The dog days of summer are here. Sticky weather, dreary rain, few people at their desks. Spy has practically given up trying to speak to industry contacts: so and so is in Europe, this fellow is in Australia, others have sloped off to alumni gatherings in the US and Canada. Apparently hiking in Hokkaido is also “the thing”. What to do? A retreat to a grimy bar in Causeway Bay for some proper thirst quenching seems the order of the day (unfortunately, the best choice is the bottom shelf Erdinger weissbeer, made bland for mass market appeal). After all, the many crises of the last 18 months seem distant. There are currently few rumbles over China and its territorial waters, Greece is issuing bonds under 5% (again), Britain’s Brexit quagmire moves along glacially and stock markets tick ever higher. Spy recommends an ‘Old Fashioned’ made with Appleton Estate Rum from Jamaica’s warm beating heart. A warning though, just like an EM corporate credit portfolio manager, you will find it will hard not to binge on such tantalizing delights…
Pictet Asset Management has pinched a marketing person from Manulife AM it would seem. Spy has heard that Victoria Lim has jumped ship from the Canadians to the Swiss. Victoria is supporting Lawrence Tse and the team in the Hong Kong Office. Pictet has four funds registered in Hong Kong with performance above 30% in the last year: Emerging Europe, Asian Equities, Robotics and European Equity Selection. That always helps!
Kate Cheung, who was until recently Fidelity‘s corp commo senior manager, has now moved over to SSGA, Spy has overheard. Kate now heads PR for Asia ex-Japan. In what seems to be role-swapping, Kate is now in a position similar to the one held previously by Pieter Bakker, SSGA’s ex-head of PR for APAC, who joined Fidelity in May last year as a director for corp commo. For a time, the two worked together at Fidelity.
China simply loves to outfox the bears, doesn’t it? Whilst US hedge fund managers, academics in their ivory towers and portfolio managers who have never left their Bloomberg screens put out lengthy doom-laden reports on China’s demise, China’s entrepreneurs are getting on with the job. Eastspring’s CIO, Virginie Maisonneuve, has some delightful stats in her latest piece. She points out that: “In 1997, Hong Kong was the biggest port on the China coast. Today, Shanghai, Shenzhen and Ningbo each ships a greater number of containers. Hong Kong as a percentage of China‘s GDP was 18.4% versus 2.8% today. The Hong Kong-China trade as a percentage of Hong Kong’s total trade was 36% versus more than 50% today. In 1997, only 2.3 million Mainland Chinese tourists visited Hong Kong – a tiny slice of the more than 42 million visiting in 2017. Finally, Hong Kong’s market cap was HK$3.3trn versus HK$28trn today.” What a difference two decades make!
First State Stewart Asia knows China, and some proof of that claim was uncovered by FSA. The firm has three funds on the list of the top ten China funds in terms of performance over the trailing ten-year period. Not coincidentally, the three funds are managed or co-managed by notoriously press shy Martin Lau, managing partner.
Another old China hand is Matthews Asia’s Andy Rothman, who has a mouthwatering chart showing US retail sales versus Chinese retail sales. If the trend is your friend, expect China to surpass the Americans by 2020. Hard landing? What hard landing?
Those investors worried about a slow-down in Chinese luxury consumption should take a longer look at Hermes Investments’ fact-filled outlook on emerging markets by Gary Greenberg. It includes this gem of an anecdote, “According to the CEO of Maserati’s China business, who was on stage at Alibaba’s 2017 Investor Day, a recent exhibition [on Tmall] for Maserati saw the car manufacturer sell 100 cars in 18 seconds. To put that into perspective, the company sold 749 cars in Europe in April, according to auto-industry website Carsalesbase.com.” Ignore China at your peril, says Spy.
Do we listen to a faded central banker who was not renowned for spotting a bubble under his own nose? Spy guesses even a stopped clock is right twice a day. Former Fed Chief, Alan Greenspan, said in an interview this week: “By any measure, real long-term interest rates are much too low and therefore unsustainable. When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.” Fair enough, thinks Spy.
After last week’s book list recommendation from JP Morgan Private Bank, Spy has come across further reading lists from the industry. BlackRock has one and Wellington Management has one. Spy suspects that the real story (and good news) is that book reading itself is coming back into fashion.
With Germany’s big five auto manufacturers sitting in the naughty corner for collusion and emissions cheating on their internal combustion engines, the rest of the world is going full electric vehicle reckons Spy. This is making asset managers take notice. Hamish Chamberlayne, portfolio manager for global sustainable equities at Janus Henderson, wrote last week: “We expect improvements in battery performance and further cost declines associated with electric vehicles. The adoption rate of new technologies often follows an ‘S-curve’; i.e, once a tipping point is reached it can often surprise people how quickly a technology transition can occur. In our view oil is a sunset industry – we have identified as much as £5trn of market capitalisation at risk of disruption from the transition to a low carbon economy.” Ouch!
Those pesky corporates. Not only are they producing things that people want to buy, they are gathering cash at an alarming rate too. And they are not just investing that cash in their own businesses or dishing it out as dividends, they are now the biggest source of lending to governments and other corporates too! According to a fascinating perspective by Vontobel Asset Management, “The tides of investment flows have changed dramatically in the past three decades. Until the mid-90s, the largest group of investors (lenders) throughout the global economy were households, placing their savings in government and corporate bonds. Today, corporate savings make up nearly two-thirds of global investments, gobbling up government and corporate bonds on a large scale with no end in sight to this trend.” Those anti-corporate anarchists, burning cars at G20 summits and protesting in Davos, must be apoplectic with rage that welfare payments often come via perfidious company loans…
Many successful fund managers are scratching their heads at this moment. “The yield on US equities almost mirrors the yield on US Treasury bonds. That’s not usual, notes Richard Buxton, head of UK equities at Old Mutual Global Investors. Another drumbeat to the CD of the summer “Something has to give” thinks Spy.
Meanwhile, Downunder, they have a department very worried about the black economy and all those naughty cash transactions that avoid sales tax. Tut tut! Michael Andrew who heads a quango called the Black Economy Taskforce (sounds like a Netflix special to Spy), wants to keep track of Aussie $100 and $50 notes by using “hi-tech nano-chips” that would be implanted in them, reported news.com.au. He has even suggested that cash could “expire” if it is not deposited in a bank. Spy can just imagine how well this proposal would go down with the punters in Macau, Wanchai or Orchard Towers.
Spy’s photographers have been roaming the streets of Hong Kong and have come across some Invesco advertising for its Pan European Structured Equity Fund. Oh, yes, Europe is definitely flavour of the month. Expect more of this as the rally grinds higher.
Until next week…
