Posted inNewsFSA Spy

The FSA Spy market buzz – 4 October 2019

Amundi lures; Hang Seng’s bestsellers; BlackRock and Tencent; ESG ETF; Exits without a BR; Dimensional dimensions; US debt; Advertising from Aberdeen Standard and much more.

Apparently the Hong Kong government is going to ban wearing face masks. Spy laments the prospect, because a subtle face mask has allowed frequent clandestine eavesdrops on juicy industry conversations and any ban may make Spy’s job a touch harder. Still, imbibing numerous whiskies have prompted more information to flow directly than any anonymity provided by a flimsy face cover. There is a cliché about Washington, DC being Hollywood for ugly people.  Spy wonders if Hong Kong is a protest zone for overly polite people. For whatever the TV cameras might attempt to portray, something all of us who know Hong Kong is how well the city actually functions despite the demonstrations. The protests themselves seem to run to schedule, the mess is cleaned up on schedule and life carries on – on schedule. Just don’t expect the BBC, Sky News or CNN to point that out.

After 16 years of – Spy presumes – milky tea, warm ale and cucumber sandwiches, Albert Tse is going to switch to espresso coffee, croissants and glasses of Bordeaux. Spy has seen in dispatches that Albert has been lured from venerable British asset manager, Schroders, metaphorically across the Channel, to French giant Amundi. Albert has joined the $1trn asset manager as head of distribution, sales and marketing in South Asia. He remains based in Singapore. As with so many other firms in precious metals space, Amundi has had great success in the last year with its Global Gold Mines Fund. It is up 40% over the last year.

Regular readers know that Spy keeps an eye on Hang Seng’s top 10 selling funds in Hong Kong. The pecking order changes from time to time, but the list is remarkable for its consistency. Funds such as Pimco Income, JP Morgan AM US Technology, Fidelity’s Global Income, among others, often feature. So, Spy was surprised this week to see AB’s European Income Portfolio included on the list. Europe seldom features on Asian best buy lists and it made Spy raise an eyebrow. With so much European debt trading negatively, AB has clearly managed to find a corner of Europe that still coughs up. Hat Tip.

Several news reports Spy has encountered this week have revealed that BlackRock is in negotiations with China internet behemoth, Tencent, for a distribution partnership. Nothing speaks quite so eloquently about the difference in distribution dynamics within China, compared with the rest of Asia, that this potential partnership makes total and utter sense. While long-suffering fund sales people outside the Middle Kingdom have to knock on door-after-door of characterless, retail and private banks, within China a chat app giant is the best bet for real growth.

The ETF market has several advantages over traditional mutual funds, not least of all the speed with which it can bring a fund to market. A product launched on a US exchange is, by definition, available globally via ubiquitous equity trading platforms such as TD Ameritrade, Saxo, Phillips, etc. As we all know, however, being on the shelf does not guarantee a penny of flows and without the marketing to follow it up, any ETF can rapidly fade into obscurity, languishing with few assets inside it. It does not surprise Spy, therefore, that the ETF market is even more prone to bandwagons than the traditional space. This week Spy noticed a case in point: the Nuveen ESG High Yield Corporate Bond ETF has recently debuted. It is not enough to be high yield to stand out, it has to be “ESG” too. Will the ESG addition provide Nuveen with an extra few weeks of visibility? Perhaps. Until the next fashionable label comes along. Spy is just waiting for the “Greta Thunberg Social Conscience ETF”.

Exit without a BR in front of it. That is the word Spy has heard most frequently in Hong Kong in recent weeks. Expats exiting. Wealthy locals exiting. Money exiting. And now whispers of asset managers… exiting. Spy has heard of several smaller firms that are considering leaving not just Hong Kong, but Asia generally. The tough market conditions and high cost of doing business are taking their toll. Spy has a little watch list of firms he thinks are not going to stomach this period should it last much longer. Asian buyers have often been cautious about taking on strategies from newer firms because of the fear they will be left holding the can when the firm scuttles away during difficult periods. Spy fears that attitude is going to be vindicated in the next twelve months – again.

One firm Spy has heard about rather frequently in the last few weeks, has been Dimensional Fund Advisors or DFA to its friends. The Austin, Texas-headquartered firm has a unique way of tackling the market, encouraging financial advisors to adopt their process entirely to the exclusion of other asset managers and providers. In Spy’s experience, advisory firms who do adopt their philosophy, seem to become passionate advocates of the “system” and wander about in a rather starry-eyed fashion. But, the company must be doing something right, because at last check, it had $586bn of assets under management – and growing fast.

If you are worried that your summer holiday has left your credit card feeling a little miserable, take heart when thinking about US debt, muses Spy. Wolf Street reports that, “US gross national debt jumped by $110bn on the last two business days of fiscal year 2019, and by a breath-taking $1.2trn during the entire fiscal year, after having already jumped by $1.27trn in fiscal 2018, the Treasury Department reported today. This ballooned the US gross national debt to a vertigo-inducing $22.72trn”. If anyone does not really understand why rates HAVE to stay low, perhaps these figures are a gentle reminder. Profligate does not even begin to describe it.

Aberdeen Standard is currently reminding people in Asia to look at emerging market debt.

Until next week…

P.S. Last week Spy managed to get the timing about the Wales vs Australia rugby match wrong, as pointed out by several readers. His blushes were spared somewhat when Wales caused an upset in Tokyo on Sunday, adding heft to Spy’s prediction that Wales will win the World Cup in November.

Part of the Mark Allen Group.