The Ingham Analytics Weekly Letter on Sunday

Welcome to our Ingham Analytics Weekly Letter on Sunday where we take a step back to see wood for trees, taking stock of things that grabbed our attention during the week that was, not too seriously, and with tongue in cheek.

The office circa 1990 and just maybe in the future too

This week we’re taking a look at business travel, down but hopefully not out in future, commercial property trusts, an alternative to Volkswagen ordinary shares, the tech homecoming trend in Hong Kong, a sobering independent report on Scottish finances in the week that a new independence party was launched and finally GameStop in the week that it released predictably atrocious results, mere detail for the punters.   

First off, cheerio for now to Michael Skapinker. A South African export to England, Mr Skapinker, Wits and Cambridge educated, has served in several journalistic positions at the Financial Times since 1986, the past three years as a business travel columnist. He has now retired to “explore other things.” His classy ending to the final column? “Thanks for your company.”  

Ah yes, business travel. Remember that before the curse of Zoom?

Mr Skapinker acknowledges that business travel may well diminish post COVID-19 but he also avers that “if we stop visiting each other, we will, in important ways, be diminished.”

This is true. From broadening the mind, to vistas new, to unimagined learnings, to chance and memorable encounters, perhaps a greater appreciation for what you have, to readings from body language, traveling has much to recommend it. Enduring commercial deals were always struck on a firm handshake, a steady look-you-in-the eyes and a kick of the proverbial tyres. It matters more than a piece of paper. Discombobulated video conferencing software, misnamed as communication platforms that typically achieve the opposite, do not cut it.     

Interestingly, Mr Skapinker wrote two years ago about why he’d stayed at the FT for so long. One was he felt at home. Another was that the FT had a final salary scheme, rewarding long service. Yes, we remember final salary pensions well, now all-but ancient history unless you work for government or that obese bureaucracy the European Union where platinum plated goodbyes are standard fare.

An office or factory environment in most situations is necessary for effective people management, productivity, interaction and the manufacture and delivery of goods and services. You can’t run a government department from everyone’s bedrooms and cars are not made in living rooms.

Whilst necessity has become the mother of invention during the COVID-19 pandemic, at some point a return to relative normality is inevitable. Whilst some white-collar jobs may have this mix of at-home and in-the-office, for most jobs out-and-about is the only way.

We have had a sense that the post COVID-19 world may look rather similar to the pre COVID-19 world. Just this past week, film buffs flocked to movie theatres in Los Angeles. Two weeks ago, theatres in New York opened. Space restrictions are in place, but every available seat is taken. Most do not care which title is being screened, they just want that going out experience to see a new movie screened live.

Box-office revenue in America fell by 80% last year but early theatre re-openings are tentatively positive for future takings. Streaming via a Netflix has its place, but the experience of getting dressed up and seeing a movie and then heading off to an eatery has much to recommend it. And let’s face it, a date in your living room just isn’t romantic.     

We’ve kept close tabs on real estate investment trusts during this past year of lockdown. What is apparent in developed countries is how well occupancies are holding up for offices, logistics facilities, retail and residences. There is little evidence of tenants in numbers throwing keys into the landlord’s driveway and marching off. Dividend payouts have also held up quite well with many keeping dividends unchanged. 

Whilst JSE listed REIT’s have been hammered, if you are keen on bricks and mortar as an investment there are several good property trusts listed in the developed markets of US, Canada, Europe and Asia-Pacific. Yields are often attractive and if the ordinary share is not to your taste because of perceived volatility there are preference shares available too. Canadian REIT’s typically pay a common dividend monthly which is nice for those reliant on regular income.            

We referenced Volkswagen in the context of electric vehicles last week. Whilst the ordinary share is tightly held, with a free float of 10%, for most investors getting a decent line of stock is doable. You can also buy the non-voting preferred share on the Xetra Dax which has a larger float and gives you the same economic interest. And the prefs are cheaper, by around 20% as of Friday. So, buy a Golf and get an Audi instead!  

Tech shares have entered a long overdue correction phase but in most instances are still too pricey for our blood. Chinese tech stocks have been under pressure of late sparked by fears of regulatory tightening in the US, which may mean you could be kicked off a US exchange if you don’t comply, and the Chinese government sabre rattling, as seen by the failure of Ant Group to list late last year.

A homecoming trend is benefiting the Hong Kong Exchange with twelve Chinese firms as of this week having a secondary listing in addition to a US listing. The money raised is $34 billion. Baidu was the latest, listing this week and raising $3 billion. A Hong Kong listing removes the overhang risk of a possible US delisting and it also introduces new shareholders.  

We point out that liquidity so far on the Hong Kong stock market is generally much less than in New York.  There is also stamp duty of 0.1% to pay in Hong Kong. To date, the dual-listed Chinese stocks are not part of the Stock Connect system that links the Hong Kong stock market with the mainland exchanges.

These factors, together with brokerage charges and reduced liquidity, may mean that an arbitrage trade between the two stock markets, also affected by time zone difference, may not work out in practice for sizeable volumes. But in time we think Hong Kong share trading and listings will gain traction. The fact that there is no withholding tax on dividends and that the territory has such a well-established and sound regulatory, audit and legal framework, adds to its appeal.   

The TaxPayers’ Alliance is an independent thinktank in the UK set up in 2004 to scrutinize government spending and fiscal management. They leave no stone unturned to hold all levels of government to account and be accountable. This scrutiny in a democratic first world country, along with a healthy opposition, is a valuable check on politicians.     

This week the TPA published a paper that quantified the fanciful notion of Scottish independence. Misty eyed nationalists with a romanticised idea about an independent Braveheart care not to see the financial implications. The TPA document lays bare just how financially dysfunctional Scotland is, making a country like Greece seem like a paragon of fiscal rectitude. The reality of course is papered over by massive subsidies from London and with Scotland less than 8% of UK GDP it tends to get diluted. A new independence party called Alba was launched this week to saltire fanfare. The new leader, the previous SNP leader, clearly has not downloaded a copy of the TPA Nightmare on Princes Street.        

And finally, GameStop never ceases to amaze, this David and Goliath tussle between everyman and the Wall Street hedge funds. This week GameStop released results for the 13 weeks and 52 weeks ended 30 January. And predictably atrocious they are too. But much like the Scottish nationalists this is mere detail for the bravehearted Reddit brigade against the Melvin Capital’s of this world. We have continued to analyse the psychology and financial aspects around this trade. This week we issued “Is GameStop a bathtub drain?” and “Is this true insanity?” If you’re interested in the rather less exciting US government bond market, then check out “Are more treasuries gonna get shaken loose?”

Thank you all for reading our Sunday Letter.