Sunday, 22 January 2017

Stories we should be thinking about

Here are a few finance and related stories to be thinking about ahead of the new working week...

Macro matters:

So it is President Trump now...  Lots of chat about this inevitably including the observation that:

'Trump’s supposedly “patriotic” approach is thus a recipe for a mediocre future of the U.S. manufacturing sector. It does next to nothing about Trump’s presumed real goal – bringing back well-paying jobs' (link here). 

I would agree on this...the theory of comparative advantage tends to drive decisions after all...

And on a related front...

'Since last Autumn I am really pleased to have started writing a regular column for Yahoo UK/Ireland on finance and the investment markets.  You can find here my latest column titled:

"Trump’s impact on the global markets: talking tough…but pragmatism will reign"'

You see pragmatism is required if the US is going to grow (as Trump hopes) at 4% a year because recent history suggests it is tough.

Plus of course the starting point is one of a strong performing market and fading sentiment...

Plus check out this (link here) on relative valuation around the world.  The US is hardly cheap! 

Still - as I have been arguing consistently over the last few months - the key is to look at the level of the US dollar and if it fades then this is positive for the global economy in terms of balance.  So far...the start of a trend?

The implications of a lower dollar could be very positive for the euro (and the Pound) and help turnaround the big outflows of 2016.  Of course there is European politics too.  Some quite striking rhetoric from the French far right's leader (a key participant in the most eagerly awaited election): 

"2016 was the year the Anglo-Saxon world woke up. I am sure 2017 will be the year the people of continental Europe wake up" (link here). 

I think centrist politicians/coalitions prevail in Europe in 2017.  The key (aside from the French election) will be German leadership and on this basis the following is worth a read:  

' the months ahead, Germany seems ready to continue down the path of multilateralism that it has followed since the end of World War II' (link here)

Yes, Germany / the Merkel leadership is key...and at least the local economy is growing solidly at the moment which should give a few positive options and may help form the basis of a better European economy: 

(By the way the chart above and below plus the CDS chart later is sourced from this very nice weekly macro summary review by @KurterOzde link here). 

How about the other large European economy the UK?  Well let's not forget it really has been all about the Pound and its impact on certain type of exporting-centric/dollar revenue sort of company as shown below...

And what about the Brexit debate?  A useful read here and I kind of agree with the sentiment: 

'Yet for all its superficial firmness and clarity, this was a speech constructed from illusions. The overarching fantasy was that Brexit is a process over which Mrs May has complete control' (link here). 

Of course a big week for the whole Brexit debate as on Tuesday the UK's Supreme Court will give their verdict on whether a parliamentary vote is needed to trigger Brexit.  As per Seeking Alpha:

'A cross-party group of MPs is plotting to thwart Theresa May's "hard Brexit" plans amid fears that U.K. businesses could soon have to pay huge export tariffs on goods they sell to the EU...If a vote is required, the MPs will seek to amend legislation to make an extreme Brexit option impossible'

Meanwhile despite all the recent chat about London losing bankers to Frankfurt and Paris among other capitals, it is not all negative: 

'London will probably end up winning the battle over its clearing industry, according to four top bankers in Davos, adding to the debate over whether the U.K.’s financial industry will be stripped of a crown jewel' (link here).  

A few final macro charts of note.  Fascinating how the United States has a poorer Gini Index than Europe showing less income equality in the former: 


And talking about the US system a final economic legacy chart on the Obama Presidency below via @Macro_View.  Just look at that falling labor force participation:

So typically falling floor space sold doesn't bode well for Chinese property?

Wow...Turkey's CDS default probability is consistently a lot worse than Mexico's.  Shows that despite the latter's Trump negative, Turkey has more structural issues: 
 And before we move to sector and companies I really liked this via @Callum_Thomas on the potential for active management swinging back into fashion.  Macro volatility and great dispersion tends to lead to this...I would be in clear agreement this will be a clear investment thematic trend for 2017:

Sectors and companies: 

The financials and Disney have performed best since Trump was elected.  Maybe says more about bond yield shifts?

