Posted inFSA Spy

The FSA Spy market buzz – 15 October 2021

Goldman Sachs’s green costing; Hydrogen ETF; PGIM’s megatrends; The market’s hardest lesson; Supply chain woes; Putin’s crypto endorsement; Advertising from BNY; and much more

The news broke last night that Microsoft is capitulating to the inevitable and shutting down LinkedIn in China due to regulatory hurdles that have simply become too high. As Spy mused over this development with a double espresso this morning, he could not help but feel ambivalent on the decision. On the one hand, Chinese businesspeople will now be spared the inanity of people broadcasting their daily micro-achievements for all to see. Surely a blessing. On the other hand, China feels more and more like a country that is in full scale retreat from life’s global public conversations, no matter how insignificant. Sitting in Hong Kong, it is hard not feel a further chill from this rather unwelcome decision.

So, you want to save the world. You want to go Green. You want your kids to have a brighter, less carbon crazy future. You want to tell everybody on Facebook about your eco-credentials. But, and this is starting to look like a very big but, do you want pay for it, wonders Spy? This week Goldman Sachs’s chief operating officer, John Waldgren, speaking at the Institute of International Finance conference, said that the cost of decarbonising the global economy to sustainable levels is going to cost at least $100trn. $100 trillion! That money is going to come from private markets of course, and investment funds will be playing their part. Consumers, however, are just beginning to get a hint in the current energy crunch, that they are going to be paying for it, too. The transition to different or more efficient energy sources is not going to be cheap; certainly not in the short term.

Speaking of clean energy, ETF Securities in Australia, has launched an ETF to give Aussies and other investors in Asia the chance to back the hydrogen horse. The snappily named, ETFS Hydrogen ETF, follows the Solactive Global Hydrogen ESG Index which tracks stocks in the industry that have at least $100m in market capitalisation. The fund uses a form of AI to help with stock selection, naturally. Australia’s government, with one eye on its massive coal reserves, has been dragging its feet on climate change commitments. If the fund raises plenty of assets it will perhaps be proof that the Aussies themselves are thinking far ahead of their government in this regard, reckons Spy.

Everyone loves a good megatrend, Spy included. PGIM has updated its megatrend outlook and done it in a rather beautiful fashion. Among many thoughtful ideas affecting the future and covering a wide range of topics, PGIM’s analysts commented on robo-advisors. It is so good, it is worth quoting in full: “What began as a potential revolution in wealth management fizzled out as tech-savvy incumbents captured all the innovative elements of robo-advising. While robo-advisors offered customers attractive digital interfaces, they lacked access to distribution networks and found it hard to scale up to a profitable business. Instead, incumbent wealth management firms either acquired or built their own robo-advisors, targeting mass affluent customers, who couldn’t be profitably served by their traditional wealth management arms and younger customers, who are more accustomed to digital-first interactions.” Absolutely spot on.

One of the single hardest lessons for any investor to get their head around is that expectations in financial markets matter more than current reality. Markets look forward and they value the future more highly than the current and certainly the past. As it is Friday, let’s do a little thought experiment. Would you prefer to own a company that makes, for example, $106bn per year or one that makes just $2bn per year? The one that makes $106bn happens to have annual sales of $365bn while the $2bn fellow turns over a meagre $42bn. Yes, Spy is talking about dull behemoth Berkshire Hathaway versus media darling Tesla. Berkshire’s market cap: $637bn while Tesla hit $817bn this week. Pin this up on your wall and give it to your kids.

Spy can almost smell the panic emanating from central banks’ board rooms. The inflation genie is raging across the world and their calm assurances that this is all some passing phase is beginning to look as wrong as IBM’s president, Thomas Watson, who said in 1943, I think there is a world market for maybe five computers.” China’s PPI came in at 10.7% yesterday while energy prices surge across the world as supply constraints batter markets. Spy ran the expression “supply chain problems” through Google Trends and unsurprisingly the search term has just hit a 5-year high worldwide. For a world that has gorged on cheap debt, especially to finance more and more expensive real estate, a nightmare of generational proportions is brewing as interest rates start to rise. Transitory inflation, poppycock!

Vladimir Putin is seldom the trading community’s best friend. But for the crypto crowd, the authoritarian, muscle-bound, horse and wrestling enthusiast, became a guardian angel this week as he formally endorsed crypto for payments, even if he thought oil was still unlikely to be purchased in crypto. Here in Asia, Standard Chartered’s CEO Bill Winters is betting on crypto and the rumours get louder and louder that a futures ETFs is nearly here for Bitcoin. Spy can’t help but notice China really does seem to be out of sync on this one. Having missed out on capitalism for a good chunk of the 20th century, Spy can’t help but wonder if it is about to make another historic mistake in the 21st.

In Singapore, Spy’s beady eyed photographers have spotted a new consumer campaign by BNY Mellon IM. The manager is talking about its 85 year old heritage, its $2.3tn of AuM and about seeing the world through the eyes of an investor.

Until next week…

Part of the Mark Allen Group.