Posted inFSA Spy

The FSA Spy market buzz – 1 March 2024

Norse mythology and leveraged ETFs, Hong Kong gets real, The Economist’s contrarian cover, The stock market and fads, Schroder’s results, Flying taxis in China, Rising rates and rising markets, Advertising and much more.

“This week we have the Singapore government to thank for giving us an opportunity to talk to clients,” a wealth manager in the Lion City said to Spy over the phone. “With the changes announced to the CPF scheme, which will remove the so called ‘Special Account’ for the over 55s, which currently pays a risk free 4%, we will have a chance to have some interesting retirement planning conversations.” This rather unexpected announcement by the Singapore government has certainly ruffled a few feathers locally but change always bring opportunity for the nimble.

In Norse mythology, if Spy’s memory is correct, a Valkyrie is a female figure that guides the souls of the dead to the god Odin’s afterlife hall, Valhalla.  This fanciful ancient tale sprung to mind when Spy came across a new ETF launch in February by an asset manager named Valkyrie. “The Valkyrie Bitcoin Futures Leveraged Strategy ETF (BTFX) seeks to provide daily investment results, before fees and expenses, that correspond generally to twice the performance of the S&P CME Bitcoin Futures Index Excess Return for a single day, not for any other period.” With Bitcoin already showing dramatic volatility, only the greediest trader would need to try and double its daily return. Spy thinks it is far more likely that the Valkyrie will guide one’s evaporated brokerage account to the depths of hell than the hallowed halls of Valhalla, should one be foolish enough to dip into this pond.

If the first road to recovery, in any situation, is recognising that there is in fact a Problem (yes, capital P) in the first place, the Hong Kong government should be applauded. In its most recent budget, the government is pulling a number of levers, especially tax breaks and grants, to make Hong Kong a highly attractive location for asset managers, family offices and wealth management firms. The last five years have seen Hong Kong’s reputation take a battering and intense regional competition, especially from Singapore, erode the city’s leadership.  Whilst the Fragrant Harbour can’t control the swirl of geopolitics that have dampened Hong Kong’s appeal, it can lay out the welcome mat and state in no uncertain terms it is open for business.

The contrarian in Spy spotted the latest cover of The Economist magazine and wondered if it heralds a change in the weather. Famously, or perhaps, infamously, by the time Forbes, The Economist or Time Magazine features a theme or person on its cover, the hype is at its peak and the bubble tends to burst. Perhaps this time is different?

In the short term, the stock markets tend to reflect optimism over a new idea, a trend or a theme. In the longer term, the stock market will tell you the truth about the genuine attractiveness of those ideas, trends or themes. With that in mind, Spy humbly submits that the world is not going ‘vegetarian en masse’ any time soon. Beyond Meat, is a company that promised to make veggie burgers and sausages mainstream. In 2019, the firm had its IPO at $25 a share. They rapidly peaked at $239 and today trade at just 10 bucks. The losses just keep coming for the firm. In 2016, it bled $25m, by 2020 it was $53m and in 2023, $338m. Past performance is not an indicator of the future, but if the “trend is your friend”, beef steaks, pork chops, chicken wings and lamb cutlets are going to be on our menus for years to come. The market has spoken.

Schroders’ results were out this week and the British firm showed resilience with its AUM rising to £750bn ($947bn) from £737bn a year earlier. Spy was particularly interested to see the firm’s reduced profitability in its joint-venture businesses, particularly from China. The firm commented: “Our total share of profits from asset management joint-ventures and associates for 2023 reduced to £48.7 million (2022: £73.6 million), principally due to adverse foreign exchange movements and the unfavourable market sentiment in China.” Nonetheless, the manager remained upbeat on the future, “With the breadth of our licences in China, and our investment in India we are well positioned to benefit from the long-term potential growth in these markets.”

Spy’s feel good story for Friday comes out of China. Apparently, Shanghai Autoflight Co. Ltd, which is developing air taxis, has completed the inaugural demonstration of a vertical take-off, subsequent successful flight, and comfortable landing, between Shenzhen and Jiuzhou Port. The journey in a five-seat vehicle named “Prosperity 1”, that looks like a giant drone, took just 20 minutes, when by car it would usually take as long as three hours. That is the kind of progress we love; the future is being created all around us.

Do rising rates hammer investment returns? It is clearly not a given. The S&P 500 is now 17% higher than where it was when the Federal Reserve started hiking rates in March 2022.

Spy’s quote of the week comes from Alvin Toffler: “The illiterate of the 21st century will not be those who cannot read or write, but those who cannot learn, unlearn, and relearn.” Nailed it.

Spy’s photographers have had little new to photograph of late. This Schroders creative was spotted in Hong Kong this week. The company is promoting its Dynamic Income Fund, with Spy assuming the waterfall acting as a metaphor for those juicy income flows.

Until next week…

Part of the Mark Allen Group.