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The FSA Spy market buzz – 28 February 2020

Making correction history; Fund managers in Hong Kong; Thematic funds; Free money from Hong Kong; The week that was; Buffet’s cash pile; UOB Capital Builder and much more.

Spy feels, even more than usual, a strong drink is required and the distressing thing is his favourite watering hole off Causeway Bay has just closed its doors. A tragic victim of the protests, the virus, and, no doubt, a greedy landlord. The volatility this week has shattered nerves. If Spy was a 19th century protagonist in a classic novel, he would need to have a strong dose of laudanum and take a trip to the seaside for some fresh sea air. It is not that a sell-off was entirely unexpected, it is the scale that has Spy reaching for the special edition Stroh 80. [If one has never had this, it is like a sledgehammer delivered in a glass. Beware.]

Spy, like everybody else, has watched with a certain horror as the markets have finally succumbed to coronavirus reality. According to Deutsche Bank, this is the fastest correction in US history. The six days it took for the S&P 500 to fall 10% is, well, staggering.

The question everyone is asking themselves is, is this enough? Spy may be accused of being a touch cynical, but he does not think so. Not yet. The main problem is, quite simply, that with a deadly illness, unless a cure or vaccine is found, the central bankers of the world are relatively powerless to do anything. People are not going to suddenly get on a plane because the Fed says we might buy some stocks or cut rates. This is not a situation where confidence can be bought. The longer that schools and public events stay closed, the more painful this thing will become. If Spy had a penny for every time he had heard someone say, “The CV is just a bad case of flu; what on earth is everyone panicking about?” he would be rich. Spy would happily remind the cynics that we heard something almost identical during the financial crisis: “Subprime is only 2% of the market, this panic is ridiculous”. In Spy’s opinion, the market is just waking up to how challenging this is for governments to contain.

How many fund groups are operating in Hong Kong with funds authorised for retail investors? Spy has been doing some poking around. Excluding subsidiaries of the same parent company – i.e. Luxembourg vs Hong Kong entity, Spy has managed to find no less than 98 fund groups active in the market. This list now includes more Chinese asset managers than ever before. Names such as Shenwan Hongyuan Asset Management, Guotai Junan Assets, China Universal Asset Management, China Intl Capital, Hong Kong Asset Management and Da Cheng International Asset Management are just a few of the lesser known companies hustling for business in the Fragrant Harbour. Of course, this list of 98 excludes hedge funds, private funds and players only serving institutional clients. There is no shortage of choice for Hong Kong investors.

Do you remember the rush to thematic funds a few years ago, wonders Spy? Water, robotics, smart cities, artificial intelligence, etc. Many of these seemed like a highly intelligent way to play the market and gain exposure to an emerging trend. The only problem is that a handful of stocks have made all the running in the last few years and many of these funds have not exactly outperformed, according to a worthwhile report from Morningstar. But, then again, almost everything has underperformed those market darlings and so should we be throwing the baby out with the bath water? Spy continues to have a soft spot for active managers trying to see the world in a unique fashion.

The Hong Kong government has decided to give every permanent resident and citizen in Hong Kong some free money. That’s right, even Spy is receiving $10,000 crisp Hong Kong dollars in his bank account to revive his flagging craft beer fund. The only problem is, this seldom does what is required. If the government expects people to rush out and spend, they may be sorely disappointed. Australia tried this during the GFC and all that people did was pay down their debt and kept the cash pile. Contrast this with Singapore’s response during the GFC: it directly supported businesses with salary contributions and insisted that Singaporean companies getting hand-outs used the downtime for training and up-skilling their teams. A far wiser use of the money in Spy’s humble opinion. In general, Singapore’s response the virus has been exemplary and it has not gone unnoticed. So how hard has it been? Spy did some tallying up of the major stocks and indices people like to follow. This does not include what has happened today, i.e. Friday. This is simply Monday to Thursday night close. The biggest surprise, Shanghai. Hard not to believe Beijing is pumping money into stocks.

Spy, along many other commentators loves, Warren Buffet. The folksy, down-to-earth, friendly grandad of the investment community often has the pithiest lines about the markets. As Berkshire Hathaway experienced a recent bout of under-performance, Spy heard momentum traders sniggering at Buffet’s $128bn cash pile. What did Ray Dalio say at Davos, “Cash is trash”. Those traders and momentum investors may not be laughing so hard at the Sage of Omaha now.

Spy’s photographers spotted a new advert in Singapore by local bank UOB. UOB has partnered with BNP Paribas Asset Management for this launch. The Capital Builder fund is a classic multi asset strategy from BNP. Interestingly, on the website specified, they clearly state this is the “first fund” to be launched under this scheme. UOB is looking to partner with other players as they grow the opportunity:


Until next week

Part of the Mark Allen Group.