Posted inFSA Spy

The FSA Spy market buzz – 3 March 2023

BlackRock and JP Morgan play bonds, Eastspring on Asian equities, Aussie dividends power ahead, Schroder’s AuM in Asia, Allfunds off again, Singapore raises the bar, Julius Baer is hiring and much more.

It has not taken long for reality to overtake the hype, reckons Spy. After the initial excitement about ChatGPT being so intelligent, the chatbot engine is grabbing attention for the wrong reasons. Basically, it is sprouting drivel under certain circumstances, exposing its central flaw. Being fluent is not the same as being accurate. For any wealth manager or fund manager worried that AI is coming for your job, Spy suggests you have nice cup of tea and a sit down and worry a little less. Like self-driving vehicles, AI-powered solutions are simply too unreliable, to, err, be relied upon and humans will still come in handy. 

Two of the biggest names in finance have got together for a new broad emerging markets bond ETF, notes Spy. BlackRock’s iShares has teamed up with JP Morgan to launch the new strategy, which combines corporate and sovereign bonds denominated in US dollars into a single fund. The iShares JP Morgan Broad USD Emerging Markets Bond ETF is now trading on the CBOE in the US. The strategy caps country exposure to 10% of the fund. Previously, investors needed to invest in separate strategies in order to gain corporate and sovereign USD bond exposure. The expense ratio is a mere 0.18%. The ETF is linked to JP Morgan’s EM Sovereign and Corporate Credit Core Index.

It is hardly surprising to Spy that Eastspring Investments remains bullish on Asian equities. This is, after all, their bread and butter. However, it was pleasing to see some snappy stats worth looking at in their latest insight on the region. The one that caught Spy’s eye was on IPOs. The firm reports that “New company listings in Asia Pacific accounted for more than 60% of total deals and funds raised globally in 2022.” Asia is truly powering ahead with its capital markets. The Asian markets are getting deeper, better governed and produce more and more dividends. What is not to like?

Talking of dividends, companies listed on the Australian Stock Exchange (ASX) have delivered the highest ever total of dividends in a single year. A$98bn ($66.1bn) of divis were dished out to investors during 2022. The data comes from Janus Henderson’s global dividend index, which monitors the top 1,200 global stocks. Mining giant BHP was the single largest dividend payer on the back of the 2021/22 commodity price boom, especially in oil. The ASX saw 9.8% of underlying dividend growth last year. It is not too surprising so many Asian dividend funds include Australia in their mandates.

Schroders has published its results this week. The company mentioned that conditions were “challenging” as profits were down 14%. No real surprise there. It was the breakdown of global assets that caught Spy’s attention. Out of £737bn ($882bn) in total AuM, more than £200bn of that now sits in Asia. With growth in the UK looking moribund, Spy can but wonder how long it will be before Schroder’s Asia AuM overtakes the asset manager’s domestic market?

Well, that did not last long. Spy reported last week that global funds platform Allfunds was in play as Euronext had tabled an offer to buy the firm. Allfunds shares tumbled this week after Euronext unexpectedly abandoned the takeover deal. The exchange operator withdrew its bid after due diligence, while the fund platform said the proposal was ‘inadequate’. The course of true love never did run smooth.

It is almost as if the Singaporean government has been reading Spy. A few weeks ago Spy reported that many newly-registered, Singapore-based family offices were playing with a lot of smoke and mirrors. Right on cue, the Singaporean government has announced new rules around the minimum amount to be invested in Singapore to gain permanent residency and stricter rules on how that money must be deployed. “Individuals seeking permanent resident status via Singapore’s Global Investor Programme must soon invest more: at least S$10m in a business or S$25m in an approved fund. Those establishing family offices must deploy and maintain at least S$50m in any of the four investment categories”, reported The Business Times. The new rules include a requirement for family offices to hire local portfolio managers. Good news for the industry.

Julius Baer remains bullish on Asia, similar to every other Swiss private bank, it seems. The bank plans to hire more staff in Hong Kong and Singapore and has a full “pipeline” for both markets but not necessarily in the Chinese mainland itself. The Zurich-headquartered bank is sticking with its “well-developed offshore model,” in contrast to Swiss peer, UBS, which is accelerating its local presence in China.

So goes the housing market, so goes the economy. Perhaps, but if true, some nasty canaries are flying in the housing coal mine in America and Europe. The mortgage payment needed to buy the median-priced home for sale in the United States has moved up to $2,520, a new all-time high, according to Redfin. A year ago it was under $2,000 and three years ago under $1,500. Meanwhile, in Germany, 10-year mortgage rates have jumped to 3.42%, a 12-year high. It is now estimated that in order to afford to buy a property at these higher interest rates, housing prices will need to fall by 35%. Hold on to your hats.

Cynicism around banking has been around for a long time. Spy was reminded this week of a pithy line by German theatre practitioner, playwright, and poet Bertolt Brecht: “What is the robbing of a bank, compared to the founding of a bank?” Ouch.

Until next week…

Part of the Mark Allen Group.