The FSA Spy market buzz – 04 September 2018

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BNY Mellon IM hires; Truth on politics; Lehman’s 10-year ‘anniversary’; Active management; Blackrock parties; Commodities speculation; Regulator arbitrage and much more.

The FSA Spy market buzz - 06 April 2018

Do you want to learn how to build a financial centre? Spy recommends a careful study of Singapore. According to Cap Gemini, Singapore, which by any standard was a sleepy financial backwater in the 1990s, had $2trn (S$2.7 trn) in assets under management by 2016. That has surely ballooned even further in the last two years. What does it take? One could argue that shiny new buildings, some Michelin-starred restaurants, the occasional Formula 1 race to add some glamour and a decent set of travel connections is enough. However, as appealing as those baubles are, the real trick is ease of doing business and tough regulations. This week, Spy pondered this fact over a simply superb bottle of Giacomo Conterno, Barolo 2004 with a portfolio manager who has been based in Asia for 27 short years. Said illustrious PM and Spy were discussing two nearly identical recent cases of unlicensed portfolio management – one in Hong Kong and one in Singapore, which ended up with very different outcomes. Fonia Kwok in Hong Kong and Lee Chang Yeh in Singapore both managed money without a license and both lost roughly $300,000 for their clients. Fonia has been given a tummy tickle and a little slap on the wrist by the SFC: a mere twelve months industry ban. Chang Yeh, in stark contrast, has been given a hard-as-nails-don’t-you-dare-think-about-doing-this-again twelve years ban by the MAS! When Spy asked for an on-the-record-comment about the two cases from his experienced companion, the PM merely shrugged his shoulders, refused and changed the subject. The unspoken rule, that nobody publicly criticizes the regulators in Asia, lives on. However, Spy knows that the MAS attitude is going to win in the long run. Tough regulations actually attract real money rather than push it away. Expect that $2trn in Singapore to double in the next few years – reckons Spy.

BNY Mellon Investment Management has made a high profile hire in the form of a new chief economist. The American multi-boutique investment giant has created a new role for Shamik Dhar, who is charged with overseeing the asset manager’s research and analysis capability. Shamik, based in London, has joined from the UK’s foreign and commonwealth office. BNY IM is the parent company of Insight Investment, Newton and Walter Scott, among others. Newton has had success in the last year with its Global Equity Fund which is up nearly 13%.

Spy has had a fair share of difficulty getting hold of people in Hong Kong this week. A remarkable number of contacts seem to be in Singapore at the Milken Institute’s Asia Summit. For sure, it is a worthwhile gathering of the great and the good, however, the fact that the Singapore Formula 1 takes place this weekend in the Lion City, must help the attendance a tad. One speaker at Milken this week was Kirk West, the Asia CEO of Principal Global Investors. In a directly honest op-ed for the conference, Kirk included this acute observation, “In Asia, politics matter. Many of the people amassing this increasing wealth are on good terms with their governments, but they recognize that those good terms may not last forever. This is to say that in emerging Asia, there’s a track record of people amassing wealth that later disappears because they’ve moved into the wrong position politically.” If former Prime Minister Najib of Malaysia could read this, he might be nodding sagely, reckons Spy.

Are we about to see a recovery in commodities? It has been a torrid twelve months for just about every manager in the space, who must be wringing their hands in despair. According to FE, of the eleven actively-managed commodity funds available in Hong Kong, not one of them is positive over the last twelve months, with some down a painful 25% or more. Spy has little more insight on commodities than the next fellow, but he heard an interesting thing this week. Long time commodity specialist, First State Investments, is sticking with its decision to liquidate its fifteen year old Global Resources Fund, which it announced earlier this year, in early December. Along with many other commodity funds, performance has been a real challenge. However, Spy notes that the adage goes: when the last bull in a bear market, throws in the towel, that might mean the nadir is finally in (The reverse is often true, too: when the last bear throws in the towel, a bull market typically peaks). It can’t have passed everyone by that oil went over $80 a barrel this week… Is this decision by the Australian group the equivalent of a margin call at the very bottom? Time will tell.

It has been about ten years since Lehman Brothers collapsed (on September 15). That catastrophe is indelibly marked in the brain of anyone who lived through it. M&G’s Bond Vigilantes wisely point out that “Few people would have guessed right after the collapse of Lehman Brothers, ten years ago this week, that a golden decade for bond investors laid ahead – but it has happened: as many as 92 of the 100 fixed income asset classes tracked by Panoramic Weekly have delivered positive returns, with 17 of them offering triple-digit returns.” Few people predicted the collapse and few predicted the recovery! Experts, eh, who needs ‘em?

Spy’s quote of the week comes from James Grant, the publisher of Grant’s Interest Rate Observer. “Markets are not perfectly efficient. Because the people who operate them aren’t perfectly reasonable. There will always be value in active management. It keeps the market honest. Active managers bid for companies that have been punished unjustifiably… And they apply selling pressure on egregiously overvalued, fraudulent and dying companies.” Hard to disagree, reckons Spy.

Spy’s invitations appear to be getting lost in the post at alarming pace. In Singapore, Spy’s colleagues spotted a Blackrock party taking place at Altitude One, to which Spy was, sadly, not invited.

 

Until next week…

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