The FSA Spy market buzz – 16 August 2019

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New funds on FSM One; Structured ETFs; Tariffs sanity from Matthews; Central bank holdouts; CPF Board lack of choice; Falling in love; Bank run as a protest; no advertising and much more.

Spy has communed with two rather deluded individuals this week who, nonetheless, each had impeccable taste in beverages. On Tuesday Spy lunched with an asset management sales director, who confessed, over a chilled glass of finest Montrachet, that he was thinking of joining a private bank, “because selling funds in this climate is so hard, I would rather be with the distributor and advise clients – more certainty.” Over dinner and a bottle of Brunello last night, with a fairly prominent private banker involved in fund selection, the woman confessed she was “seriously thinking of joining an asset manager because wealth management is so fickle and clients chop and change their minds week-in, week-out.” Those green wealth and asset management fields adjacent to each other do look so very verdant from either side, mused Spy.

News reaches Spy that Morningstar has added to its comms team. The global data firm has hired Imogene Wong to bolster its PR outfit in Hong Kong. Spy can only compliment Morningstar on their taste. Imogene was previously at the Hong Kong Investment Funds Association, but prior to that she was a Fund Selector Asia journalist, where she honed her writing and fund analysis skills.

Singapore’s leading retail fund platform, FSM One, added another 22 funds during July. JP Morgan Asset Management, Blackrock, Janus Henderson, UOB, HSBC Gam and Nikko Asset Management were all added to increase the choices for Singapore consumers. Many of the 22 products were new share classes of existing funds, as Sing dollar-hedged varieties continue to flood the market. Spy is not surprised that many want to protect their Sing dollar returns – the Sing has, after all, been one of the best performing currencies globally in the last decade.

Spy has been hearing from a number of private banks in Asia that they are creating structured products with funds. Innovator, a US ETF provider, has cut out the middle man with a range of structured ETFs. In August, the firm launched its S&P 500 Buffer ETF which, according to their blurb, “seeks to track the return of the S&P 500 Price Return Index, up to a predetermined cap, while buffering investors against the first 9% of losses over the outcome period. The ETF can be held indefinitely, resetting at the end of each outcome period, approximately annually.” What are the chances of the S&P 500 falling more than 9%? Well, based on the last week’s volatility, Spy would put the odds at a lot higher than 50/50.

There is an extraordinary amount of rubbish written daily about the trade war – largely a media term anyway. Spy was pleased to read a sane take on China / US tariffs from the CIO of Matthews Asia, Robert Horrocks. He wrote, in a sensible blog piece, “[T]he rhetoric of war is a totally false way of looking at trade. The real hold that the U.S. has over foreign companies is largely in the finance sector – the denial of banking licenses in the world’s largest financial markets, for example, is potentially crippling to some banks. For the most part, however, trade links are intertwined – a trade war is really like two duellers standing apart, facing each other, and shooting themselves in the foot.” Spy can’t think of a more apt analogy.

The CPF Board in Singapore seem to be very happy with a rather limited number of funds for CPF investors to choose from. At last count there were only 80 different funds authorised for sale and they come from a small pool of asset managers, merely 18 of them. Whilst Asia and emerging markets and, indeed, single country funds are plentiful, Spy notes a near dearth of US large cap or US tech funds. A bit of a shame since those have been the best performing part of the market for the last few years. On the flip side, CPF must be one of the few pension overseers who actively encourage investors to add a bit of gold to their portfolios. That may well come in handy in the next few years, reckons Spy.

What do Canada, the Czech Republic, Norway, Sweden and the UK have in common? Out of thirty one central banks, followed by Spy, those five are the only ones whose last move in interest rates was up, not down. How much longer before these five holdouts capitulate to the tide of rate cutting sweeping the world? Spy would bet less than a year. The desperate hunt for yield will continue pushing investors to ever more exotic parts of the market.

“Fall in love with a pretty girl but never a stock” was the sage advice given to your starry-eyed Spy aged eighteen. Those sound words of admonishment came back to Spy this week as GE, or General Electric to its long-time stockholders, crashed to a market cap of only $70bn, 88% of its high. In 2000, GE was worth $600bn and was the world’s most valuable company. You would have been hard pressed to find a bear at the time; it was loved widely. Those rose-tinted glasses did investors no favours over the last two decades. For all those investors in love with the $1tn club now, GE offers a salutary lesson in not holding forever.

It is a novel way to protest, that is for sure, thinks Spy. Prominent Hong Kong independence activist Chen Haotian is calling for people to withdraw all their money from Chinese banks in the SAR, hoping to prompt bank runs. He even called for people to do the same for non-Chinese banks lest the Chinese ones simply borrow money from the others. Spy is fairly sure that the PBOC will supply infinite liquidity to prevent an artificial run on banks in Hong Kong, rendering this particular protest moot, should any fanatics decide to heed Mr. Chen’s call. Still, it is a sign of the times that such desperate measures are being called for.

Spy and his band of merry photographers have found few new adverts of mutual funds in Hong Kong of late. Spy supposes that a Federico Fellini-style mist-shrouded advert which conjures a hint of romance is preferable to a tear gas shrouded advert conjuring a hint of menace. No wonder the advertisers have stayed away…

Until next week…

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