Posted inFSA Spy

The FSA Spy market buzz – 4 November 2022

Franklin Templeton converts, PGIM on private markets, Julius Baer commits to Hong Kong, BlackRock’s shareholder revolution, gold buying spree, Fidelity’s crypto, advertising and much more.
Market Spy

It is almost with a sigh of relief that Spy welcomes the return of the Hong Kong Sevens annual rugby tournament this weekend. The lack of large international events has meant Hong Kong has felt particularly isolated for the last few years. Will the beer throwing, bonkers-outfits, crazy singing madness of the South Stand survive the new era of puritanical social distancing? Spy has his doubts. As with so many other things, that pre-Covid, carefree frivolity seems a different, vanished era.

Preaching to the converted? Spy has been tracking the rise and rise of ETFs from passives to smart beta to active ETFs. Along the way investors of all stripes have been converted in their millions to the format. Now, for the first time, Spy spotted an asset manager not merely offering an existing, traditional mutual fund strategy, in an ETF format, but converting the existing strategy entirely to an ETF format! The funds are: Brandywine Global–Dynamic US Large Cap Value ETF and Martin Currie Sustainable International Equity ETF. Patrick O’Connor, Global Head of ETFs at Franklin Templeton, said: “These two funds represent our first mutual-fund-to-ETF conversions. Leveraging the deep expertise and focus of our independent specialist investment managers, these two funds have historically delivered exceptional results and diversification potential for clients. Now we are excited to continue to offer these investment strategies within the attractive and popular ETF vehicle.” These won’t be the last.

How big are the private markets? Pretty damn big. PGIM has got a decent report showing the scale of the market in the US. The numbers are massive and even a little bit scary. According to PGIM researchers, private markets have grown to over $12trn. They now account for over 40% of all capital invested in the US, more than double their share in 2009. Private markets represent 35% of all M&A activity – 10% more than a decade ago. It is no surprise to Spy that more and more private market funds are coming to market. That is not the real concern, but rather the liquidity, or lack thereof, when things turn.

As Hong Kong’s leaders desperately try to drum up support for the city as a financial hub, they must have breathed a sigh of relief when Julius Baer reiterated its commitment to the Fragrant Harbour and the Greater Bay area. The firm was quoted in the South China Morning Post as saying, “We have always had plans to expand in Hong Kong. The expansion plans may have been slowed down by the pandemic, but they have not been invalidated.” Good news.

BlackRock is going to try a fascinating experiment in the UK, providing retail investors an opportunity to vote in share proxy battles. When there are contested proposals by a listed firm, BlackRock will allow its army of retail clients to have their say. This is particularly relevant for ESG issues where private individuals may have strong views. Larry Fink, the chief executive of the world’s largest manager, commented this week that technology gave an opportunity to provide a “revolution in shareholder democracy”, which will “transform the relationship between asset owners and companies”. Spy will watch with interest if the idea is taken up and if we can expect this to appear in other parts of the world, including Asia.

Despite Bitcoin and other cryptos being down about 60% or more this year, one major asset manager is keeping the faith: Fidelity. In the US, the firm has opened up a waitlist for retail investors to start trading tokens on its hugely popular investment website. The company will have about 500 staff working in its digital assets division by the end of the first quarter next year. In other news, Ravi Menon, chief of the Monetary Authority of Singapore, said that speculative trading of crypto was not his big priority for the Singaporean market as much as institutional digital assets infrastructure.

A tonne of gold here and a tonne of gold there and before you know it, you are talking real money. Central banks of the world bought nearly 400 tonnes of gold in the third quarter, according to the Gold Council. Having denied that inflation was around at all and then told us it was transitionary and then, actually, that it is a bit of a problem – nothing tells Spy more about central banks’ real inflationary fears, than this massive buying of the world’s oldest inflation hedge.

The speculative end of the overhyped tech market, which offers no profits any time soon, has well and truly burst. Take Nikola, an electric vehicle company. It was worth $34bn at its peak and is now worth about $1bn. So, too, Virgin Galactic, the space travel company, was worth about $15bn at its peak and it is now down to $1bn. A fascinating website is up and running that is charting the dramatic job cuts taking place at tech start-ups as their ludicrous business models falter. It reminds Spy of an infamous site named f*, which chronicled the implosion of hundreds of dot.coms in the first boom and bust cycle 20 years ago. History rhymes, it seems.

Elon Musk must be experiencing a twinge of regret at buying Twitter. This exchange between him and Stephen King, rather sums up his challenge.

Spy’s photographers have been out and about again. Spy could not help but notice Capital Group’s striking image of a mountain climber on the side of a tram is accompanied by a rather stylish Fund Selector Asia award logo.

Until next week…

Part of the Mark Allen Group.