Posted inFSA Spy

The FSA Spy market buzz – 1 April 2022

Healthcare tech; ESG and charities; Traders moving; Blackrock’s price cuts; Hong Kong’s equity fund woes; Jobs rebound; Stock market quiz, Adult Spacs; Trade deficits and much more.

Spy almost feels sorry for Germany and the EU. They have been left with a dilemma of epic proportions. The block has made itself utterly dependent on Russian oil and gas, and now faces the prospect of taking aim and then shooting itself in the foot in order to hold on to any moral high ground. Putin’s war in Ukraine may be going badly, but Germany, the economic driver of Europe, faces a chronic recession if it refuses to buy energy from its aggressive neighbour. Now Putin is demanding payment in roubles, upping the ante. The choice has become quite simply: roubles or recession. Every now and then a geopolitical moment occurs when the world tilts on its axis and nothing is quite the same again. Spy, for what it is worth, is convinced we are witnessing one right now. Sadly, this isn’t an April Fool.

Spy is not aware that the world needs yet another healthcare technology ETF, and under normal circumstances he would not even bother to share the launch news. However, long suffering readers know Spy loves a good ticker and this one ticks the box. First Trust Advisors has launched the First Trust Nasdaq Lux Digital Health Solutions ETF, which is a bit of a mouthful, but its ticker is simply EKG. Anyone who has had to endure even five minutes of a soap opera knows that sooner or later someone is going to yell “We need an EKG” in the hospital room scene. Naturally the fund will be investing in, eh, bleeding edge tech.

Sometimes it needs saying in plain language. This week, Spy tips his hat to Natalie Wallace, Natixis IM’s global sustainability chief, who was reported by Financial News in London, as saying, “ESG is not a charity”. Quite right too! If we are going to ask investors to put their money into ESG products, the returns have to be there or, quite simply, human nature being what it is, they will quietly withdraw their money and go elsewhere. Appealing to people’s better nature, may get them through the ESG door, returns will help them stay there.

Will the last trader to leave Hong Kong, please turn off the lights? Apparently SocGen is the latest bank to “temporarily” move key trading staff to Singapore from Hong Kong. Milton Friedman, the economist, used to say, “There is nothing so permanent as a temporary government measure.”  Spy can’t help but see the parallels. Some banks such as JP Morgan have also announced shifts to Singapore, more are simply doing it under the radar. As the old saying goes: follow the money.

Is it possible to make giant ETFs even cheaper? Blackrock seems to think so. In a brutal move this week for its competitors, the world’s largest issuer of exchange-traded funds chopped the expense ratio on the $85bn iShares Core US Aggregate Bond ETF to just 0.03% from 0.04%. If Spy’s maths is correct, that is a 25% cut in the fees.  Blackrock did not stop there; it also slashed the fees by 50% or more on the iShares MSCI USA Multifactor ETF and iShares MSCI International Multifactor ETF. Fee pressure on funds remains relentless.

Everybody knows Hong Kong has had a tough time during the last few years. Spy took a look at how locally available Hong Kong equity funds have fared. The numbers do not look pretty at all. Over the last 12 months, every single one of the 73 Hong Kong equity funds (including various share classes) tracked by Morningstar is negative. The best performer is BOCIP Hong Kong Value Fund Class A, which is just below flat. Manulife Global’s Dragon Growth Fund has had a torrid time; it is off 35%. Even looking back three years, performance does not improve much with only a handful of funds in mild positive territory. They say a picture paints a thousand words, in this case a fund table does so too.

Little rumours are reaching bulletin boards that tech start-ups in the US are suddenly reducing head counts at pace, as some grandiose high-flying ambitions fall back to earth. Still, those recently laid off can take some comfort from the following stats. In the United States, 20.1 million private sector jobs were lost in early 2020 during the pandemic shutdowns. 20 million jobs have since been added back. The greatest jobs comeback in US history is nearly complete. It only cost about $10trn to achieve this, but credit where it is due, the American economy sure knows how to bounce back.

Shall we all play a party game? What is the worst performing stock market in the world in the first quarter? If you guessed Russia, no extra glass of champagne or cognac for you. It is in fact an Asian market, Sri Lanka, down a heart-breaking 49%. Russia closed down 35% and Egypt followed down 19%. This has not been a great quarter for markets all around the world, to be fair. The US has just suffered its worst quarter in two years, too.

As the Spac boom fizzles out, one company is still hoping to cash in with a very generous valuation. The firm turns over about $1.2bn, of which about half of that is pure profit. You would think Spacs would be queuing up to write a huge check. The only problem: the company in question is OnlyFans, a pornographic adult service, which thrived during lockdown. People may like to pay for late-night titillation and entertainment, but investing in it publicly makes them far queasier. Spy hears that Wall Street is finding it hard to shift this one.

Do you remember Donald Trump’s “trade wars are easy to win” quip? The Donald may not wish to see the latest trade deficit numbers. The US recorded its largest ever deficit in February: $90bn. It seems that buying goodies from Asia is utterly hardwired into America’s economy and all the bluster in the world is not going to change that, any time soon.

Until next week…

Part of Mark Allen.