Big earnings week upcoming...

And as I noted on Twitter after seeing this chart:

We'll get good chance to see if fledgling 'beating lowered expectations' earnings season theme is a runner this week. History says 'yes'

And insiders are neutralising.  Sounds like a stockpicking market to me...

A few other stories, predominately from today's Sunday Times

'One of Bovis Homes’ top investors is pushing for a £5bn merger with a rival after the housebuilder’s chief executive resigned over a shock profit warning. Schroder Investment Management, Bovis’s second-biggest shareholder with a stake of about 6.4%, is understood to have written to Berkeley Group, a bigger competitor, urging it to consider an all-share merger'  Deals in this space tend to occur near peaks...hmm. 

'Ministers are poised to scrap a planned sale of the Green Investment Bank (GIB) to Australian investment firm Macquarie, pushing instead for a £3.8bn stock market listing…The privatisation could be even larger than the £3.3bn stock market listing of Royal Mail in 2013'.  Bit embarrassing.  My guess is a so-so or better market is required for this to happen. 

'Barclays has stepped up its fight against the US Department of Justice over its role in the selling of toxic mortgage securities in the run-up to the financial crisis. A lawsuit filed last month accuses the bank of misrepresenting the quality of $31bn (£25bn) of home loans between 2005 and 2007. Lawyers for the British giant will submit a motion to dismiss the lawsuit in New York in the next 90 days. Barclays is the only bank contesting the allegation that it deceived investors'.  They will settle like Deutsche/Credit Suisse etc. in my view...and much is factored in. I still think the shares are ok value.

And via Seeking Alpha

'Foxconn and its Japanese subsidiary Sharp are considering setting up an display-making plant in the U.S. in an investment that would exceed $7B, CEO Terry Gou confirmed on Sunday.
The plans, which come after President Trump's "America First" inauguration speech, still depend on many factors such as investment conditions that would have to be negotiated at the state and federal levels'.  Interesting if it happens

'Saudi Basic Industries Corp. has signed an agreement to acquire the 50% that it doesn't already own in its petrochemical venture with Shell Arabia, a unit of Royal Dutch Shell, for $820M. The venture, known as SADAF, was established in 1980 and operates six petrochemical plants with total annual output of over 4M metric tons a year'  Another bit of simplification from an oil giant.  

And finally...

I really love the British three pin...

(h/t @PlanMaestro)

Have a great week...

Saturday, 21 January 2017

"Trump’s impact on the global markets: talking tough…but pragmatism will reign"

Since last Autumn I am really pleased to have started writing a regular column for Yahoo UK/Ireland on finance and the investment markets.  You can find here my latest column titled:

"Trump’s impact on the global markets: talking tough…but pragmatism will reign"

Tuesday, 17 January 2017

Ten things I learnt from day two of the Asian Financial Forum

After my day one write-up here, what did I learn from day two of the Asian Financial Forum?

1. In the breakfast panel Lei Zhang of Hillhouse Capital noted that China needed to raise US$1.5 trillion worth of green finance over the next 5 years with 85% likely to come from private sources.  That sounds like a fascinating theme.

2. I also noted clear optimism about Hong Kong's continuing role.  Benjamin Cheng of Standard Chartered noted HK's clear role in connecting China to the rest of the world whilst Tim Freshwater of Goldman Sachs observed 'fantastic' prospects.

3. And the major challenge for the payment technology and cyber security business is...industry standards and then regulation.  I kind of agree with that:

4. In the same panel the most important growth driver was unsurprisingly increased penetration of mobile internet: 

5. A couple of great observations including cross-border payments are up x45 time since 2005 and Melissa Guzy of Arbor Ventures noting that Tencent's Wechat is 'the largest bank'.  The payments and related financial world is certainly changing. 

