Posted inFSA Spy

The FSA Spy market buzz – 21 October 2022

CSOP leverages again, Jupiter’s slowing outflows, HSBC’s green credentials questioned, Germany’s inflation woes, Magellan’s AuM plunge, Schroders is flat, advertising and much more.

CSOP leverages again, Jupiter’s slowing outflows, HSBC’s green credentials questioned, Germany’s inflation woes, Magellan’s AuM plunge, Schroders is flat, advertising and much more.

Spy will spare you the creepy picture he saw this week of Fed Chairman, Jerome Powell, photoshopped to look like he was in the Hunger Games, clad in leathers with a quiver of lethal arrows on his back. Many a true word spoken in an internet meme, though. The Fed is now a danger to the entire world as its rate raising path brings untold misery to dollar-priced commodity consumers, which would be most of them. From Tokyo to London, Harare to Bogota and everywhere in between, the strong dollar and rising US interest rates are dislocating everything. The only consolation: Spy has seen the strong dollar on the cover of a few mainstream magazines: The Economist and Barron’s to name a few. If it is in the news, it might also be in the price.

Some people should stick to a casino, rather than pretend they are investing, reckons SpyCSOP has introduced a new exchange traded product in Hong Kong that allows investors to gain leveraged exposure to the onshore brokerage industry. Why that is necessary is not clear to Spy whatsoever, but it is a free world, after all.  The new ETP delivers double the daily return of the CSI All Share Investment Banking & Brokerage Index. That index includes the 50 largest companies listed on either the Shenzhen or Shanghai stock exchanges that are classified within the brokerage or investment banking sector. Names include Citic Securities and Haitong Securities. Getting your rush is not going to be cheap; the ETP has an expense ratio of 2%. The official name is: CSOP CSI Brokerage Index Daily (2x).

When are outflows of £600m ($671m) a good thing, wonders Spy? When you are Jupiter. The new chief executive, Matthew Beasley, hailed the slowing amount of outflows in their latest quarterly update. That, in fairness, contrasts healthily with the previous quarter’s bleeding of £2bn. Jupiter has increased its focus on institutional investors who have greater tolerance for volatile markets. In the update, Beasley also indicated that Jupiter is going to launch more thematic products in the near future.

Friday quiz: what usually lasts longer: a bull market or a bear market? Thanks to Omnis Investments, the answer is a bull market. The average bull market last 3.9 years and the average bear market just 0.9 years. The longest bear market since 1962 is just 3.2 years.

It is a simple mathematical fact that when something halves, it needs to double to get back to its original size, notes Spy. Down Under, Magellan, once one of Australia’s highest flying asset managers, is giving that lesson to its shareholders. The manager’s assets peaked at about A$116bn ($72.7bn) in 2021 and are now down to about A$50bn. The CEO, David George, assured investors he wanted to get back to more than A$100bn in AUM “within five years”. Magellan lost a mandate at the end of 2021 with St James’s Place, which partially explains the huge knock, but skittish local investors have been pulling cash at pace, too. In February 2020, Magellan’s shares peaked at A$64; today you can pick them up for under a tenner. Ouch.

Old joke: What’s worse than being shot in the neck with an arrow? The arrow has a gas bill attached. In Germany, the pain of rising energy costs just gets worse. For businesses in Europe’s industrial powerhouse the numbers get scarier than a Hollywood Halloween movie. German consumer prices are likely to soar again soon after producer prices had an eye-watering 45.8% year-on-year rise in September. This is the strongest increase since 1949.

HSBC has been rapped over the knuckles for an advert deemed misleading in the UK. Essentially the local advertising watchdog pointed out that the bank was overstating its green credentials with a poster campaign about transitioning to net zero. The watchdog pointed out that the bank omitted to highlight its own contribution to carbon dioxide and greenhouse gas emissions, despite planting lots of trees. Spy is convinced this is a battle big business is going to struggle to win. Whether this will have repercussions in Asia, Spy can only guess. But what is certain is that watchdogs, regulators and governments are increasingly not giving financial institutions a free pass on their greenwashing.

So the Brits continue to astound with their merry-go-round politics. They have booted out Lizz Truss after just 44 days as prime minister. This all stems from her utter debacle of a “mini-budget” that roiled the UK’s pension system. Spy can imagine the champagne was popping in Schroders’ boardroom. The firm’s quarterly update, released yesterday, showed their results were perfectly fine, especially considering current market volatility. Fine, except for a whopping £20bn of outflows in the so called “LDI” division after Truss’ bumbling. Take away the £20bn LDI outflow and Schroders was flat on the quarter.

Does rising cash levels indicate some sort of market bottom? According to the Investment Company Institute in the US, about $140bn of retail investor cash has flowed into money market funds in 2022. Money markets funds now total $1.55trn. Concurrently, $15trn has been wiped off equity values this year in the US. With all that cash on the sideline, when will it return to the market in force?

Considering CSOP’s exciting new leveraged product mentioned above, Spy was reminded of Warren Buffet’s ageless wisdom. “If you’re smart, you don’t need leverage. If you’re not smart, you shouldn’t use it.” It is always the down segment of the cycle that impoverishes the leveraged. And brutally.

Until next week…

Part of the Mark Allen Group.