10:59Good morning and welcome to Spot Markets Live, the weekly round-robin of stocks and markets news.
Today I’m excited to be joined by David Kimberley, who works for Kepler Partners. Thanks for joining us today.
and Izzy ! (who I saw lurking in the comments.)
David should be here, or so he tells me?
I am indeed
needed to refresh
Do you want to tell us a bit about yourself to start with?
Sure, so I have a bit of a funny role at Kepler, it’s part analyst, part media type
we’re also a bit of a peculiar business as we’re split in two, one half deals with closed-ended funds and the other deals with UCITs
then we also have a fund manager
so we’re a small company and do lots of different things, I sit on the closed-ended fund side
so will be shilling investment trusts today
Before we kick off a quick look at the markets
Last week Stocks ended up a six week high
Today they are a little more sombre.
Obviously UK is Budget watching
Fed’s Powell gives testimony before the US congress on Tuesday and Wednesday
and then the Jobs report is out on Friday
it seems everyone has tempered any talk of rate cuts by year-end now
calm before the storm…
yea, Q1 seems like a bit of a dead cat bounce
Yes, Graham and Citi analysts suggest this is why everyone is headed stateside
Well I think that’s a longer term trend
UK Stocks Valuation Gap to US Driving Listings Abroad, Citi Says
- Manthey says MSCI UK trades at record 40% discount to the US
- Listing outside the UK is becoming an attractive option
If you look over the past few years, you can get a better valuation in the US
yea what the headline says
Is this all just doom and gloom for Britain then?
Citi today have said they are building a Paris trading hub
I don’t know, I think we’re at an interesting juncture
Aston apparently risen on a broker upgrade
And what must be frustrating for UK listed companies
is that a lot of it seems to be sentiment driven
so just US good valuation, UK bad valuation
I remember the Plus500 CEO talking about it around 18 months ago
Back in London, FTSE 250-listing Aston Martin jumped 24% to 296.60 pence, as Jefferies raised the target price for the stock to 160p from 120p.
so they were thinking of dual listing on the NASDAQ
and the only reason was they thought their share price would go up
WANdisco, the UK software group is the latest company today to say it will add a US listing
on the other hand, I think some of the negative sentiment towards the UK is a bit overdone
It trades on the AIM market
when FTSE 100 was below all time highs, it’s because it’s rubbish
then it goes above the all time high and…it’s irrelevant because it’s still rubbish
well the main critique is it’s all these old industry businesses
oil, gas, mining, banking etc
which were supposedly all irrelevant, until the past 12 months when we see that they’re actually quite relevant
City Minister Andrew Griffith tried to come out fighting in a piece in The Telegraph over the weekend about post-Brexit deregulation
but then if you look at other indices, they aren’t so different
eg. that’s MSCI Canada
vs MSCI UK
obviously the big critique here is the lack of tech in the UK and the sense that we’re not particularly hospitable to tech companies – fair points
however, if you look at a company like Deliveroo, one of the big ‘tech’ IPOs of the past few years
no earnings even in the most ideal macro environment possible (covid)
Maybe in this climate that will prove to be a good thing given where tech seems to be headed
does it make sense that it should have a large valuation?
you look at performance of similar companies in the US over the past 5 years, not exactly great
Has there been some sort of structural institutional shift though? it seems investment managers and pension funds are “shunning” UK equities or reweighting their portfolios
yes I think this is another interesting point
Schroders has done some good research on this
and here I will shamelessly plug the Kepler Trust Intelligence podcast as we did an episode on this
but you can the research here too – https://prod.schroders.com/en/sysglobalassets/digital/insights/2020/november/global-britain/2020-november-stock-market-ownership.pdf
Thanks David, that should answer my questions !
Wow, that’s stark isn’t it
but the basic point is that UK institutions have moved a lot of money out of the market and, although foreign investors have stepped in…
it’s arguably not enough to offset things
and Bruce in the comments is correct IMO, another factor is housing
if you have to spend 40% of your income on housing vs 20% in the past, that means less money to invest
I would note that this is not to say the UK is doing wonderfully, clearly not
but things are more nuanced than saying ‘it’s crap’, which is what a lot of people in the press seem to take great (masochistic) glee in doing
Should we turn to China now David?
the country’s leadership set a 5% target for economic growth this year, which analysts called conservative and pragmatic, as they kicked off the annual session of the National People’s Congress.
That’s what apparently hit the FTSE this morning and mining stocks
But you’ve been looking at the bigger picture?
Morgan Stanley called it in December then
yes, so China has had a strange couple of years
initially the Covid winner, then draconian policies as the rest of the world opened up
housing crisis, bans on random stuff like video games and private tutoring
and I think post-Ukraine, people suddenly became very cognisant of what can happen when investing in a more authoritarian state
so as an aside, any fund managers looking to set up an Asia ex-China fund would probably do well…
but for those that stay, an interesting thing is now they’ve got a declining population
the graph that no CCP leader wants to see
does it mean investing in China becomes kind of like investing in Japan or Europe?
