Posted inFSA Spy

The FSA Spy market buzz – 10 February 2017

Prudential pinches from OCBC; Bordier & Cie loses; Capital Group hires; OMGI likes gold; AB calls China straight; BMO and passives; Euro debt; Stan Chartered’s charges and much more.
FSA Spy

Spy is suffering this morning. A quiet post-CNY drink with a private banker friend whose idea of dry January was to “only drink beer and wine and cut out spirits”, has had dire consequences. It started with a debate about Trump and a mojito, followed by a debate about China’s capital outflows and a Mai Tai, descended into a rancorous discussion on the future of Hong Kong property and a Piña Colada, followed by…well you get the idea. Spy feels like he has been at an economics convention: much discussion, little real world conclusion and nothing much to show for it except a large bar bill.

The post-CNY merry-go-round in wealth management continues its perennial course. If one has not been receiving automated “out of office’ replies, it is most likely you have been receiving several “xxx has left the organisation…” Spy has noted that Ryan Sim, formally head of investments within the wealth management division at OCBC, has been lured across to Prudential. He is still based in Singapore and his new role is modestly stated as “fund solutions, product management” on his LinkedIn profile. Prudential has had a notoriously conservative approach to adding funds to its range so this might herald a change of pace.

Bordier & Cie appears to have lost Jimmy Ng, director of investments, who was managing their discretionary portfolios in Singapore. By press time, Spy was not able to confirm where he has moved or is moving to. A rather coy Border & Cie spokesperson refused to provide any clarity, apart from confirming he has stepped down. Watch this space.

It has come to Spy’s attention that Amundi has lost one of its marketers in Singapore. Seow Ping Seah, who works with Angeline Goh, is apparently leaving the firm. She is joining the American giant Capital Group to bolster their marketing team. Capital has been building out its retail team in recent years in both Singapore and Hong Kong. Christian Leger moved to Hong Kong from Zurich in November to add to local business development in North Asia.

Spy has been hearing more and more about gold as people start to fret that the inflation genie is out of the bottle. (Spy thinks any inflation non-believers should join him for the weekly wallet liquidation at Park ‘n Shop.) Yet, complacency appears to be rife with most investors. In contrast, a comment by Ned Naylor-Leyland of Old Mutual Global Investors (who was featured in FSA recently)caught Spy’s eye. “If investors truly believe that cash will accrue purchasing power in real terms, gold will perform badly. If, on the other hand, they think the reverse is true and the purchasing power of their cash will be eroded, then they will tend to favour gold.” He then goes on to say, “The price of gold, currently trading just around the $1,200 per ounce barrier, would suggest that investors are betting on one key thing: that US interest rates will outpace the rate of US inflation to the benefit of holders of cash, rather than gold. I think they’re wrong. The idea that the US Federal Reserve will be able to deliver any recognisable form of policy normalisation (i.e. a return to interest rate rises keeping pace with inflation) is pie in the sky in my view, despite recent protestations from Fed Chair Yellen.” Nailed it.

During Spy’s drunken debate about capital flows in China, alluded to above, he could have done with this straight talking comment from AB’s Asian sovereign strategist, Anthony Chan. “We think all of the new measures implemented over the past month are pointing to a reinstatement of capital controls in China. The authorities have tightened their grip on direct investment outflows, offshore corporate bond issuance and US-dollar remittances by households in a bid to defend the renminbi. In other words, controlling capital outflow has once again become China’s solution, at least temporarily, to the ‘impossible trinity’ problem—a trilemma in international economics which states that it is impossible to have all three of the following at the same time: a fixed exchange rate, free capital movement and an independent monetary policy.” The idea that the RMB could replace the dollar any time soon as a reserve currency is utterly deluded, thinks Spy.

Spy is a regular critic of US government debt and American consumers’ indifference to personal debt, which seems to grow faster than Spy’s waistline. This week Amundi has provided a timely reminder that Europe, in the form of the ECB, is adding debt at a furious pace too, and should probably also sit in the naughty corner. They point out that, “The Eurosystem has already purchased €1,598bn of assets under the expanded APP since March 2015, including €1,337bn under the Public Sector Purchase Programme (PSPP) and €61bn under the Corporate Sector Purchase Programme (CSPP), and still has to buy €682bn of assets until December 2017.”  That will be more than 2 trillion euros worth of debt in just under three years. At a list price of €400m, you could buy more than 5,000 Airbus A380s for that money…

The next time someone gets on their soapbox for the active / passive debate, perhaps whip this little bit of information from your hat courtesy of BMO Asset Management. “At the end of 2016, the most standard fixed income benchmark, the Bloomberg Barclays Aggregate Bond Index, had a 36% weighting to US treasuries.” In contrast, “active fund managers have only about an 18% allocation to treasuries as measured by the Morningstar Intermediate Term Bond category. That ratio is significant as 90% of flows in the past three years into the taxable bond category, as measured by the Morningstar Direct SM US asset flows update, have gone into passive funds.” In other words, if treasury yields spike, which is highly possible, passive holders are going to get whacked far harder than their active counterparts. Spy has said it before: passive is no panacea for foolish asset allocation.

Is the Singapore government preparing the ground for some shifts in its generous taxation stance? Spy thinks so. This week, in a report by the Committee on the Future Economy, or CFE as Singapore loves its acronyms, it said the following ominous words: “Over the years, the government has shaped the tax system in Singapore to be pro-growth and progressive by keeping tax rates internationally competitive and building a broad base of direct and indirect taxes. This has allowed us to encourage effort and enterprise, and create good jobs. Going forward, domestic and global changes will require us to review and renew our tax policies. These include rising social expenditure needs due to ageing, and growing momentum for international tax developments such as the OECD Base Erosion and Profit Shifting (BEPS) project.” If anyone thinks you can move to Singapore and enjoy a nice low rate of tax indefinitely, better start thinking again.

Standard Chartered Bank, according to the funds marketing blurb on its website, believes, “That the best opportunities should be seized. That’s why we offer a wide selection of funds that suit any investment appetite and timeframe.” Sounds fair enough. Just check the small print though, says Spy. It is going to need to be a really decent opportunity to justify the following: “Sales charges of up to 6.25% will apply and this will be taken from the purchase amount. In addition, an annual recurring fee of up to 3% which includes fund management and administrative fees will be charged by the fund house.” Ouch!

Until next week….

Part of the Bonhill Group.