The Ingham Analytics Weekly Letter on Sunday - 7 February 2021
Sunday, 7 February 2021
Welcome to our Ingham Analytics Weekly Letter on Sunday where we take a step back to see wood for trees, in South Africa and around the world - not too seriously, we tell it like we see it, and with a touch of humour, it is Sunday after all.
Last week in the Letter our theme was cabin fever. Tomorrow, we are issuing a note "Stop the Game - I want to get off" in which we strip away the popular narrative on the GameStop saga. The cold, clinical figures make for scary reading. There is a chain of events described in this note that any get-rich-quick trader may want to consider before getting caught up by chatroom gossip. It is a salutary warning of greed and fear getting in the way of rationality, with few winners and lots of losers.
Dark mutterings around Wall Street vs the little fellow are doing the rounds with leftist politicians like AOC in America weighing in. Conspiracy is in the air. Short-lived glee at fleeting profits has been replaced by indignation, defiance and desperation. Anonymous (cowardly) antisemitic conspiracy theories have sadly done the rounds on social media.
In our 24 January Letter we wrote that politics isn't our field, but we can spot hypocrisy a mile off. The word is borrowed from Greek hypokrisis which means playing a part on the stage, pretending to be something one is not. It can lead to accusation, even if false or misconstrued.
In the past week or so, hypocrisy was on rampant display - including by the EU Commission. The EU not only tore up contract law with respect to perfectly valid vaccine orders by the quick-thinking Brits but unilaterally tore up Article 16 of the Northern Ireland Protocol, only signed off 29 days prior. In so doing it imposed a land border on the island of Ireland. The Article, a last resort mechanism in only the gravest of circumstances, was invoked in a fit of pique. One politician even had the gall to blame the whole thing on Britain. It also ran hobnailed boots over the fragile Good Friday Agreement.
The actions of the EU caused disbelief in Dublin, consternation in Westminster and Northern Ireland's First Minister called it an "incredible act of hostility". To get Sin Fein, the Democratic Unionist Party, and the Irish and British governments to all agree is quite something. The International Chamber of Commerce, which represents 45 million companies in over 100 countries, sent a stern letter.
The EU retracted but as is typical took zero responsibility for the actions. Lasting damage was done. For investors and businesses, the EU's so-called commitment to a rules-based order has been seen to only extend to the bloc's own benefit, devoid of principle and knee-jerk opportunistic. So much for international co-operation. The legal basis of trade deals will be questioned. Companies will think twice before investing in Europe. It has sullied the post-Brexit deal within one month.
David Baddiel is a popular English comedian, novelist and television presenter. This week he published a book entitled "Jews don't count." A double-first graduate of Cambridge, for us he has a canny ability to bring humour into often awkward subjects; as an example, he did a documentary about how his family coped with their father's dementia.
His latest work, 144 pages and 28,000 words, is brave and refreshingly without sanctimony or victimhood. It is just as relevant to the GameStop saga and other issues, including the US presidential election or BLM, as it is to the delicate subject he addresses.
His central contention is that, in a time of identity politics, when all and sundry cry persecution, there is one ethnic minority large numbers of progressives do not want to hear from: Jews. Mr Baddiel skilfully weaves a philosophical argument and faces up to many examples of naked hypocrisy towards Jews and the stereotypes that go with it. Those without sin can be quick to cast stones but can turn a blind eye to anti-Jewishness or cover it up in being anti-Israel.
Sir Simon Schama, the English historian, wrote of Mr Baddiel's book "The whole book is just brilliant - and very much needed" whilst Robert Shrimsley of the Financial Times wrote "Depressingly superb."
Back to the WallStreetBets goings on, we noticed this week that net purchases of Ford stock by US private investors has been rising sharply, pushing up the price after years of going downhill. Ford reported Q4 and full year results this week. The Ford F150 truck remains the mainstay for the company but the results release was headlined by EV and AV "leadership" worth $29 billion. This comes at a time when it's traditional ICE business still needs work and by its own admission semiconductor and battery availability remains a challenge. In Consumer Reports magazine's annual reliability ranking last November in the US, the Ford brand was 22nd among 26 car brands, down six, and the luxury Lincoln marque was rated last.
