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The FSA Spy market buzz – 17 January 2020

Avrio gets a license; AAM hires; Morgan Stanley triumphs; Pimco’s ESG variation; Losing money on Wall Street; FSM One’s promo; Moody’s on China; advertising and much more.

As usual, Spy’s ticket to Davos has been lost in the post and therefore Spy will not be joining the billionaires of the world in Switzerland for some schmoozing, boozing and snowboarding. Spy did, however, have a drink this week with a CIO based in Hong Kong who is attending and has done so on numerous occasions. “Aren’t you a touch worried that Davos represents everything that Extinction Rebellion, Greta Thunberg and just about every other activist with an ‘ism’ on the planet despises? Inequality, excessive pollution, elitism etc, etc”, queried Spy. “You can run around the world complaining or you can go and find solutions and investment opportunities. For all its apparent hypocrisy, the people in Davos have the money to move things forward. I for one, would rather be part of the solution than just a complainer,” argued the CIO. With hamburgers costing nearly $50 in Davos, at the very least a little redistribution of wealth will be taking place, supposes Spy.

In the Lion City, financial advisory licenses have been as hard to find as a gin and tonic for less than $15. The Singapore government has been notoriously tight-fisted with these licenses as opposed to capital markets licenses, which have proven easier to get. Spy heard news this week that start-up firm Avrio has just been granted a new FA license. The man behind the company is Andrew Talbot, who was previously with Globaleye in Singapore. He has two other team members who have joined him. If Spy’s classics studies back in pre-history is correct, Avrio in Greek, means “planning tomorrow”. How apt.

AAM Advisory, Quilter’s Singapore-based advisory firm, announced this week it had hired a new head of investments, including fund selection. Shreemati Varadarajan has joined the business, replacing Dave Agar who moved to St James Place last year. Shreemati was previously group CIO of Globaleye.

Just before Christmas, Pimco added another smart beta ETF to its range. Many “smart ETFs” have been launched in the last 12 months, so yet another one would not normally capture Spy’s attention. The reason this one did? Pimco has added an extra dimension to its ESG thinking with this particular fund and Spy reckons this could well be a new trend for the industry. The fund is named the Pimco RAFI ESG US ETF and is based, naturally, on the RAFI ESG US index. Where it differs, is that it has added in two additional criteria that Pimco believes will add long-term value creation: financial discipline and diversity. How refreshing and a touch old fashioned in this profligate age to have such a consideration as financial discipline. I guess the fund won’t be buying US treasuries…

What happens when you hand banks and corporates large amounts of free money, wonders Spy? This week, Morgan Stanley told the full story. They make money. A lot of money. MS’s latest quarterly results blew the street away and showed, to Spy, how supportive central banks have been. Bond trading went bananas for the Wall Street stalwart. Asset and wealth management also shone brightly. AUM within asset management reached $552bn dollars at the end of the last quarter. The wealth management division had a pre-tax margin of 27.2%. That is a simply stunning number and shows how very lucrative looking after other people’s money can be. It is pub quiz time! Hands on buzzers everyone. How many companies that are listed in the US actually make money? Yes, that is right, Spy is asking you to predict what percentage of firms in the greatest market in the world is actually making more than they are losing? With US markets at an all- time high, you are probably thinking 80% must be squeaking out some sort of profit. Or, perhaps, your healthy conservatism puts you at 70%. Well, the shocking truth is only 60% according to a recent article in the Wall Street Journal. Put another way, 40% of all US listed companies currently lose money. Those juicy profits making headlines on Bloomberg typically come from just a handful of mega stocks while nearly half burn through cash like magnesium strips in a college science class.

It is almost quaint. Spy spotted a new promotion by Singapore platform FSM One. If clients buy SGX-listed stocks or ETFs between January 6 and 13 March 2020, the fee will only be $10. No doubt, in the local context, that is a good deal. However, in an era when E*Trade has zero commission or fee on buying any stock at any time, this charging structure almost feels like a relic of a bygone era.

So we have a trade deal signed in ink. Even Trump had the good grace not to call it the “Greatest Trade Deal in History”. The details have been steadily pouring out and financial services in China is one area where liberalisation is occurring. This had been well telegraphed and like so much else in the deal may prove a bit of a damp squip. As Moody’s put it, “The Phase 1 deal between China and the US will allow US firms to apply for local asset management company licenses in China. Although this is a positive development, the immediate impact will be limited as incumbent players generally have good local government connections and deep knowledge of their local economies, helping them ward off immediate competition from potential new US entrants.” In other words, China has little to fear from this opening up, and is, surely, why it agreed to it in the first place.

The much mooted new Singapore fund framework, which allows it to compete with fund domicile centres Luxembourg and Dublin, came into being this week. With Hong Kong still in relative turmoil, the government will no doubt have high hopes for the scheme as a regional asset gatherer. The MAS has not revealed the 2019 numbers yet but by the end of 2018, the city had $2.5tn dollars in local asset management AUM. A very good base to start from.

Spy’s photographers have spotted a new advert from AXA Investment Management in Singapore promoting its active capability:


Until next week…

Part of the Mark Allen Group.