Posted inFSA Spy

The FSA Spy market buzz – 23 September 2022

China’s rapid ETF approval, Asia’s dividend aristocrats, HBSC AM kicks coal, Jupiter is in for job cuts, Fed Reserve balance sheet nonsense, Eggs and baskets, A good book and much more.
Market Spy

It may still be warm in Hong Kong, but autumn is arriving in financial markets. Spy spoke to one wealth manager in Singapore, who primarily serves Asian HNWI clients, and he reported the nervousness among asset owners was growing by the week. It does not help when you have Serbian President, Aleksandar Vucic, at the UN General Assembly, warning that the planet is entering into a “great world conflict” that could take place within the next two months. Putin’s repeated threats of nuclear strike hardly inspire much confidence. Rising interest rates are not helping either. Hold on to your hats, it is getting blustery out there.

For every action, there is a reaction. China has just rapidly approved a bunch of ETFs that focus on semi-conductor production and its associated supply chains. The US has tried to squeeze China on chip manufacturing, and it comes as no surprise to Spy that the government is allowing the market to find a way. HuaAN Fund Management, Harvest Fund Management Bosera and China Southern Asset Management have all had approvals for semi-conductor or advanced materials ETFs. What is unusual about all of this is that the funds got their approvals in less than 72 hours. Anyone used to Chinese (or any other market for that matter) regulatory bureaucracy will raise an eyebrow at the rapid approval, perhaps tinged with jealousy.

For years, Spy has been aware that Asian companies are producing larger and steadier dividends. This week, an American ETF provider, Krane Shares, has put that trend in lights. The firm has launched the Asian ‘Dividend Aristocrats’ ETF – ticker, KDIV on NYSE’s Arca. The ‘dividend aristocrats’ theme, companies that consistently grow their divis over time, is not a new one for American or European investors but is the first Spy is aware of that covers Asia. Almost to prove the point, in Australia this week, BHP Billiton paid out the single largest dividend in Australia’s history: A$12.5bn. Asian companies are not hoarding their earnings like they did in the 80s and 90s.

HSBC Asset Management has made waves this week saying it is going to stop investing in any thermal coal related companies. They will be dumped from portfolios and IPOs will be shunned. It is certainly a bold move and consistent with HSBC’s public concerns on climate change. With Europe facing a devastating energy shortage this winter, and countries such as Germany turning coal power stations back on, this will certainly give other asset managers with fewer qualms the chance to snap up money spinning assets at cheaper prices, reckons Spy. One man’s climate concern is another man’s ticket to luxury?

The scythe is coming to Jupiter. The new CEO, Matthew Beesley, has indicated as many as 80 jobs are on the line. There is no news where the axe will fall, but as the majority of their team are in London, Spy would not be surprised if that is where the cuts are felt hardest. Asia continues to have great growth prospects; one hopes the bean counters recognise that.

How is that mighty balance sheet reduction by the Federal Reserve going? Spoiler alert: badly. Despite all the fanfare, it is a case of see what I do, not what I say. The Fed’s balance sheet has reduced by a miniscule $16bn in the past week. Since the peak in April, assets have gone down by a mere $49bn. The Fed’s balance sheet remains equal to 35% of US GDP. Meanwhile in Europe, the ECB’s is at 81%. Despite this, the S&P 500 is down 21% in the first 182 trading days of 2022, the fifth worst start to a year in history. As for the 10-year treasury, 2022 is the worst year ever – down 17.1% so far.

Don’t keep all your eggs in one basket. The oldest, simplest and probably wisest advice the finance industry has ever dished out, reckons Spy. So, what if the entire world is making that mistake with electric? California is short of electricity, due to a record drought and low water levels, but wants exclusively electric cars in its state. Europe is doing the same. It has little nuclear power and solar is not great in winter, but it is insisting that Germany’s world beating combustion engine industry must die. Now look at China’s lithium mining industry: lithium carbonate surged to a fresh record per tonne, rising to Rmb500,500 (US$70,000). If one can’t afford the batteries and can’t get hold of electricity, that does not seem too smart to Spy.

The summer may be over but if you are looking for a cracking read, Spy heartily recommends, Influence Empire: The Story of Tencent and China’s Tech Ambition. It is written by Lulu Chen and tracks the rise and rise and slump of China’s tech giants but with a focus on Tencent. 1.3 billion people use WeChat, one of the most influential platforms of all time, but one that has certainly given China’s government some worries.

Interesting court case to follow if you like crypto assets. We are about to find out if Tether is really a $69bn ‘stablecoin’ or possibly the largest scam since people swapped houses for tulips. This court case will force Tether to reveal what really backs its coin. Get out the popcorn: if it is hot air, the knock-on consequences will be massive.

Spy’s quote of the week is from Benjamin Quinlan of Quinlan Associates here in Hong Kong. He writes, “Dear central banks of the world, it’s really time for people to tell you that YOU are a complete and utter bunch of muppets.” Spy could not have put it better himself.

Until next week…

Part of the Mark Allen Group.