August has always been a slow month for market activity and, seemingly, this year is no different. Trading levels have already dropped off and many market makers are away from their offices holidaying no doubt somewhere in the UK. So, I thought this time, I would cover a variety of recent topics just in case anyone takes these briefing notes for holiday reading!
A French asset manager is set to launch an EU-regulated fund that closely tracks the price of bitcoin, marking one of the first times that investors will be able to access the hyper-volatile asset through mutual funds across the EU bloc.
Paris-based Melanion Capital, a derivatives and computer-driven fund manager that has been expanding into digital assets, has recently received approval from the French regulator to launch an exchange-traded fund that complies with the EU standards known as UCITS. The fund will track a basket of up to 30 stocks in sectors such as cryptocurrency mining and blockchain technology, which Melanion says is up to 90% correlated to the price of bitcoin.
Footy or footsie
Spain’s top football league, La Liga, has agreed a €2.7bn deal with CVC Capital Partners that could bring private equity into a major European league for the first time, sparking strong opposition from Real Madrid, one of its biggest teams and one of the biggest clubs in the world.
The deal with La Liga, which has not been agreed by clubs, values it at just over €24.2bn. Under the project, named ‘La Liga Impulso’, CVC would take a minority stake in a newly created entity that would manage broadcast, sponsorship and digital rights for the league, which runs Spain’s top two football divisions, but would not take over its regulatory powers. Just under €2.5bn of the investment would go directly to clubs over a three-year period, according to two people with knowledge of the deal.
Real Madrid and FC Barcelona, Spain’s most successful clubs have been embroiled in a dispute with La Liga over plans for a breakaway European Super League, would stand to receive about €260m each. However, Real Madrid is opposed to the deal. Its executives were left out of the negotiations and the club felt it had been blindsided. Barcelona’s position is not yet clear.
Regulate? No thanks, we are doing our own thing!
A wave of UK government reforms designed to make the City of London more attractive after Brexit has already had one unintended consequence in that finance industry executives are cancelling summer holidays to deal with the workload.
The sheer volume of consultations meant there was no time for a break this August, said a policy specialist at one of the largest British asset managers. It seems to be overwhelming at the moment following a plethora of announcements from the Treasury in the past few months.
For politicians keen to take advantage of newfound freedoms and escape what they see as ill-fitting rules dictated by Brussels, the reforms are vital to ensuring London remains competitive as a leading financial hub. However, many of the leading asset managers are sceptical of the rhetoric about cutting red tape, not least because they operate globally and want rules that allow them to continue to access markets with the least cost.
Documenting a Chinese crisis
A document circulating among Chinese banks in early July has caused unease among investors and local officials. Known as ‘Document No. 15’, the regulatory directive says that banks should stop lending to heavily indebted local-government financing vehicles. These are companies set up by city or provincial governments to finance building projects and public works.
The groups, which have not so far been allowed to default, have about 48.7trn yuan ($7.5trn) in debts, 11.9trn yuan of which is held in fixed-income securities. They routinely use bank loans to pay interest on bonds. Ending the steady stream of credit is a recipe for turmoil if banks do not give them a blood transfusion, a local investor told Chinese media, LGFVs will face a default crisis. Little comment has been forthcoming from the authorities but there has been no denial about this document.
Bonds still negative
The value of the world’s stock of negative-yielding debt has ballooned to more than $16.5tn, the highest in six months, as a relentless global bond rally drags borrowing costs below zero.
Government bond yields have tumbled in recent weeks as some traders have piled in, a move that has blindsided many investors who expected an economic rebound from the pandemic along with rising inflation to lift long-term borrowing costs. While some of the biggest moves have come in the US Treasury market as traders unwind their bearish bets, bonds in Japan and the eurozone, the two main bastions of negative-yielding debt, have also benefited.
Youngsters targeted by scammers
One-third of people questioned in new research about fraud said they had been scammed in the past three months, underlining how the growth of online shopping has expanded the opportunities available to criminals. In a survey of 2,000 people commissioned by Barclays Bank and conducted in July by Mortar Research, 34% said they had been the victim of a scam in the past three months.
Younger people were defrauded more often than older groups, countering the assumption that elderly people are both more vulnerable and more heavily targeted by fraudsters.
How far shall we go for our holiday?
Thailand’s baht has gone from being one of Asia’s strongest currencies before the pandemic to one of its worst performers this year as the coronavirus crisis ravages its crucial tourism sector. The Thai currency is down more than 9% against the dollar since the end of 2020, placing it among this year’s weakest performers globally alongside peers such as the Turkish lira and Peruvian sol.
The loss of tourism dollars on which Thailand’s economy relies, combined with a wave of Covid-19 infections that has quashed hopes of a quick economic recovery, have turned formerly bullish buyers of its assets into bears.
BP buying back – again!
BP became the latest energy group to try and tempt back investors as an upswing in crude prices boosted second-quarter results and allowed it to raise its dividend and announce a $1.4bn share buyback programme.
Bernard Looney, chief executive, who has started to pivot the business over the long-term towards renewable energy since taking the helm last year, said the company was raising its dividend 4% and would have the capacity to increase it by a similar amount each year to 2025. He told the Financial Times that if oil prices remain above $60 a barrel, share buybacks could be increased even further.
Bankers and their bonuses
Rishi Sunak, the Chancellor, is resisting pressure from investment banks to ditch the cap on bankers’ bonuses, in spite of warnings that the City of London risks losing its competitive edge to rivals such as New York, Frankfurt and Paris.
Bankers are pushing for the cap, which sets a limit on bonuses of two times salary, to be scrapped this year as part of a series of reforms designed to make London more attractive after Brexit. However, surprisingly Sunak has resisted putting it on his agenda for now, reflecting fears that the move would be politically unpopular.
How much are your greens?
The world faces a growing paradox in the campaign to contain climate change. The harder it pushes the transition to a greener economy, the more expensive the campaign becomes, and the less likely it is to achieve the aim of limiting the worst effects of global warming.
New government-directed spending is driving up demand for materials needed to build a cleaner economy. At the same time, tightening regulation is limiting supply by discouraging investment in mines, smelters, or any source that belches carbon. The unintended result is ‘greenflation’, rising prices for metals and minerals such as copper, aluminium and lithium that are essential to solar and wind power, electric cars and other renewable technologies.
Should you need any further information on any of these topics or need any further advice, please contact your Prosperis adviser on 01423 223640 or email firstname.lastname@example.org.