“Come gather ‘round, people, wherever you roam…For the times they are a-changin’,” sang Bob Dylan. Seldom has a ballad seemed more pertinent. China passed its Hong Kong Security Law this week and for Spy that marked the beginning of a real change in world affairs. For better or for worse, Hong Kong is now on a sharper path to full and rapid integration with the rest of China. Despite a few mutterings from Europe and the US, everyone knows they can’t, and won’t, do much about it and so life goes on. People thought that working from home is ‘the new normal’, the real new normal in Hong Kong is that Beijing is now involved in our daily affairs. Enjoy that warm embrace, folks, it ain’t going away any time soon. Spy’s advice: grab a bottle of Moutai and drink a toast to the new era. ‘Tis upon us.
Well, it has been a lively week if one enjoys watching, or in investing in, giant tech stocks, reckons Spy. The combined market capitalisation of the so-called FANGMAN (Facebook, Amazon, Netflix, Google, Microsoft, Apple, Nvidia) hit a new all-time high of $6.75tn. To put that in perspective, that is equal to the combined annual GDP of Germany and the UK. Spy, like so many others, is beginning to think that there is only one game in town: Mega-cap tech. For those with long memories, this is beginning to feel a lot like the dot.com bubble of 2000. This week the Nasdaq 100 performance ratio to the S&P 500 exceeded its peak achieved at the turn of the millennium. Admittedly, these companies mentioned above, make real and very big money, unlike many of those hot air dreams twenty years ago. Pets.com, anyone?
Well, it had to happen. Spy can just imagine the marketing discussion. “We need a way to capitalise on the ‘Work From Home’ trend. Team, we need a fund, now! Find out if the ticker, WFH is available. It is? You are sure? Secure it – quickly – and get an index we can use. Go team, go! Time is money.” And, thus, hey presto: The Direxion Work From Home ETF is born. Spy’s question is: as working from home becomes a norm, would people even care if such a thematic exists? He can’t fight the logic in the short term and it certainly gets a few column inches (like this one) but in a few years time, will this one quietly delist when people meander back to their offices?
Spy keeps an eye out for funds that suddenly go pop – and he is not talking about those triple leveraged directional ETFs. This week, it was BNP Paribas Asset Management’s Energy Transition Classic. The fund is up 22% this month alone. The fund is a thematic product focusing on new forms of energy, such as solar, and is understandably volatile. It had a fairly weak start to 2020 but investors clearly don’t think a low oil price is enough to stop the energy revolution. And quite rightly so. The outlook for the fund is, eh, sunny?
BlackRock’s Investment Institute (BII) has just published its outlook for the rest of the year. It is a worthwhile read. A few snippets stood out for Spy. BII’s chairman, Tom Donilon, reckons, “We face a far less globalised international system, with states playing a greater role in the private economy.” That, in black and white, is a rather profound change and very real for everyone. Elsewhere, the report predicts for the second half: “Risks include policy fatigue, a re-emergence of the virus, intensifying US-China tensions, and a turbulent election season.” The firm has “downgraded US stocks to neutral after a strong run of outperformance”.
If one is an old fashioned, research-driven equity manager, surely the only place left to really test one’s investment skills, is in China A-shares. Spy comes across stories, almost daily, of fortunes made and fraud committed, in equal measure, that seem to emanate from Shenzhen and Shanghai. Just this week, Tungshu Optoelectronic Technology Company seems to have done a Wirecard and has billions of dollars missing from its accounts. Where did the cash go? At this stage, who knows. With the rest of the world over-broked, over-covered and one might say, over-traded, China’s A-shares offer investors a wild west for pioneering managers who like to do their own analysis and not just buy what the Fed is buying.
One person who sounds rather sick of current Western markets, suspects Spy, is hedge fund boss, Ray Dalio. Bridgewater’s founder claimed this week: “Capital markets are no longer free,” predicting, “central bank balance sheets are set to explode”. He reckons that investors should favour stocks and gold over bonds and cash because the latter offers a negative rate of return and central banks just going to print more money, anyway. This view will probably get a lot of sympathy from old-timers.
At the halfway mark, which asset managers’ shares are having a good year? Sadly, not many. Spy’s list of public firms makes fairly dismal reading. A couple do stand out though. T Rowe Price is holding up – it is not that far from its one-year high and is up 15% over the last year. French giant Amundi is also up about 15%. BlackRock has done a bit better – up 20%. But the real winner is Lion Trust, the London-based manager has had a cracker. The firm is up 85% over twelve months and is at five years highs.
Advertising is back on the streets of Hong Kong. CSOP is keen on gold, offering investors the chance to double up.
If that is not enough excitement for the crowd, China AMC is pushing its NASDAQ 100 (-2x) product. That must be a white knuckle ride.
Until next week…
