What do Carrie Lam and Angela Merkel have in common, wonders Spy? They both regret nothing it seems. Even Frank Sinatra had a few regrets! The retired Iron Lady of Germany was on stage this week telling anyone who would listen that she felt cosying up to Putin and buying all his oil and gas was her only choice.
Meanwhile, here in Hong Kong, Carrie Lam in her swansong speech assured her fellow patriotic lawmakers that she regretted nothing from her term in office, either. Apparently crushing Hong Kong’s independent spirit was entirely the right thing to do.
Spy thinks history may judge these two women a touch more harshly than their current self-confidence would imply.
In times of market volatility, often the best thing to do is, in fact, to do nothing. But that does not mean asset managers can say nothing. Spy has spent a few days looking at what asset managers are putting out in their Insights and has been surprised, and enthused, by some of the candour.
First up, take Eastspring’s chief investment officer, Bill Maldonado, who writes, “Separately, policy error is a key risk, be it excessive rate hikes or China’s zero Covid strategy. While policymakers in the past may have dealt with these risks separately, it is the confluence of these risks which is unprecedented. This means that policymakers have no similar experience to rely on.” This strikes at the heart of the current dilemma. Dammed if you do, dammed if you don’t for many policy makers.
Or how about Jupiter’s Jason Pidcock, fund manager and head of strategy, Asian income. He writes, “I am happy to invest in sectors that some others avoid. The strategy’s largest holding is an oil and gas company, the second largest is a mining company and the third largest is a tobacco company. This year, many sectors that ESG-labelled funds have been ignoring, have had strong performance…If a company has good governance, obeys the laws, and supplies goods or services that people need and are happy to buy, that is what is important to me.” Spy bets many ESG managers must look on with green-eyed envy at that freedom.
Did you hear about the ESG managers who could agree on what an ESG score is? No, neither did Spy. ESG continues to be fraught with challenges, not least of all deciding what should qualify in the first place. Hat tip, therefore, to Vontobel’s Chris Bowie. He has spent some time helping his investors understand how Vontobel does it and why the ESG threshold to invest in a stock is actually so very low. Chris looks at controversies such as Tesla or why Coke can’t win on ESG. With the well-publicised controversies DWS has had with greenwashing, a valid and testable ESG scoring system is surely more important than ever?
What funds are people buying in Hong Kong? Taking a peek at Hang Seng’s bestseller list, nine out of the ten funds listed are all flavours of income and dividend funds. No change there. The one anomaly? BlackRock’s World Energy Fund. The contrarian in Spy would like to think this represents the retail investor coming late to the party and buying just when oil is at its peak. Sadly, the longer the war goes on in Ukraine, we are unlikely to get much relief soon and for once the retail players might get rewarded.
Is that the sound of fluttering wings Spy hears? The term “fallen angels” means a corporate bond that started out as a member of the investment grade universe (typically rated BBB) but has dropped down into the high yield universe (typically rated BB). iShares has an ETF for that, the Fallen Angels USD Bond ETF, and over the last year, it has fallen from its peak by nearly 20%. A recent bounce has not done much to assuage the worries that the corporate debt market looks seriously wobbly at the moment.
The next time someone asks you what the most powerful trend in the investing universe is, it might be appropriate to recall Jack Bogle’s fine words, “Reversion to the mean.” Sustained outperformance over time is incredibly hard, one might even say impossible. Have a look at Ark Innovation vs Commodities. A few years ago, you could barely give away commodities and Ark was on a lunar trajectory. Since the beginning of 2021, Ark is down a brutal 71% and commodities are up a whopping 89%. That is just mean. Reversion or not.
Is Bitcoin a penny stock? Bitcoin’s market cap, or whatever you want to call the cumulative value of the crypto, is about $600bn. Does a $600bn dollar company gyrate 10% a day three or four times a week?
Janet Yellen, the US Treasury Secretary tried to soothe investor’s and ordinary people’s fears about a recession ahead, assuring everyone that she really did not think we are all in for one. Spy’s question for those who believe her: When has a US Treasury Secretary ever said “We think there is a recession ahead.” Jamie Dimon’s “an economic hurricane” might be a touch more realistic.
If you are thinking of moving from Hong Kong to Singapore and you enjoy driving a car, hold on to your hat. The Certificate of Entitlement, the ten-year license required to purchase a vehicle, for a standard family car was above S$100,000 ($72,000) this week. It seems high oil prices are not doing much to dampen motoring enthusiasm in the Lion City.
Are economists’ views worth anything at all? Spy seems to be getting mixed messages from one the world’s most venerable financial newspapers, the Financial Times.
Until next week…
