My Posts (13-19 October, 2024)

After over 25 years in the investment industry in various roles, I’ve realized that my investments should align with my investment horizon, and the information I rely on for decisions should reflect that horizon as well. Put simply, if I were a day trader, real-time updates would be essential. But with my five-year outlook, I focus on long-term trends and make adjustments gradually. That’s why assets like whisky casks resonate with me. Of course, as with any investment, your choices shape your outcomes.

Above photo from Nikkei Asia. Crab conservation efforts on the ground with a long-term perspective is achieving positive results.

Investment

China 

Richard Koo and Zichen Wang on What Just Happened in China (Bloomberg Podcast): China’s government spending is 85% local, 15% central. One of the lowest central government spending in the world says Zicheng Wang of Pekingnology (Substack: https://lnkd.in/gUN8WRRB). Very clear insights.  Richard Koo is informative as usual.

China’s economic ills are serious but not incurable (FT): This is the first time I saw from the Financial Times use the net public debt to GDP of 159% in the article instead of the usual, eye-catching 260%. Although I have to admit, I don't read the FT cover to cover every day.

Emerging Markets and Debt

Global public debt to pass $100tn this year, says IMF (FT): To issue debt, there must be investors. Pension funds, insurance companies, and banks are mandated to buy safe debt, primarily sovereign debt. As long as demand remains high, issuance costs stay low. But what is driving the massive investment in sovereign debt? Could the growing access to pensions and insurance be fueling demand? Limiting issuance might raise investment costs while reducing potential returns—certainly not the IMF’s goal!

Two decades of EM bond history (FT): Managing FX risk is very important yet difficult. Either the bond issuer manages it (they issue in hard currency bonds and manage the FX risk for repayment) or the investor manages it (invest in local currency bonds and hedge the risk as GS is recommending). If you can keep an eye on the market, these will add diversity to your portfolio, if not, I think the marginal expected returns don’t justify the underlying risks.

Expect more emerging market sovereign defaults, says S&P (FT): Financial Times reports that sovereign debt default from emerging economies is expected to rise. The restructuring bonds could be an interesting asset class to consider. There are specialists offering hedge funds in this field.

Malaysia to introduce dividend income tax as expenditures go up (Nikkei Asia): MYR 100k is about USD 23k.  “In a bid to raise tax revenue, a 2% dividend income tax will be imposed in 2025 on individual shareholders with dividend income exceeding 100,000 ringgit.”

Nigeria’s economic transformation must succeed (FT): The author argues the long-term success of the economy will depend on prioritizing non-oil growth, assist vulnerable households from inflation, and foster the private sector. I hope they succeed.

Alternatives

Chichibu: A cult Japanese whisky (Decanta): Whisky casks might just be the best liquid alternative investment out there (pun intended)—not because of the returns, not because of the exclusivity, but because they offer what every investor craves: a calm assurance that, no matter what happens, the real value of your asset is getting better, every single day.

Endowments and foundations race to outsource investment management (FT): The only certainty when hiring an OCIO to access alternative investments is higher fees—for the alternative asset manager. 

CLOs Are So Hot Right Now, They’re Getting ETF’d (WSJ): The higher the risk, the higher the expected return... regardless of the ratings by the rating agencies...  "A major appeal of CLO securities is that they tend to offer higher yields than comparably rated corporate bonds. For example, triple-A-rated CLO securities currently yield around 5.6% on average, while single-A corporate bonds yield around 4.8%."

Sustainability

EQT Sees Strong Data Center Driven Gas Demand Growth by 2030 (Oilprice.com): 25 years ago, I saw a movie called “Telecoms crash.” The prequel was called “dot-com bubble” and the upcoming sequel, I believe, will be called “AI Crash.”

Do more people die from heat or cold? How will this change in the future? (Sustainability by the Numbers): Two takeaways for me.  1. "Far more people die from 'cold' than from heat. This is a consistent finding across the scientific literature."  2. "If you’re looking for a challenge to work on over the next decade, innovating on better air conditioning technologies that are cheaper and more efficient, would be very high-impact."

Japanese drones to look for land mines in Ukraine (Nikkei Asia): This would be very useful in many parts of the world and I hope they succeed.

Japan's TEPCO to make hydrogen in Indonesia with geothermal power (Nikkei Asia): “In collaboration with central Japan’s Yamanashi prefecture and Japanese materials group Toray Industries, Inc., TEPCO plans to work with Indonesian state-run oil company PT Pertamina (Persero) to install hydrogen production equipment at a geothermal power plant in the country’s eastern region. Production is set to begin as early as 2027.”

Japan crab catch quota hits 8-year high as conservation pays off (Nikkei Asia): Good news for the tourists, the fishermen and the hospitality industry. Bottom up self regulation works.