The FSA Spy market buzz – 09 December 2016

The year is winding down, Spy’s sources are slipping away on holiday and the shops are now filled with repetitive Christmas carols. Asset and wealth managers probably can’t quite fathom their luck. The S&P 500 was up a mere 12 points, about half a percent, on the eve of Trump’s win. But since the Orange One became president-elect the markets have been in a rallying mood, turning a very dull year into a vintage one. If the US market holds this level ‘til New Year, it will finish up about 10%. The Italians have shrugged off Renzi’s referendum loss and bought stocks with glee. Here, in autumnal Hong Kong even the weather is being kind with a forecast for sun all weekend. The feel good factor is unexpected, undeniable and, just a tad unbelievable for an old cynic like Spy. How long will this last? Your guess is as good as mine. Spy’s advice: enjoy the holiday ride but keep your broker on speed dial.

Spy has spotted a small change at Standard Life. Nathan Geary, who was in charge of distribution at the Scottish life company in Hong Kong, has switched roles and joined Standard Life Investments on their wholesale team. Standard Life is focused on the IFA segment and Spy presumes this is where Nathan will be concentrating his energy too.

Has M&G made a new hire in Hong Kong? Spy has heard from a reliable source that Ignace Nguyen has resigned from BNP Paribas Investment Partners, where he was a client relationship manager, and is joining M&G in Hong Kong to focus on private bank sales. M&G declined to comment.

Was anybody surprised to hear the news that Edmond de Rothschild private bank is exiting Hong Kong, wonders Spy? This town is so expensive to have a drink, let alone do business, wealth managers need scale or a proposition so niche and compelling that clients will pay up for it properly. If you don’t have one of those, you might as well take that well-earned sabbatical…

For a man of 86 years old, Warren Buffet continues to get press coverage most investors could only dream of and at the same time teach young whippersnapper hedge fund managers a thing or two.  In 2007, the wily old coot offered to bet any taker $1 million—with the money to go to charity—that over ten years and after fees, an S&P 500 index fund would outperform ten hedge funds of the taker’s choice. Protégé Partners, a New York money management firm, accepted the challenge. Its entry consisted of five funds of hedge funds, while Buffett selected Vanguard 500 Index Fund Admiral Shares.  According to Fortune, from the start of the contest on January 1, 2008, through the end of 2015, Buffet’s pick, the 500 Index Fund, returned a cumulative 65.67%, compared with 21.87% for Protégé’s picks. Although there’s more than a year left to go, Buffett clearly holds a sizable lead and appears to be on track to win his indexing bet.

So, which asset managers have had a good year, ponders Spy. Looking at his list of pure, stockmarket-listed asset managers globally, we have some very respectable performances in asset manager share prices in 2016. No doubt the team members of the managers listed below will be happily counting their share options.

However, the real blow away share price rises have come from these three players:

North Star is focussed on real estate in the US and Europe. Coronation is the leading South African asset manager with an institutional business in the US, UK and elsewhere. Impax, listed in London, with offices in Hong Kong, is an institutional specialist at investing in energy efficiency, renewable energy, water, waste/resource recovery, food- and agriculture-related markets.  It goes without saying that its shares are unlikely to have risen unless its funds were doing well too, so worth keeping an eye on them. For example, Coronation’s Global Emerging Markets Fund is up 30% over the last year. Pretty impressive considering EM volatility. Meanwhile, Impax Asian Environmental Markets is up 23% over the last year.

Capital Group has been pondering Japan this December. In a research note, it highlights how poorly researched Japan is, from a stock market perspective.  These facts caught Spy’s eye: “On average, 12 analysts follow each company in the Nikkei 225 index, compared with 22 for the S&P 500 Composite Index and 21 for the FTSE 100 index”.  Capital points out that the Nikkei market cap is $5.2trn and comprises more than 3,800 listed companies. A veritable stock pickers paradise for those prepared to do some ‘on the ground’ hunting.

Tis the silly season and along with serious predictions for 2017, some fanciful ideas are being kicked around, notes Spy. Saxo Group has published a tongue in-cheek list of what it calls outrageous predictions for 2017. No doubt some of these are meant to get PR headlines, but 2016 has been so strange, it may be worth taking a punt that some of these come true.  Among others, the outrageous predictions are: China’s GDP swells to 8% and the Shanghai Composite rallies to 5000, high-yield defaults exceed 25% from less than 4%, Brexit never happens as the UK decides to stay in the EU, huge gains for bitcoin as cryptocurrencies rise and Italian banks are the best performing equity asset. Food for thought, or idle speculation at any rate.

Apparently HSBC Global Asset Management wants your dreams to fly. Spy just wishes that banking with its parent company was not such a nightmare…

Until next week…