In idiot America, for equity investors, what difference does it make?
THE DEVIL WILL FIND WORK FOR IDLE HANDS TO DO
A friend of mine said to me on Monday: "you won't be short of something to write this week!". Not that I usually am, as I generally have an opinion, often unwanted, on most things. But last week was really something special, and that remark was the understatement of the year so far.
No matter how bizarre the news from around the world was last week, fake or otherwise, from reports of mass electricity blackouts in Italy, Pakistan and Iran - which the conspiracy theorists link to US election tampering - to the Pope supposedly being arrested during one of them, nothing could distract us from the political hysteria in the United States and one nation controlled by the media.
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CAN YOU HEAR THE SOUND OF HYSTERIA?
The headlines in the US press were alarming, with the protesters inside the Capitol building now being likened to the attack on Pearl Harbor and 9-11. Fringe quarters even floated the idea that a smokescreen was created by the Washington demonstrators so that US Special Forces could steal a hysterical Nancy Pelosi's laptop. At least there was some truth to the notion that an "unhinged" President Donald Trump would be impeached for a second time after being kicked off grubby social media platforms in disgrace.
US House Speaker Nancy Pelosi. Wouldn't you be mad if someone stole your laptop? Photo: Reuters
Ripples from the last days of the Trump administration also washed up on the shores of Hong Kong, with nearly 500 US bank structured products, mostly index warrants, with out-of-favour Chinese stocks in the underlying indices being hastily delisted from the Hong Kong stock exchange. Foreign brokers, not necessarily American, were also in a tizzy around town, unsure if they could match sell orders in their trading systems for the stocks. But local investor sentiment was undented, as there is still plenty of money sloshing around and Hong Kong equities prices remained firm. After all, some enterprising index provider, or newspaper, will fill the void left by the delisted derivatives.
DON'T WANT A NATION UNDER THE NEW MEDIA
Despite the wacky news flow, global equity markets went higher. Nothing fazed investors who seemed to dismiss much of what was supposed to be going on as complete rubbish.
On a very short-term view, it would be fair to assume that there is a disconnect between the political mess in the US and what investors think about the future of the global economy - at least for the moment. On the slightly longer-term view, this disconnect between the state of economies and equity markets has been with us for most of last year.
What has been largely responsible for pushing equity markets higher since the spring of 2020 is the amount of money pumped into economies globally, which was somewhere around US$20 trillion at the end of November according to CNN.
The firing of central bank money bazookas - measured as a percentage of GDP - has been led by the experts at monetary easing, the Japanese, followed by the Canadians and the Australians. Although Japan is taking a hit from the current wave of Covid-19 and now has two new strains to deal with, infection rates remain relatively low when compared to Europe and America. Japanese people, having already demonstrated that they prefer to squirrel away any helicopter money they receive rather than spend it, are at it again. The boost to savings was not spent, but went into stocks, propelling the Japanese Topix stock market index up 52 per cent since the start of the pandemic, though it could not get near the S&P 500 index's gain of 70 per cent over the same period.
I THINK I CAN RELY ON YOU
The buying of securities and financial products in 2020 pushed exchange traded fund (ETF) inflows in the US to an all-time high at a whopping US$509.4 billion, leaving the previous 2017 record of US$476.1 billion in the dust. It was also a record year for ETF launches, as well as closures, as money moved from passively managed to actively managed ETFs.
One shining star, which has also attracted the interest of Hong Kong investors, was Ark Invest's series of funds that focus on future and disruptive technologies - a theme that is after my own heart. Its innovation fund returned 170 per cent in 2020.
I believe the weight of money from ongoing stimulus measures is going to continue being felt in the markets, especially as some of the larger economies such as Japan, Britain, Europe and the US continue to see wave after wave of the coronavirus.
Adding to this, there is a strong argument for massive reflation post-Covid-19 as vaccinations really get rolling and show us some light at the end of the tunnel. The risk, though, is if one or more of the vaccines turn out to not work as expected. There are questions currently being raised by the Brazilians about the effectiveness of Sinovac vaccines sold to them by China. A big shock such as the Pfizer-BioNTech vaccine being a bust or ineffective against new emerging variants could make markets temporarily tumble.
Markets could tumble if the effectiveness of coronavirus vaccines is called into question. Photo: EPA
SO WHAT DIFFERENCE DOES IT MAKE?
Whatever was on Nancy Pelosi's stolen laptop, or what may unfold ahead of President-elect Joe Biden's inauguration and President Trump's exit from the White House, is at this point anyone's guess but the potential to disturb the markets remains.
I am not turning negative on equities, and I think we will continue on an uptrend. But we could have a very bumpy ride ahead. I'll be looking at interesting investments in cybersecurity following the security breaches in the US; fintech and digital currencies; factory automation, robotics including self-driving and electric car technology; virtual reality, and themes to do with socialisation and entertainment at home, since going out isn't likely to be much fun for a while.
NOW EVERYBODY DO THE PROPAGANDA
President Trump's sleeves may be all out of cards as far as "evidence" that the election was stolen is concerned, but trouble has been a long time brewing and by Wednesday we may see more violent outbreaks from demonstrations in Washington and around the country, which gives us a few white-knuckle days to hedge, de-risk or just hang on tight and get ready to buy the dip.
In some circles, the "election steal" and possibility that Trump voters will rise up to defeat the Democrats is being likened to George Washington crossing the Delaware River in December 1776, kicking off the War of Independence. George's part in defeating the British put his face on the one dollar bill. Perhaps Donald wants that too.
The more I think about it over a lightly buttered crumpet and a cuppa tea whilst humming The Smiths to block out my favourite Green Day song American idiot ... I think we both won that war.
Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
