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The game is still wide open

The game is still wide open

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This year in markets cannot so far match the drama of 2020 — even in the wake of this week’s gyrations. As a test case of how fast risky asset prices can collapse and of the awe-inspiring power of central banks to drag them back up, last year was hard to beat.

But 2021 has provided its fair share of challenges both to professional fund managers and to the somewhat less serious pursuit that is the annual Financial Times stockpicking competition. Six months into this battle of cunning, wit and good old-fashioned luck, it is time to see how FT hacks and 700 or so of our considerably wiser readers are shaping up.

Now in its fifth year, the stockpicking contest is a simple fantasy exercise of selecting five stocks from the UK or US markets, and opting to go long (buy) or short (sell). Our data team — the real brains behind the entire FT operation — track how those shares perform over the course of the year, average them out, and use that to produce rankings of the make-believe portfolio managers.

For the sake of simplicity, the process ignores the effect of currency movements and dividend payments. Rather it is a blunt exercise: who picked stocks that went up, and who picked duds?

How readers’ stock market predictions are faring % of readers who bet the share price will fall/increase in 2021  and  Change in share price  return Feb 1-Jun 30 (%)

FT journalists were also invited — harassed even — to take part. Hacks operated under slightly different rules for internal reasons. But before you cry foul, do not assume the sages of Bracken House have outperformed external contestants.

At the end of the year, external winners are due, pandemic willing, to be rewarded with a tour of the FT offices near St Paul’s Cathedral in London. The true prize, however, is bragging rights, particularly in the (likely) event that the winner triumphs over the puny guesses of the FT insiders.

What market environment have contestants been dealing with?

Despite a generally more sedate start to this year than last, the dangers of running a concentrated portfolio — as this fictional exercise with just five stocks demands — have already been illustrated in style.

In March, Bill Hwang discovered the hard way that a tight focus on a small group of shares — in his case wrapped up in high-voltage derivatives — can leave you wiped out. The implosion of Archegos, his private investment group, was spectacular enough to bite multibillion dollar chunks out of his banks. Any contestant who avoids that fate will effectively beat an alumnus of Tiger Management, one of the best-respected hedge fund groups in history.

Stock pickers have also pitted their wits against a new and powerful force in US markets: retail traders. At the start of this year, have-a-go amateur traders jumped into previously unloved US stocks such as consoles retailer GameStop and cinema chain AMC Entertainment, with dramatic results.

So-called meme stocks, popularised online with coarse but often irresistibly funny jokes, ripped higher in late January, delivering a victory to the amateurs over a number of hedge funds that had been betting the other way. One hedge fund, Melvin Capital, was famously pushed into a bailout.

Line chart of Share price ($) showing AMC

The starting gun for this stockpicking contest was February 1. Since then, meme stocks have experienced wildly different fortunes. By extension, contestants jumping into the craze have too.

The bond market has provided the bulk of the market drama, with government debt sliding in price in the first quarter of the year on nerves about sweeping inflation, pulling so-called value stocks higher, before steadying.

But broadly, this has been a supportive environment for our plucky punters. The global vaccine rollout and chipping away of lockdowns generated an 11 per cent rally in the MSCI Global index of stocks from the start of February to the end of June, the period captured by the performance figures here. US indices crept slowly but determinedly to record high after record high, with only this week’s wobble later breaking the rhythm.

What were the popular stock picks among readers?

By a long distance, the most popular bet was Tesla, the electric vehicle maker run by the mercurial Elon Musk. Over one-third of contestants picked it for their portfolio; 28 per cent were short.

Betting against Tesla stocks has been a fool’s errand for several years. Many investors, professional and otherwise, are uneasy about Musk’s unpredictable nature and awkward relationship with securities regulators. Many doubt that Tesla can keep up with demand and believe that other carmakers will catch up. All of that may be fair, but the more than 1,000 per cent ascent in Tesla’s share price since 2019 is hard to dispute.

Nonetheless, the hive mind of stockpicking contestants has wagered that this time is different. The rationale: after a more than 600 per cent rally since early 2020, shares appear ripe for a drop, especially as Musk devotes more energy to what he describes as the “hustle” of dogecoin, the cryptocurrency designed as a joke.

“The price has simply gone too high,” reader Stephen Pavey told us in explaining his decision to bet against the company. “The valuation of Tesla is bonkers,” said StJohn Brown in East Grinstead. “Way overvalued, not much else to say,” agreed Will Francis in Birmingham.

