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The FSA Spy market buzz – 23 December 2022

Year-end wrap up, predictions for 2023, best award entry, various musings and not much more.

This is the last Spy column of the year. And what a year it has been. Certainly, one to forget, as far as markets are concerned. Usually, the industry gets to the Christmas period and can look back at 12 months that have passed with some satisfaction. The real success in 2022 has been in surviving to fight another day. Any hopes for some year-end respite was rather brutally squashed as Wall Street swooned yesterday dramatically. A late afternoon recovery was not enough to put us in the green. It was a stark and rather horrible reminder that confidence is razor thin. The interest rate outlook around the world remains bearish – higher for longer is the pitiful projection. Closer to home, China is battling a massive Covid wave with the ever-present threat of more supply chain disruption. Meanwhile in Europe, Putin’s war in Ukraine rumbles on pointlessly, violently and painfully while a bitter winter descends on the region.

And yet, despite all that, Spy remains an optimist. It was Schroders’s Nick Kirrage, co-head of the global value team, speaking at a Bonhill conference in Cape Town a few years ago, who said, “To be long gold, is to be short human ingenuity. In the long run, it has seldom worked out.” Spy has never forgotten those wise words. Just as the gloom is descending, someone, somewhere, is dreaming up an innovation, an idea, a business, a plan that will take humanity off in another fruitful direction. People seldom sit at home in a crisis and ‘do nothing’. Many great businesses were forged in recessions. To name a few: Microsoft (1975), AirBnB (2008), GE {General Electric} (1876) and, of course, Disney (1929). Next year will be no different. The next great S&P 500 behemoth is probably sitting in a little garage, or on a kitchen table, just waiting to get going.

For what it is worth, here are Spy’s top 10 predictions for 2023 in no particular order.

  1. The ESG backlash will become even more political in America, which will positively lead to far better analytics and classification of ESG criteria. Particular focus on governance is going to emerge.
  2. The equity markets are going to have a horrible H1 and follow on with a powerful rally in H2 as interest rates peak and then are slashed rapidly.
  3. Alternative asset managers are going to have a year in the sun, as far as asset raising goes. People will scramble for exotic strategies that promise the world and which probably won’t deliver the returns implied or hyped, but it won’t stop allocators throwing money at them.
  4. Hong Kong is going to steadily recover from its worst period in decades but, unfortunately, 2023 will not be enough to see it regain its former glory. In fact, that remains at least five years away.
  5. The ratio of ETFs launched compared to mutual funds launched will continue to rise and rise. ETF launches will outweigh mutual funds 10:1 or higher as the ETF juggernaut rolls onward. Active ETFs will attract better flows.
  6. Singapore’s family office scene will get even more vibrant. The momentum in the Lion City to become THE global hub for family offices outside of Europe, will, if anything, pick up speed.
  7. Bitcoin will trade below $10,000 before May 1st.  Most of the market will shrug because only the die-hard holders will be left talking to each other in a tumble-weed strewn Reddit chat room.
  8. The oil price will dip back below $50 per barrel as supply ramps up and demand sags.
  9. Warren Buffet will continue to get quoted even more often than usual despite Berkshire’s own performance meandering along subpar.
  10. France will win the Rugby World Cup, beating South Africa in the final in Paris, avenging their Football World Cup loss to Argentina.

If, as we hope many of you will, you enter FSA’s annual fund awards in 2023, Spy has some practical year end advice. Telling the FSA judges, as one group did this year, that “their big advantage over their competitors is they don’t have anyone on the ground in Hong Kong, so they can take a more detached approach” is unlikely to win too many favours or hearts. Further, bragging that your average portfolio manager’s age was a mere 33 years old comes across as a tad ‘ageist’ and also unlikely to sway the more grey-haired and experienced judges.

And, on that happy note, Spy and the entire FSA team thank you for reading us and your ongoing support. We wish you all a very Merry Christmas and happy, healthy and prosperous New Year as we head towards the Year of the Water Rabbit.

Until 2023…

Part of the Bonhill Group.