Posted inFSA Spy

The FSA Spy market buzz – 15 September 2023

Water dreams across the world, AI vs Humans vs Index, Arm gets the animal spirits going, Brussels has a go at China – again, watching the debt rise, advertising, Bloomberg’s Economics and much more.

Over several glasses of a big bold Bordeaux wine, Spy and a wealth manager, in town from Singapore, set the world to right this week. After economics, politics and the markets had been put to bed, conversation turned to the Rugby World Cup taking place in France.  He argued, “Rugby is like investing, correct?” Spy let his host’s vivid explanation take place, “The forwards tend to be the larger and stronger players. Their role is to get hold the ball and protect it. The backs tend to be small but faster. Their job is to use the ball, won by the heavy forwards, and then score tries (points).

This is a bit like the roles of bonds and stocks in a diversified portfolio. Like rugby forwards, bonds don’t tend to move that quickly. They’re defensive by nature, however without them in your portfolio, you might not see much of the ball. Equities are much more like the quick backs. They move around a lot more. But they also keep your financial scoreboard moving higher.” And there was Spy thinking it was all about running around madly for 80 minutes and then drinking beer. 

‘Water, water everywhere and not a drop to drink’. Samuel Taylor Coleridge’s words from his famous poem, ‘The Rime of the Ancient Mariner’, sprang to Spy’s mind this week and not simply due to the torrential rain of late in Hong Kong. Cerulli, the consultancy, reckons that more than $35bn is now invested in water-themed ETFs and mutual funds at the moment but that is due to jump even higher as water-related investments have outperformed the broader infrastructure market. Over the past 10 years, the S&P Global Water Index had 10.1% annualised total returns, compared with 5.5% for the S&P Global Infrastructure index and 8.6% for MSCI ACWI, according to Cerulli. For those investors who favour more than just swimming in or sipping the crystal waters, perhaps a little dip in the investment ‘pool’ beckons?

Who would perform better: AI, humans or a passive index? Spy was rather amused to see a report that Finder, a comparison website Down Under, decided to do a test. Their researchers asked Open AI’s ChatGPT and Google’s Bard to create a stock portfolio and then tracked how the portfolio did versus the top 10 human-managed funds in Australia over three months. The best performer was Bard with a 19-stock portfolio: it managed an 8.2% return. The runners-up were the average of the 10 human-run funds, which rose an average of 6.3%. ChatGPT came in third, bringing a mere 4.21% rise. But here is the sting the in the tail: Kylie Purcell, Finder’s investment guru, observed that the basic S&P 500 US index was the real winner, with a 9.3% return during the same timeframe. Ouch!

Does the successful IPO to the Nasdaq of British chip designer Arm herald a new listings bonanza? Arm rallied almost 25% yesterday closing at $63.59 after listing at $51. This might give bullish dealmakers the courage to push for more listings in what has been a rather thin year. Spy supposes the good news for tech and growth-focussed funds is that they need a “story” to tell the market and now they have one. As Sherlock Holmes might have put it, “The game is a-foot, Watson”.

Experts eh, who wants them? Spy was amused to see a reminder of a forecast that came out just under a year ago that had given an improbable 100% certainty of a US recession by the Bloomberg Economics team. Well, a year later and that recession is still not here.

The bureaucrats in Brussels think they have found another reason to have a go at China, reckons Spy. This week it wants to investigate China for making electric vehicles too cheaply. There really is no protectionist measure the supposedly “open market” EU won’t throw at the Middle Kingdom at the moment. On some issues, Spy may have a modicum of sympathy, but on this – nada, nothing, zilch. Germany and France have both been woefully slow to adapt to the EV revolution, that is fundamentally a digital one. Heavy investment in new digital systems that drive cars themselves and radically alter manufacturing processes have been going on in China for years. When Germany still uses fax machines as part of its healthcare system, one can’t doubt the country remains analogue in far too much of its thinking. This one is absolute nonsense. Spy for one, believes that Chinese car companies will continue to manufacture and export record numbers of cars having recently overtaken Japan as the world’s largest vehicle exporter per month.

Watching the US debt pile grow is like watching an accident in slow motion. Well, that is what Spy used to think. But ‘slow’ is not the right word any longer. The US National Debt has now increased by $1.51trn since the debt ceiling was suspended just three months ago and it is now fast approaching $33trn. In the past five years the national debt has increased by 54%, moving from $21.45trn, up to $32.98trn.

Spy’s photographers have spotted a new campaign in Hong Kong and Singapore this week. In Central and on the MRT on Singapore, Franklin Templeton is out pushing its new SmartIncome theme with a series of brain teasers. Spy has seen the campaign emerging online, too, and it has the benefit of novelty.

Until next week…

Part of the Mark Allen Group.