The FSA Spy market buzz – 18 October 2019

Latest News

Change at Matthews; AB loses; Great Eastern gets more selection-serious; Standard Chartered outperforms; M&G and high yield; MPF pain; Share buybacks; advertising and much more.

Spy had a few beers this week with an industry friend whose woeful taste in beers is, thankfully, unmatched with his financial acumen. Spy despaired watching this fine fellow consume lager after lager, which looked like something a horse excretes after a long drink of water, while Spy enjoyed several Belgian Grosse Berthas in the refreshing Hefeweizen style. Poor lager aside, the most poignant observation of the bibulous evening made by Spy’s companion was this: “We have to prepare ourselves for the possibility that central banks will not ever tighten interest rates again. Central Banks are easing everywhere; a kind of ‘Japanification’ of the entire world.” Spy found that thought, if true, more scary than any unruly protestors in Central who have stolen the fear limelight of late.

News has reached Spy that Sunil Asnani has stepped down from Matthews Asia. Sunil, who had been with Matthews for 11 years, was the lead fund manager of the Matthews India Fund. The Matthews India fund has outperformed its sector on a one-, three- and five-year basis. Co-manager Peeyush Mittal is now the lead fund manager with Sharat Shroff the co-manager both of whom have strong India experience and therefore Sunil’s departure may not see any significant change in the way the fund is invested. Spy has no news on where Sunil is going to, although he is expected to stay in the industry.

AB has had a change in its communications team in Hong Kong. Willa Lau, AVP of marketing communications at the American firm, has stepped down from her role. Willa has not told Spy where she is heading to but Spy understands she is staying in the industry. Spy is not aware of her replacement yet. AB has had success in the last year with its Global Real Estate Securities Portfolio, which is up more than 16%.

It seems that Great Eastern in Singapore is taking the fund selection duties within its insurance-linked investment division far more seriously. It has come to Spy’s notice that Selvan Kumaran, director of multi asset strategies at Lion Global Investors, will be part of a new gatekeeping function for the insurer. This news came as a bit of a surprise to Spy as the OCBC group and its subsidiary, Bank of Singapore, has typically relied on consultants to help with broad fund selection. Spy wonders if this heralds a broader change within the banking group?

Fund selection is not the easiest job in the world. Funds have a nasty habit of doing just the opposite of what they have done consistently for a few years prior to selection and on-boarding, in Spy’s experience. Spy, therefore, once again, tips his hat to the Standard Chartered team who seem to have been remarkably consistent in selecting funds for their focus list that have performed well. Currently, Stan Chart has 134 funds on its focus list and a mere 8 of those are negative on a one-year basis. Fully 126 funds have delivered positive returns and some of those have been juicy indeed. The top performer is UBS’s China Opportunities up 31%. BNP Paribas’s Aqua Fund is another pick which has done well, up 18%.

High yield investors have had a great run, muses Spy. Defaults have been low, returns have been good. What is not to like? M&G’s always fabulous Bond Vigilantes posted a timely reminder that it is not all plain sailing. In a recent blog post, Mario Eisenegger points out that defaults have been creeping up. High profile bankruptcies such as Thomas Cook travel and Debenhams may just be the canary in the coal mine, after all “the portion of bonds trading at distressed levels, defined by a spread level higher than 1000bps, is on the rise, which tends to be a good leading indicator for future defaults”. What worries Spy is the number of structured products being sold in Asia that have been using high yield funds as their base. There could be some shocks ahead for complacent private bank clients if those defaults rise as implied.

One of Spy’s perennial bugbears is the poor performance of so many MPF funds. It often seems to Spy that the dross of the fund community is forced on Hong Kongers, Spy included. Looking at the list of MPF sectors, the average performance is negative or barely positive over the last year while the S&P 500 is up a healthy 10%. Manulife’s Global Select MPF Age 65 plus fund is the best performer that includes any equity with a 8.22% return. Manulife also happens to have the best performing bond fund, Global Select MPF-HK Bond, which is up 8.56%. Those two remain stand outs in a rather dismal collection this year. Spy’s retirement looks ever further in the distance…

Spy loves dividends. They are real money that a company has to pay out. One can’t pay a dividend with accounting jiggery-pokery. In the US, it has been fashionable over the last 25 years for companies to do share buybacks instead of paying dividends, supposedly because there are favourable tax treatments of the buyback. Spy has always been suspicious of the buyback mantra for the simple reason that management seldom buys back its own shares when they are low and instead makes the rookie mistake of buying high. Spy’s doubts in the regard were further compounded this week with the following bit of data: over the past 20 years, IBM has bought back $154bn of its stock. Its current market cap: $118bn. One hardly needs to be a rocket scientist to see what a pathetic performance this is.

Is one of the defining macro-economic sagas of our era about to come to an end? Boris Johnson, the much derided prime minister of the UK, has agreed a new deal with the EU for Britain to Brexit. Having had so many false starts, Spy dares not hope that we are finally reaching a conclusion of this lifeblood-sucking, dreary business. The British parliament needs to approve the deal tomorrow. Spy suspects the English rugby team has more chance of beating Australia in rugby than parliament actually voting for the deal. So don’t hold your breath.

Spy’s photographers have only spotted a single new advert this week. China AMC is out promoting some leveraged NASDAQ ETFs in Hong Kong:

 

 

Until next week…

P.S. Wales play France on Sunday in the Rugby World Cup and are odds-on to win. It is almost as though the bookies have been listening to Spy.

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