Posted inFSA Spy

The FSA Spy market buzz – 21 April 2023

Invesco’s thematic equity ESG ETFs, Chinese asset managers flock to Hong Kong, Ninety One’s microchip stats, CoCos are back, holding for the long term, Friday quiz, Singapore and much more.

Spy sat down with one of Hong Kong’s longest-serving fund selectors at a very large European bank this week. What is the single most annoying thing that fund sales people or their fund managers do when presenting to you, asked Spy. The jaded fund buyer did not even hesitate. “I always ask them what makes them unique and ninety-nine times out of a hundred they do not know how to answer that most basic of questions. I get idiotic comments such as we have teams around the world or we have more than 100 years of collective experience or they went to an ivy-league university. I mean, please! Every damn team on the street has that. You would think for such bright people they would know the meaning of the word ‘unique’. Top tip: it does not mean similar!” Spy is still chuckling at the rant. But he is not wrong.

Judging by the suite of ETFs launched by Invesco in Europe this week, core ESG is so yesterday, reckons Spy. It is now all about thematic equity that can somehow be corralled into an ESG format. Invesco has launched four “ESG-enhanced” global sector ETFs to European investors, but, of course, Asian investors can buy them too if they suit their portfolios. The ETFs are the Invesco S&P World Energy ESG, Invesco S&P World Financials ESG, Invesco S&P World Health Care ESG and Invesco S&P World Information Technology. These are all delivered in a UCITS format across different exchanges. Spy is impressed with the charges – only 0.18%.

Have you ever heard of Shanghai Qianxing Asset Management, wonders Spy? Or how about Ren Bridge Asset Management, QX Assset Management or Lingjun Investment? What these firms all have in common is that they have, or are in the process of setting up, offices and operations in Hong Kong. The shine may have come off Hong Kong as a global asset management hub during the pandemic, but for Chinese mainland firms, there is no easier place to launch their nascent international operations. Apparently more than 20 different traditional and alternative asset managers are currently looking at launching in Hong Kong over the next 12 months. The Hong Kong base will, naturally, help domestic Chinese investors gain access to dollar-based investment. The death of Hong Kong as an asset management hub has been greatly exaggerated.

Quarterly outlooks have been popping up from asset managers. This one from Ninety One’s multi-asset growth team co-heads, Iain Cunningham and Michael Spinks, caught Spy’s eye for their enthusiasm for Hong Kong and China and caution on the US and Europe. Among many interesting ideas, their commentary notes how hard it is for any microchip company to catch up when it falls behind. Consider, the top five [chip manufacturing] companies with the largest average annual profit – Samsung, Intel, Taiwan Semiconductor Manufacturing, Qualcomm, and Apple – had a larger combined average annual profit ($35.5bn) between 2015-19 than the other 249 companies in the market ($27.7bn). To the victor goes the spoils.

Well, that did not take long. After the Credit Suisse AT1 debacle, it seems the market is already back to issuing CoCos. Japanese bank SMFG issued the specialised debt and had buyers lining up as if the Easter Bunny was delivering free eggs.

Spy was amused to read this in an Asian wealth manager’s blog this week. “How long is the long term for holding investments? The idea of holding investments for the long term generally refers to a period longer than one year.” Speak to any business builder and they will tell you it takes time to build something of value. It is never just a single year. How about five years at least?

Quick quiz for Friday. Which commodities have risen in price the most over the past decade? If you answered oil, you can sit in the naughty corner. WTI Oil is actually 9% lower than it was 10 years ago. The answers are sugar up 25%, gold up 43% and the winner is coffee at 44%. No wonder that espresso tastes so bitter.

Is Singapore becoming a victim of its own success? This tiny, hyper-efficient island on the equator regularly tops lists of “easiest place to do business”, “most liveable city”, “best transport systems” and so much more. And with those attractions, people have been flocking in and rents have been skyrocketing. How do ordinary people afford the rents? Taxes may be low by Western standards but if all your money disappears on rent, have you really benefited? Anecdotally, Spy is hearing of more and more people throwing in the towel and moving to Malaysia, Bangkok or back to Australia and Europe.

Spy was in awe of the SpaceX response to its Starship blowing up minutes after take-off yesterday. SpaceX tweeted, “With a test like this, success comes from what we learn, and today’s test will help us improve Starship’s reliability as SpaceX seeks to make life multi-planetary”. Imagine the risk-taking attitude and sheer dedication to a cause that comes with that sentiment, having seen a multi-billion dollar ship explode. In that example, we see American capitalism in action. Keep building, keep learning, change the world forever.

Spy’s quote of the week comes from Bernard Baruch. “The main purpose of the stock market is to make fools of as many men as possible.” Nailed it.

Until next week…

Part of the Mark Allen Group.