029.2 tonnes, helped by a Q4 surge.” Not bad for the asset Maynard Keynes described as a “barbarous relic”. Gold is like that annoying ex-girlfriend you were happy to dump at the time only for her to subsequently win a regional beauty contest and now she seems to be going for the national championship, too.

Spy spotted a Jupiter tram he had not seen before doing the rounds in Hong Kong this week. Expect to see more of this as consumer competition heats up in HK.



Until next week…

Part of the Mark Allen Group.