6. Observations from Raghuram Rajan ex Governor of the Reserve Bank of India included: 

'I see China stepping up' and 'it is time to rethink the global order'

On India: 'no reason why shouldn't become a strong engine of global growth'

'How are we going to provide jobs?'

'Fed in the middle of a very tricky balance'

'Something has to give' re geopolitical frictions

7. A great healthcare thematic seminar noted that companies including AIA are focusing more on vitality ('know your age') prevention rather than simply paying out on events.

I also learnt via Dr Yach of the Vitality Group that 'vitality age is typically 7 years older than your actual age' whilst Dr Tucker of Tucker Medical observed that longevity is up 40 years since 1900.

8. Turning to an insurance thematic seminar the AIA representative said that the company 'would shamelessly adopt and adapt best practices' rather than always seek to lead innovation, meanwhile the life business has bigger barriers to entry due to the need for personal advice.

Meanwhile PingAn are not lacking in confidence hoping that in 10 years time not only will China be the largest insurance market in the world but Ping An will be the largest insurance company...

9. In the infrastructure space Ben Way of Macquarie Asia observed that they were sticking with emerging markets as progressively in the developed market world, IRRs on deals had fallen even on a levered basis to 5-6% which they did not think was attractive.  Additionally in the emerging markets they can 'still buy quite well due to less competition'.  A real key for the development of the emerging market infrastructure space is the attracting of local capital.

10.  Apparently the 'One Belt, One Road' project implies in the infrastructure space 195 projects which could involve the deployment of up to US$300bn.  A lot of money.

An enjoyable conference.  Congratulations to all involved and I look forward to participating again in the future.

Monday, 16 January 2017

10 things I learnt from day one of the Asian Financial Forum

I am attending the Asian Financial Forum (read all about it here) in Hong Kong currently.  Here are ten things I learnt from day one of the Forum...

1. Forum participants are more optimistic about the outlook than this time last year.  As per the poll results below more optimists, more neutrals, fewer pessimists.

2. A majority of Forum attendees believed the Chinese government GDP estimates for 2017 of between 6-6.5% have credibility: 

3. The greatest risk out there is very simple: it is Trump's policies.  A fragile recovery in Europe / Brexit barely register...

4. It is G2 all the way in terms of hopes from investors for the best investment returns in 2017.  Europe and Japan are way down the list. 

5. Thoughts on Chinese currency convertibility however has been pushed back.  Today a majority believe it will be either 'within 5 years' or 'within 10 years'compared to a majority believing either 'within 2 years' or 'within 5 years' back in 2016.  

6. I am not surprised to see that the most popular driver to Chinese economic growth in 2017 remains centred on domestic demand but note how relatively evenly spread this aspect along with proactive fiscal policy, liberalisation and structural reform and belt and road initiatives are.  In short there is not a very clear view.  

7. And the biggest threat to this Chinese growth specifically? Well forget property, social instability and/or local government debt and step forward uncertain US policy under President-elect Trump again...

8. Famed strategist Mohamed El-Erian was very clear in his key note speech noting political instability ('the more ineffective they become, the more vulnerable they become'), a lack of trust ('we have a lack of trust in the system') and in terms of solutions we 'need a policy revolution...and that's unlikely to happen'.  Ultimately however the better news was that at least there was a good amount of pessimism in the system already.

9. And this optimism despite everything was apparent too in the comments by Klaus Regling of the European Stability Mechanism who noted that 'Europe is not falling apart' as 'uncertainty does not always lead to problems' and that a far greater proportion of European citizens had seen real income growth recently than their equivalents in the US.

