Posted inFSA Spy

The FSA Spy market buzz – 30 June 2023

Defence ETFs are back in vogue, Janus Henderson’s take on AI, the bestseller list at Hang Seng, OCBC’s buy list moves like a glacier, UBS and Credit Suisse gets ugly, central bank digital currencies and so much more.

“Why on earth do we even need them?” Spy had touched a nerve, over a very enjoyable Malfy Orange Gin and tonic, with a tech-focused portfolio manager this week. He was asking about the push to introduce central bank-issued digital versions of their own currencies. Digital euros, pounds and dollars. “At the end of the day, this is not about utility. After all, with Apple Pay, everyone has an electronic or digital currency already! No, this is about resentment over the large American credit card companies: Visa, Mastercard and Amex and the fees that go their way every flipping minute.” Spy found it hard to disagree. If anyone can provide a compelling reason for CBDCs Spy would appreciate the answer on a postcard. He is utterly stumped.

Whether one agrees with Putin’s special military operation or not, Europe is going to spend a whole lot more on defence, reckons Spy. And he is not the only one. HAN ETF has announced it is rolling out a new fund in July that is focusing on the beneficiaries of increased defence largesse, especially in Europe, the UK and the US. Whether this fund has any ESG credentials is for another debate, at another time. The Future of Defence UCITS ETF is not simply investing in military hardware firms, but also those involved in cybersecurity – an equally important facet of 21st century conflict. The manager has chosen the ticker NATO, which is no coincidence, as it is designed to track firms, which will benefit from the eponymous organisation’s members’ investment. Another week, another thematic. Fire and forget?

There has been a huge amount of debate online, offline, in conferences, around dinner tables and coffee shops about which industries stand to gain the most from AI and where the losers will lie. Spy enjoyed the take from Janus Henderson’s John Bennet this week. It is worth reading the whole piece here. “History warns investors that hype cycles, such as that seen in AI, undergo a series of ups and downs within which there will be many winners and many losers. The semiconductor industry has exposure to many different secular growth themes as well as AI, and therefore offers the potential for differentiation. While many industries are vulnerable to the disruption caused by AI, we believe that Europe is home to many ‘old economy’ businesses that will likely not be in the crosshairs of disruption.” Certainly, Spy can’t see a LV handbag being replaced with AI anytime soon…

Spy was introduced to a fresh face from the US who has recently arrived in Asia to market funds. Where should he start, he asked? Spy recommended he look at the Hang Seng bestselling funds list. Here is a recap if you need it:

  • AB American Income Portfolio
  • Allianz European Equity Dividend
  • BlackRock Systematic Global Equity High Income Fund
  • Hang Seng Asian Bond Fund
  • Hang Seng Hong Kong Bond Fund
  • Hang Seng Index Fund
  • HSBC Gif – Global Short Duration Bond
  • HSBC Gif -Ultra Short Duration Bond
  • JP Morgan Global Bond
  • Value Partners High-Dividend Stocks

Studying what actually sells is a very good place to start. One does not need to be Sherlock Holmes to understand that the Asian market demands income, income, income and then some more income.

Meanwhile, the scale of the challenge to break into the Singapore retail market is probably best illustrated by OCBC’s list of preferred retail provider partners:

abrdn, Alliance Bernstein, Allianz Global, BlackRock, Deutsche Asset Management, Fidelity Investment, First Sentier, Franklin Templeton, Goldman Sachs Asset Management, Henderson Global Investors, JP Morgan Asset Management, Legg Mason, Lion Global, Neuberger Berman and Schroder Investment Management.

That list has hardly budged in a decade – and Spy knows that because half the names on that list that OCBC provides are currently using outdated brands that have long since changed. OCBC still refers to Aberdeen and First State for example.

Yee-ha! The US Federal credit card has a new limit. And just like a first jobber with their own first card, they are maxing out quickly. On the 2 June 2023, Congress agreed to lift the debt ceiling. In a mere 16 working days, the US has added $800bn to its federal debt pile. For the quick at maths that is $50bn per day. The US government spends like a drunken sailor and US corporates pick up the profits from that largesse. Is anyone surprised that US stock markets are rallying?

The numbers out of the UBS / Credit Suisse ‘merger’ just get worse. The reports that the firm is looking to lay off 22,500 jobs is a shocker. Under normal circumstances regulators would never have allowed the two to merge. What a complete and utter mess and a waste of competition.

Spy’s quote of the week comes from Melody Hobson, co-CEO of Ariel Investments: “The biggest risk of all is not taking one.” And this line is even truer in an era of heightened inflation.

Until next week…

Part of the Mark Allen Group.