Spy has been avoiding the Xi Jinping circus this week. Hong Kong has come to a standstill while our president has come to town to placate and dictate in equal measure. It would not be so inconvenient if certain bars, which serve the best craft beers, had not been put off limits with artificial barriers during the presidential visit. Your humble Spy has been left thirsty with only a Tsing Tao from 7/11 (in a can, yet!), which doesn’t satisfy the cravings. Still, better a beer shortage than a credit shortage as the Asian bond markets have wobbled this week. Spy has been warning of volatility to come… The drumbeat is getting louder, ladies and gentlemen. Hold on to your hats.
News has reached Spy that Mabel Chan who had been co-head of intermediary business in Hong Kong at Eastspring, has stepped down from her position. Mabel previously held a similar role at Henderson in Hong Kong. There is no news on her replacement. Eastspring, Asia’s largest retail asset manager with more than $150bn in assets, has recently been pushing its emerging markets capability among other Asian strategies. The firm this week signed on to a program run by IFC to raise funds from institutional investors for infrastructure projects in emerging markets.
Spy will be the first to confess he believes in long-term markets. As the saying goes, to be a short-term investor in the market (or to be long gold), is to be short human ingenuity – and that has seldom worked out well. Spy came across a chart this week that perfectly illustrates this fact. Despite the almost constant tumult of the 20th century and the first part of the 21st, the market has risen with a regularity worthy of the finest grandfather clocks. So when the doomsayers come knocking on your door, perhaps point them in this happy direction:
As we enter the summer lull, June dwindles to a close and we reach the halfway mark for the year, Spy has been checking on which funds have performed the best so far this year. According to FE’s Trustnet, in Hong Kong, of all the funds registered for sale, Investec All China is in third place, with a healthy 37.2% return. Number two is AB’s India Growth with an excellent 38.3% return. The leader so far this year? Xie Shares’ FTSE Chimerica, managed by Hong Kong’s home grown Enhanced Investment Products, headed by CEO Toby Bland. The fund returned 42.3%. Not bad work if you can get it.
Buckets of ink have been spilled on China. There are as many opinions on China as there are terracotta warriors in their majestic tomb. Spy enjoyed Blackrock’s take this week, especially in light of the recent partial inclusion of A-shares in the MSCI. Martin Small, head of US iShares, writes, “There’s been a persistent disconnect between China’s powerful economic growth and the country’s stock prices. Despite annualised gross domestic product (GDP) of 10% over the past 16 years, stocks represented by the MSCI China Index have returned just 6% over that same time frame. The gap between the two reflects a long-held scepticism about whether this extraordinary pace of growth can be sustained.” Fair enough. But he draws a more optimistic view of the future, writing further, “The country’s economic realignment away from investment, toward consumption, has freed up corporate capital. That shift is being mirrored in the composition of China’s stock market indexes, which have slowly moved away from bloated state-owned enterprises, to sectors and companies that focus on earnings and shareholder value.” That long view is far more Spy’s kind of trade.
What if you heard rumours from the ECB that it was likely to ease off on bond purchases or, perhaps, even start liquidating its balance sheet. Would that send shivers up your spine? If you hold any European bond funds, it should, after seeing the chart below. It illustrates just how much buying power the ECB has brought to the market in the last few years. The chart, with data from UBS and Bloomberg, shows how many bonds the ECB has bought with differing grades. Nothing to see, folks. Move along now…
Spy is usually on the lookout for a pithy quote that sums up an aspect of the financial markets. This week his favourite quote comes not from a market commentator or economist, but rather Dwight David Eisenhower, the 34th US President. Referring to a hapless senator, William Knowland, Eisenhower wrote in his personal diary, “In his case, there seems to be no final answer to the question, `How stupid can you get?’”. This thought comes easily to mind when private bankers recommend highly-leveraged funds or exotically-structured products to widows and orphans… an all too common occurrence in Asia, sadly. Or perhaps it should just refer to the greedy investors instead! So many choices.
Spy’s roving photographers have seen Pimco back on the streets on of Hong Kong this week. Not content to simply have billboards in Central, it seems trams are the order of the day. At the station the bond giant asks: how to deal with the low interest rate environment? With Xi Jinping in town, were they hoping to influence someone with more powerful influence than usual?
Spy has not been able to jump onto a tram without stumbling over an asset manager. Guotai Junan, the Chinese fund house, has also been promoting this week in HK. The firm reminds about the A- and H-share differences as an investment opportunity through the Stock Connect:
Until next week…