Line chart of Share price ($) showing Tesla

The strategy has shown promise in the opening months of the contest. From February 1, when we started the clock, to the end of June, Tesla shorts delivered a return of 19 per cent.

Large numbers of contestants have also bravely taken on the new armies of US retail traders. 

After Tesla shorts, bets against GameStop — the original meme stock that found itself at the centre of a firestorm of retail buying in late January — are the second most popular pick of the competition. Nearly 18 per cent of contestants placed bets against the company, while just 1 per cent were long.

Among the shorts was Anthony Stamp from Bethnal Green in east London, who wagered that the retail trading frenzy at the start of this year would “burn itself out”.

“The possibility that GameStop is worth a fraction of its currently pumped-up valuation seems a lot higher than my chances of predicting the next tech unicorn or vaccine manufacturer,” he noted. Wise words.

The shorts have won the day so far, with a return of nearly 5 per cent. Before declaring victory over the real-life GameStop true believers, it is worth noting that shares are still a whacking 850 per cent above where they started the calendar year. 

But the real kingmaker or widow-maker trade so far this year is fellow meme stock AMC. Nearly 4 per cent of all bets among readers were shorts on the company. In fact, the shares have gained around 300 per cent as the company succeeded in pulling itself back from the brink of bankruptcy. Four of the five contestants leading at this point were brave, lucky or skillful enough to back the stock.

Ayodeji Awolaja from Guildford is one of them, ranking a spectacular third in the competition so far, thanks in no small part to a positive bet on AMC stemming from the poetic and shrewd observation that “cinema will not die”.

The 25 worst performers in the competition so far, however, were all short.

Line chart of Share price ($) showing GameStop

One of them, Brian Mullens in Chicago, called GameStop right, but said AMC was “fundamentally and dramatically overvalued” and heading for a “precipitous decline”. Not yet, Brian, sorry.

Popular longs are largely clustered on the so-called reopening trade — stocks likely to do well as the world emerged from enforced hibernation. Airline EasyJet, travel accommodation group Airbnb and cruise operator Carnival all ranked among the most frequent picks. Performance has been mixed; EasyJet longs were up 19 per cent, and Carnival was up by a tasty 42 per cent at competition half-way cut-off time (it is now, dramatically, almost flat on the calendar year — you need good sea legs to stomach the waves of cruise stocks, it seems), while Airbnb was down 15 per cent.

Our contestants have not given up on the lockdown heroes — stocks that rocketed higher during global lockdowns while we were all stuck at home. Apple, one of the most popular longs, has gained 2 per cent since the close of February 1, while Amazon has gained 3 per cent. 

Who is top of the pops among readers at the halfway point?

Take a bow Jonathan Northfield from London, whose average return of — wait for it — 213 per cent is many multiples beyond what the finest hedge funds have achieved this year. The average equity hedge fund placing positive and negative bets on stocks is up by around 13 per cent so far in 2021.

How has he done it? The Tesla short was deliberate. But dedicated investment professionals who spend hours poring over earnings reports and scouring smart data for tips will be excited to hear the rest of the portfolio selection was, he says, “random”. 

Most of the gains came from a long bet on Moxian, a Nasdaq-listed Chinese technology company involved in online gaming and retail that has never even been mentioned in the FT before, judging from an online search. That stock is up by 1,159 per cent. Even a disastrous bet against MV Oil Trust, whose stock has more than doubled, has not been enough to blow him off course.

Shorts on cinema chain AMC Entertainment have proved disastrous. The shares have gained around 300 per cent as the company succeeded in pulling itself back from the brink of bankruptcy
Shorts on cinema chain AMC Entertainment have proved disastrous. The shares have gained around 300 per cent as the company succeeded in pulling itself back from the brink of bankruptcy © TNS/ABACA/Reuters

Second-placed Zhiwei Xiao, from Chongqing in China, is thus far sitting on an average return of over 100 per cent, flying high on gains by AMC and Tetra Technologies, an oil and gas services company that joined the Russell 3000 index this year after what the chief executive described as a “significant increase in our market capitalisation”. 

Tesla shorts have helped to support the performance of a number of contestants with portfolio returns clustered around 20 per cent — a highly respectable job.

How are the FT journalists doing?