The CEO of Ford Jim Farley, four months in the top slot, has made EV's a future focus but funding that will be problematic. This week Ford even signed a partnership with Google that is centred on "connected" vehicles and the reams of data that'll come out. Ford invested $500 million in electric-truck maker Rivian Automotive in 2019 and will book a $900 million gain in 2021.
EV these days has this halo effect that may just boost your share price, Tesla here we come. It's the same over at General Motors. Kia, owned by Hyundai Motor Company, is talking with potential partners to assemble Apple's proposed electric car in Georgia by 2024. The Hyundai share is up too on the Korean exchange.
Rare, good news locally this week was that Ford is investing $1 billion at its Silverton plant and supplier base to thoroughly modernise and boost output to 200,000 Ranger units a year, including VW pick-ups as part of the joint arrangement.
Over in Asia, Chinese ecommerce behemoth Alibaba raised $5 billion in bonds, one stretching out 40 years, whilst the big listing news in Hong Kong on Friday was Kuaishou Technology, the startup with a TikTok-style video app. A market cap of around $160 billion compares with a pre-listing pricing of $61 billion. Kuaishou is backed by Tencent so if you own Prosus you'll be able to share indirectly in the glow. The listing was heavily subscribed - institutional investors placed orders of 39 times the share originally offered.
We wrote in our 5 July Letter about the emergence of China tech in the listed environment, mentioning that Hong Kong has a thriving financial services sector and keeping it that way is important for both Hong Kong and China. With sabre rattling about Chinese firms listed in the US we expect to see more secondary and primary listings there - New York is no longer the main game.
In 2019, more money was raised in Hong Kong IPO's than in New York, largely through mainland Chinese firms. Chinese financial firms are also rapidly supplanting Western firms as they build their capability and arranged 60% of the funds raised, ahead of international firms. The buyers of the deals are increasingly wealthy investors in China and the Asia Pacific region.
Going back to the EU and Brexit, and with reference to financial markets, Jes Staley, the American chief executive of Barclays argued in an interview with the BBC this week that the City was likely to come out ahead now that the UK has removed the shackles. "I think Brexit is more than likely on the positive side than on the negative side" ... "I think what London needs to be focused on is not Frankfurt or Paris (but) New York and Singapore".
This view from Mr Staley, who spent over three decades at JP Morgan, squares with what we're seeing. There has been no mass exodus from London to the Continent, certainly not stuff of much value. And London is now able to trade in Swiss equities, which the EU banned - again in a fit of retribution. The strategic objective, backed by the Conservative government, is to switch the City back to its historic global role.
Asia Pacific is a growing region, with increasingly world-class businesses, and pushing the frontiers of innovation. It makes much of Europe resemble a museum.
Interestingly, Hong Kong Exchanges and Clearing Limited (HKEX) bought the famous London Metal Exchange a few years ago, an acquisition that has worked well for both parties and expanded Hong Kong into commodities. The LME traces its roots back to 1571 and was formally founded in 1877. In late 2019 HKEX approached the London Stock Exchange with a takeover bid that was rebuffed. The LSE went on to buy Refinitiv, a deal that closed last month, creating a strong competitor to financial data leader Bloomberg.
A London/Hong Kong stock exchange tie up, a combined market value of $140bn, could still make sense, with unparalleled time-zone, legal, accounting, regulatory, language, clearing and execution advantages - and with a hotline to mainland China but retaining strong links to US markets.
We issued our updated thoughts on Sasol this week entitled "All that glitters?" and cautioned that despite a higher oil price, with Brent crude futures almost touching $60/bbl, Sasol isn't out of the woods and a potential rights issue could still loom large and be dilutive.
Now that the liquor stores are open again, whisky is a refreshing topic to end off with - and a good investment it appears.
Rare whisky has outperformed several of the most over-the-top tech stocks - and the nice thing is whisky doesn't lose value, which equities all too easily can. And if your equities do lose value you can always drown your sorrows with one of the bottles.
Last year, a bottle of Yamazaki 55-year-old whisky sold for $795,000 at an auction in Hong Kong. So, it's not just Glenlivet or Macallan. Auction house prices indicate a five-fold rise in rare whisky over a decade whilst major US equity indices are up 150%. Over five years whisky is up 260%. Classic cars apparently are a close second, having doubled. Whilst cost of storage and auction commission can be quite high, it seems as though the opportunity cost of holding on is worth it. Just watch out for fakes, they do exist.
Whisky steals the show from equities and our big deal of the week.