The FSA Spy market buzz - 17 June 2016

By FSA Spy

Added 17th June 2016

Cuts at PIMCO, Brexit paralysis and analysis, Axa IM thinks no is yes, The Fed finds any excuse, Shariah funds back in focus, Janus and weight gain, advertising from Value Partners and much more.

The FSA Spy market buzz - 17 June 2016

In an alarming development this week, Spy’s domestic-commander-in-chief has suggested he shave off his beard that has adorned his face for 32 years. According to her ever-reliable news feed on Facebook we are past “peak beard” and she thinks it might be time for him to become clean shaven; “trendier” was the word used. Spy can think of heretics burned at the stake for less. No, like a portfolio manager who still reads company reports instead of sell side piffle, Spy will cling to his beard, as unfashionable as it may be, thank you.   

So, Pimco is trimming its workforce – 3% of staff are to go according to numerous reports. No talk of specific cuts in Asia. The irony, thinks Spy, is that bond funds, for which Pimco is best known, have actually done quite well of late. Take Pimco’s own $8.3bn Investment Grade Corporate Bond Fund up 6.33% year-to-date or take their giant flagship Total Return Fund with $86bn, up 3.25% year-to-date return. Admittedly, not exactly stellar in the latter but a whole lot better than the last two years. A case of trimming as the tide has turned?

The US Fed found reason to stay its hand once again this week and keep rates on hold, blaming low inflation and ill-disguised concern for global growth (and did anyone really think a rate raise would come just before the Brexit vote? Think of the volatility). For the better part of a year the Fed has been creating the impression of a chicken reluctant to cross the road. It bottled the September move, hiked in December when the market forced its hand, and has sat on its hindquarters this year with weasel excuses (Spy is good at mixed metaphors). The chances of a hike coming before Q1 2017 appear almost zero. Spy is reminded that Jupiter forecast in March that the next Fed move would be DOWN not UP. That is looking like a very interesting call.

Spy enjoys poring over the research notes he receives from private banks and asset management firms. Often they have useful views and data that he can claim as his own when he’s drinking in bars. There is one key theme of late. Spy has received no less than 19 PDFs, all from different firms, focused on…Brexit. After the June 23 vote, his inbox could be nearly empty.

Speaking of Brexit -- something everyone seems to be ding -- what started as a sideshow is now the only talking point in town, thinks Spy. At last half of Brits really do seem awfully agitated about the EU, and every government, think tank and central bank is now positively alarmed at the prospect that Boris and his band of merry men may ruin the EU party. The markets have taken a swoon, decisions are being delayed and the airwaves in Europe are filled with little else. How will Brexit affect Asia, if at all? Well Singapore already has a full free trade deal with the EU and was the first one concluded with an ASEAN country. Hong Kong has a free trade deal with the periphery European Free Trade Association countries which include Norway, Switzerland, Iceland and Lichtenstein. Hong Kong relies on British free market enthusiasm to counter core-Europe’s protectionist ways. Its historic political link to Britain affects its own EU relationship and the UK is a very useful ally in the hunt for an EU/HK trade deal. In the case of Brexit, HK may need a best new European friend.

Spy gets a deluge of research notes, and this week’s curious one came from Axa IM. Aidan Yao wrote that the MSCI saying “no” to China A-shares on its global indices earlier this week is actually not a yes or no answer, but an “in-between option", essentially because the MSCI also promised to have another review in the future. Spy sometimes demands clear logic. In this case, he finds it hard to understand how rejecting A-share inclusion on the decision day is, in reality, not a yes or no answer. Is Axa concerned Chinese authorities are also reading its research notes?

Spy wonders whether Shariah funds might be moving out of the shadows. In an interesting blog post this week, Mark Mobius of Franklin Templeton points out that, the “MSCI Islamic Total Return Index has largely mirrored the performance of the MSCI Emerging Markets Total Return Index since 2002 with some slight variations, while generally outperforming the MSCI World Index". Locally, Malaysia and Indonesia should represent decent market opportunities for Shariah-compliant funds. But, in Spy’s opinion, the real game changer could be Saudi’s shift to a more active and engaged relationship with the world as it sells off part of Aramco and unleashes an investment tsunami. Watch this space?

Heard the one about the Obesity ETF? Janus Capital thinks we are all getting too podgy; Spy’s DCIC would agree. So this month Janus is giving investors the chance to profit from the obesity battle with its new thematic ETF launched on the NASDAQ under the ticker SLIM (get it??). According to Janus there are 640 million obese people, a 600% increase in the last 40 years. In its top 10 holdings, making up nearly 20% of the fund, is Danish insulin maker, Novo Nordisk. This is a company also loved by Capital Group -  it is a key holding in their New Perspectives fund, as attendees of FSA’s recent Growth Forum would have learned. Salad anyone?

Spy's photographers in Hong Kong found that Value Partners reserved a corridor wall in the well-trodden Central MTR station to promote several funds such as the Value Partners Classic Fund:




 ...and Wing Lung Bank is on the trams, asking Hong Kong residents to consider funds offered through the Mutual Recognition of Funds initiative:



Until next week...

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