The FSA Spy market buzz – 18 Mar 16

By FSA Spy

Added 18th March 2016

Dimensional gets underway; China joins the silver bandwagon; Gold versus negative rates; a star sector falls; Drone ETFs; and much more...

The FSA Spy market buzz – 18 Mar 16

Spy was in Kowloon this week with some fund analysts, watching Barbados trounce England in the World T20 Cricket Cup.  Enjoying some Caribbean cheer in the form of a Mount Gay Rum and Coke, news broke of the British Chancellor’s new sugar tax in the budget. The Spy lamented the truism that if it is fun or delicious, a government will find a way to tax it or ban it. Singapore, Malaysia and South Korea are the most obese countries in Asia, according to medical journal, The Lancet. Spy suspects this tax will come to Asia, too. What next, buying Sprite and Fanta in Duty Free?

Word is that Joel Teasdel will be based in Singapore on the 4th of April for Dimensional (as reported here earlier). Joel will be promoting their range of smart beta funds to banks and IFAs. Dimensional is renowned for flying advisers to their headquarters in Austin, Texas to get hands-on training. They are also highly academic in their approach to fund management and regard it as a science. 

In another relocation, Mirae Asset has brought Jin Kim from the firm’s Seoul headquarters to Hong Kong to take up the role of senior ETF portfolio manager.

A surprise for Spy – and he is seldom this surprised – is that nine of the ten worst performing funds year-to-date and for sale in Asia come from one sector. Strange, because typically there is more diversity among dog funds. Which sector? Commodities would be the first guess, but incorrect. FE data shows that it is biotech. What a reversal from a year ago when healthcare/biotech was soaring.

China Construction Bank has joined peers such as HSBC, UBS and JP Morgan Chase to set the London Bullion Market silver price, one of the world’s most important precious metals markets, reports Zerohedge. Look for the US dollar correlation to silver to loosen as the RMB contracts get traction, the report says.

China also made the news this week when a CSRC official said the Shenzhen-Hong Kong Stock Connect may be launched sometime in the second half. The two markets were supposed to be connected last year, but the link was halted due to strong market volatility (euphemism for $3trn in market losses) – created by the launch of the Shanghai-Hong Kong Stock Connect! There was a search for scapegoats, and Spy wonders if mainland hedge fund managers are nervous about Shenzhen getting plugged into Hong Kong.

Are funds for sale in Asia too bland? Spy wonders. Take ETFs. This year in Hong Kong, iShares launched the MSCI China A International Index ETF and BMO launched four, three of them MSCI index funds tied to respective indices in Europe, Japan and Asia-Pacific real estate, with one linked to the NASDAQ 100. All good vanilla, chocolate, strawberry stuff. Then look at the last ten days of ETF launches in the US. Pure Funds rolled out one called the Drone Economy Strategy and another called Video Game Tech, while State Street launched the SPDR SSgA Gender Diversity Index ETF. Product teams, any plans for more colorful ETFs in Asia?

Gold is being talked about far more frequently this year – a sure sign of more volatility ahead. Our sister publication Portfolio Adviser has been writing about strong gold inflows recently. And in Hong Kong, Kevin Liem, CIO at wealth manager TTG (owned by Swiss private bank CBH), says gold is now starting to make sense. But Spy’s quote of the week on the precious metal is from Roeloff Horne at Miton Optimal: "The historical objection against gold for not paying a dividend or interest is becoming less relevant, when more than 20% of developed market bonds trade at negative yields..."

Spy wonders, after a few drinks, does the popularity of gold and Donald Trump have a positive correlation? Warnings are slowly starting to roll in. In addition to Trump appearing on TTG's radar, Bank of Singapore's chief economist Richard Jerram sent Spy a note saying investors must consider the possibility of President Trump, since he has so far “defied expectations”. He could hit China hard through a proposed 20% tax on imports. “A lot of intra-Asian trade ends up heading to the US via China, so anything that hurts Chinese exports would also damage the broader region.” Other murmurings about US presidential risk have come from Pioneer. Mercer, curiously, does not have a view on Trump, Adeline Tan said recently. Spy, however, expects his inbox to begin filling up with risk warnings by summer.  

Until next time...

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