10. And staying with the positive comments a star-packed China panel including the Chairmen of PWC Greater China, China Huarong Asset Management, Sinochem Group and China Construction Bank Corporation concluded that 'opportunities are greater than challenges' and 'China's economy survives despite all the naysayers'.  There was even a bit of breaking news for stock watchers as reported below by Fast FT:

The head of Chinese state-owned conglomerate Sinochem has firmly denied plans to merge with rival chemicals firm ChemChina, after reports of discussions unnerved investors betting that ChemChina will buy Swiss seeds and chemicals maker Syngenta.
In response to a question of whether Sinochem planned to buy ChemChina, Ning Gaoning, known to international investors as Frank Ning, told a forum in Hong Kong: “No, this rumour is very old.”

Looking forward to more insights on day two (Tuesday)! 

Sunday, 15 January 2017

Stories we should be thinking about

Here are a few finance and related stories to be thinking about ahead of the new working week...

Macro matters:

I am travelling for much of this week...and on my Twitter pinned question musing about whether people in Hong Kong will be thinking about Trump or China or something else.  Maybe both the former two judging by the below...

One big story today...and Tuesday's speech by the UK PM on one report sounds so modest...

'Prime Minister Theresa May will use a major speech on Brexit next week to call on Britons to reject the acrimony of last year's referendum and unite around the vision of a Britain more open to the world, her office said on Sunday' (link here)

However...other reports like this one from The Sunday Times is much more aggressive:

A Downing Street source said last night that May had “gone for the full works”, although the prime minister’s staff admitted her words were likely to cause a “market correction” that could lead to a fresh fall in the pound.

And the UK Chancellor the Exchequer in an interview with the German press is also quite dogmatic (link here):

we will operate in a rational and sensible economically driven way. But we must have overall control. At the moment, we don’t have any control

And look what it has done with the Pound...

My view would still be that fears are just too high here...let's see the reality of Tuesday.  Darkest hour is before the dawn...

A few other charts of interest...

Many analysts and investors fear China’s bitcoin market is quickly turning into another time bomb like the scandal-hit peer-to-peer (P2P) lending sector (link here).  Yes, i would not trust it too...and look at those recent bitcoin price falls too...

Lots of growth potential in the packaged water industry...

 Still rising debt in Japan...

...another reason why I believe the yen will continue to fall.  

How hard is it to tell the difference between 'developed' and 'emerging' countries?

Important to time the market?  Absolutely...

...although recent calendar year successive annual gains has been very impressive.

And a rising S&P in a time of rising interest rates is generally not unprecedented.  

Sectors and companies: 

Earnings seasons is always important but as I noted on Twitter:

Beating lowered expectations in the via
The old earnings season shuffle!

Yes, the US / global earnings season starts to kick in hard from Tuesday: 

Interesting from The Sunday Times at one of my preferred investments - which runs the Premier Inn and Costa franchises:

'The board of Whitbread has 10 directors. Not one of the six non-executive directors has any previous experience working in the hotel, coffee shop or pub trade — which is what Whitbread’s business actually is. Nor do the chairman, the chief executive or the finance director'

And finally...


Have a great week...

Friday, 13 January 2017

"Fund Manager Chris Bailey talks about an opportunist 2017 for investors"

Pleasure to appear again at London South East again to talk about the world.  View the video above or click here.

"Chris Bailey, Fund Manager and Founder of Financial Orbit Limited, believes 2017 will be an opportunistic year. Macro-volatility with Brexit and US uncertainty, together with a lack of dispersion in the stock market and stock level opportunities create an interesting backdrop for active investors. Sector anarchic and differentiation is needed. Look for companies with loyal costumers, strong balance sheets and a market position that can be sustained. Choose gold over bitcoin. Ultimate, Bailey predicts that the Pound will go up against the US dollar, the Eurozone will be ok and emerging markets will be really interesting"

"What do you fancy? A rampant FTSE 100 or a recovering Pound?"

Since last Autumn I am really pleased to have started writing a regular column for Yahoo UK/Ireland on finance and the investment markets.  You can find here my latest column titled:

"What do you fancy? 

A rampant FTSE 100 or a recovering Pound?"