Febrile. That is the word Spy has heard most in the last few weeks. It does not matter if your humble Spy has been sipping beer and chatting to a wealth manager, drinking wine with a “politico” or drinking whisky and talking to a fellow Hong Kong resident. It is all the same message, everyone is on edge and everyone is unsure of what comes next. Politics, economics and investments are throwing up a thousand curved balls at the moment. Spy muses that, in reality, for most of history, the world has been a confusing cauldron of concerns and competing cross-currents and there is always something going on to make even the calmest person fret. However, as one portfolio manager put it to Spy on Monday, “Fortunes were made during every major war. There are always some winners out there, you just have to look for them.” “Even during trade wars?” responds Spy. And, yet, Spy can’t help but notice that the S&P 500 is basically at all-time record highs when supposedly the world is about to collapse into a morass. Cognitive dissonance or deluded bulls? Take your pick.
Eastspring Investments is not content to merely push an ESG message but has been taking the green theme a step further. The Singapore-headquartered asset manager has recently launched a new section of its website called “Greenhouse” which is all about a rather folksy way of encouraging investors to grow their wealth. Hardly ground-breaking in its metaphor, Spy is, nonetheless, impressed with its simplicity and design. And, hats off to Eastspring for reminding investors that compounding remains one of the surest ways to generate long term wealth, an investment idea very close to Spy’s heart.
Just when the West thought it was getting to understand China better, a misguided analogy by a London-based UBS analyst on China’s swine flu challenges, has reminded everyone that cross-cultural waters can be treacherous. The Swiss are not renowned for being serial offenders around the world. On the contrary, decadent chocolate, amusing cuckoo clocks and precision wrist watches more rapidly spring to mind, thus Spy thinks the UBS mini-saga will blow over soon enough. Spy can perceive one lingering downside, however, and that is more caution in analysts’ China reports, making often dull reading more likely to be even duller. And that would be a pigs’ ear indeed.
Spy has heard dozens of pessimists says that China will never fully open its financial markets and yet the last forty years of progress repeatedly defy those claims. This past week another milestone was achieved as the Shanghai-London Stock Connect came on stream. The link now means that companies in China and London can have two pools of shares trading in different time zones connected by a single price. That is a pretty nifty bit of tech and a huge boon for investors in Europe and China. More liquidity is always a good thing in Spy’s opinion and a reminder that China is not retreating from its global financial internationalisation ambitions, no matter whatever else is going on.
This past week must have given equity bears the scare of the year. A consensus equity bearishness was to be seen everywhere and suddenly central banks flew in like superheroes to the rescue, conjuring buying support from soothing words and not much else. Bonds rallied. Equities rallied. The entire financial landscape gorged on the prospect of free money. Never mind the fact that more than $12.5trn of investment grade debt now yields negatively or that the S&P 500 has quadrupled since 2009 while US GDP is up merely 42% in the same period – central bankers want you to get on that dance floor and keep partying. Have another drink from the punch bowl…
It is not particularly news that passives have changed the entire asset management industry. However, Spy did hear one particularly brutal fact last week that must give the c-suite of every single active manager sleepless nights. Vanguard gathered 45 cents in every single dollar of new money in the US market in 2018. In Europe it was 22 cents. Asia has been far slower to adopt ETFs for many different reasons, not least of all, the fact that Asia’s stock markets reward active management far more than US markets do. Still, the ETF tsunami does not look like a spent force anytime soon.
Spy loves the Gartner hype cycle. It has proven to be consistent in its illustration of the progress of a new technology. Spy could not help but notice this delightful correlation with Bitcoin’s performance chart. Bitcoin is pushing $10k and is out of its recent doldrums but will it exceed its peak anytime soon?
Hong Kong has returned to normality this week as the protests have calmed down and Carrie Lam has stepped off her high horse over the extradition bill. Spy has, nonetheless, opened a book on whether Carrie steps down in 2020 when the current legislative period ends. He is not giving odds of “certain”, “dead certain” and “absolutely certain.” The only question that needs answering, and worth betting on, is what will her excuse be: “Spend more time with my family” 4/5, “Pursue other interests” 3/1 or “Take a well-earned break from political life”. 10/1. Bets on a postcard please.
Hong Kong’s richest man, Li Ka Shing made headlines this week by announcing that his foundation is providing bursaries to undergraduates of Shantou University in China. His annual donation of merely $14.44m a year from 2019 to 2022 is enough to cover the tuition costs of 3,100 students in each of those years. Apart from the generosity, what this highlights is the staggering difference in cost of an American Ivy League university and Shantou. $14.44mm would only buy the tuition of 311 undergraduates at Harvard at a tuition-only cost of $46,340 per annum.
Until next week…