I saw that there is talk of encouraging women in China to freeze their eggs as a national drive
yes, egg freezing, no video games, no tutoring
what a place!
HONG KONG, Feb 28 (Reuters) – A member of China’s top political advisory body said she would propose allowing unmarried women to access egg freezing as a measure to preserve their fertility after the country’s population fell last year for the first time in six decades.
joking aside though, if you look at what is happening
Apparently the market in China for nannies is booming too
basically manufacturing may end moving (more than it already is) to places like Vietnam and India
and so you then wonder will China have to become like Japan
where there is a big focus on robotics and automation
(side note that TOPIX EPS growth has been better than S&P 500 since 2010)
or do you become like Europe where you have ‘high end’ manufacturing
like ASML or LVMH
those types of things
it’s a hard one but it will be interesting to see what happens there moving forward, as it’s plausible the growth of the past 3 – 4 decades will slip away
This is a massive part of the global jigsaw puzzle
We’ve been talking a lot about house prices and mortgages. Wondered if anyone out there was a follower of what’s happening in the car loan market?
this caught my eye
Car payments have hit record highs: Nearly 15% of drivers who financed a new vehicle toward the end of 2022 are paying $1,000+ a month. (via edmunds)
Replying to @GuyDealership
I just financed a car at 7.35 percent. To put that in perspective, i have a 2.9 percent rate on my mortgage. The car loan market is insane.
Is this going to be another time bomb, with rates rising ?
housing likely to be more of a risk though
I think this is true across the board though, it’s as though people forgot what it’s like to live in a world where you pay meaninful levels of interest on borrowing
That’s the thing, nobody can remember it
and it was actually the norm before the crisis – rates were 5% for a decade
That’s what i was thinking @Peter . PCP is now the staple
We see it in the closed-ended fund sector (so rather different to cars)
obviously a big benefit of trusts is that the managers can you use gearing
but for about a decade now it was almost an afterthought for investors and managers
recently I saw one fund, it’s borrowing costs went up from roughly 2% to 6%
so if you are running a 10% geared portfolio, with a yield of 4%
How do you manage such a rise ?
you end up losing money
some managers have been quick to lock in rates
so UKCM is one fund that has been hit really hard as it invests in commercial property
but the managers actually locked in rates until (I think) 2026 and 2027, both <3%
this is an area i find really interesting actually
obviously another feature of trusts is that they can trade at a discount to NAV
so for UKCM it was at one point >40% below its NAV
What are some of the names we should be looking at David?
as everyone was factoring in interest rate hikes and an increase in discount rates
11:42alternatives are probably the most interesting
just because you have a lot of selling, discounts widening out a lot
so SONG (invests in music rights) has seen its discount widen a lot
Have you seen The Playlist?
I have not
should I have?
It’s quite interesting, a sort of fictionalised history of the making of Spotify (talking of SONG)
so there you go, quite a wide discount now!
well I don’t have a TV alas but I will watch it when I do have one
I thought buying music rights was big business these days
What’s going on?
it’s basically interest rate hikes
song rights are effectively an income investment
you buy the rights to Vanilla Ice
every time someone streams Ice Ice baby you get some £
so if the yield is 3% and rates are 0
the valuation makes sense
if suddenly rates are 3% then that starts to make less sense
so that is what has happened
another question I have is how viable the sector is
Spotify still isn’t profitable
Or how interest rate hikes are seeping into every corner of the financial world….
What about Apple music and now Amazon music?
I’d have to check those
but it’s slightly different as they can eat a loss until profitability or just ditch it
Spotify has no other business from which to funnel money and ditching it means the company is done
Hope or cope
So, should one invest in SONG or not?
I would live in fear of our compliance team for a long time if I answered that
what I would say is that there are many funds in the closed-ended sector at a discount
where investors have priced in rate hikes
and it’s hard to tell if they have overshot things or not
that applies to SONG but I think UK commercial property is also one to look
eg. I spoke to one manager recently who put up rents by 70%
Thanks David and sorry for the awkward line of questioning
no worries at all
I was amazed too
What was the business case for that??
so 70% rent increase means higher yield, means it can balance out rate hikes
same problem as we have for housing all over the UK
a lot of demand, not enough supply
but who can afford to pay that much of an increase?
I believe it was a company moving their operations out of London, so it was a net win for both parties
Ah I see
I know you had to shoot off a bit early today David
Thanks so much for joining us !
come back soon !
Thanks for having me, I certainly will
next time I’ll try to be more concise!
It was very informative
We didn’t even get time to mention Swiss banks….
What a shame
next time we will I’m sure
The saga continues….
Ok I do have to jump off now, thanks for hosting, this was great
have a good day everyone
Thanks and goodbye for now