For practical reasons, the FT hacks’ entries were compiled using a different system that permitted them to choose any stock in the world, not just those in the US and UK. But, as in previous contests, they continue to trail behind the readers when it comes to market predictions.

The truly terrible performances are, once again, dominated by bets against AMC. 

Dan McCrum, the prize-winning FT journalist whose forensic and thrilling reporting on the Wirecard fraud has rightly earned him the respect of peers and readers alike, was just one of the hacks to bomb with this bet. Despite decent performances in his shorts on Tesla and Nikola, other shorts on Warren Buffett’s Berkshire Hathaway and on AMC proved disastrous.

His average return of minus 60 per cent places him at the bottom of the pile, and also makes him one of the worst contestants in the whole competition, inside or outside the FT. I guess you can’t win them all, although McCrum, who is so far laughing off this humbling performance, does have time to turn it around.

Our leisure industries reporter Alice Hancock is also nursing a 58 per cent loss, again thanks largely to AMC, as is Miles Johnson, our man in Rome, who won the contest among FT journalists in the previous two years. The second half of 2021 will have to deliver something stunning to get him back on track to reclaim his crown.

Johnson cited a well-known financial adage to describe his position: “Markets can remain irrational longer than you can remain solvent.”

GameStop — the original meme stock that found itself at the centre of a firestorm of retail buying in late January — is the second most popular pick of the competition after Tesla
GameStop — the original meme stock that found itself at the centre of a firestorm of retail buying in late January — is the second most popular pick of the competition after Tesla © Patrick T. Fallon/Bloomberg

Laying early claims to the FT in-house bragging rights are Simeon Kerr in Dubai, with an average return of 33 per cent, Anna Gross in Paris on 29 per cent, Leo Lewis in Tokyo on 22 per cent and London-based Arash Massoudi, whose short-only portfolio has returned 21 per cent. None of them went near dreaded AMC shorts.

I confess I did not enter the competition this year. This is partly a matter of timing. Like every upstanding journalist, I file on deadline (that is, I leave everything to the last minute). This year that meant coming up with chosen stocks at the end of January — precisely the time when the GameStop story was blowing up and the workload was, let’s say, intense. This was the task that got away. 

On some level, though, my pride is still bruised from the 2018 competition, when I figured the situation for construction company Carillion surely could not get much worse, and slapped it in my list of longs. It declared bankruptcy two weeks later. I won’t lie: that hurt my overall performance, and spoiled the fun of this challenge somewhat, though if I recall, a short on Carpetright, whose shares collapsed also that January and which later ended up being taken private, softened the blow to my portfolio. 

Friends, relatives and newfound acquaintances frequently ask financial journalists for investment tips, and write off our shrugging insistence that we have no idea as false modesty. My unprofessional advice to you all is: we genuinely have no idea. Even the best competitors among us struggle to repeat a winning result.

Of course, I may turn out to be wrong about that too — but you will have to join us again early next year to find out. Good luck!

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Indonesia’s B40 biodiesel plan faces new delay due to palm price

Indonesia’s B40 biodiesel plan faces new delay due to palm price
PHOTO by REUTERS

Indonesia’s plans to raise the mandatory bio-content in its palm oil-based biodiesel to 40per cent may face further delays, after the high price of the vegetable oil has made the programme too costly, a senior government official told Reuters.

Indonesia, the world’s largest palm oil producer and exporter, has a mandatory biodiesel programme with 30per cent palm oil content, known as B30, but intends to expand the use of the oil for energy to save on fuel imports.

Authorities had planned to increase the mix to 40per cent in July this year, but the timetable for the B40 programme is now unclear.

“We don’t have a timeline yet for B40, although from the technical side, we’re ready,” Dadan Kusdiana, a director general at the energy ministry, said in an interview. He said implementing B40 in 2022 will be “challenging”.

Indonesia funds its biodiesel programme with proceeds from palm export levies.

However, authorities have revised levy rules three times since last year as they sought to support the biodiesel programme after prices soared, but without hurting exports.

Malaysian palm oil futures hit a record of 4,560 ringgit (US$1,089.35) a tonne on Aug. 12 and have been trading around 4,300 ringgit recently, about 60per cent higher than a year earlier.

Dadan said 45 trillion rupiah to 46 trillion rupiah (US$3.1 billion-US$3.2 billion) is needed this year to fund the difference between using regular diesel and the palm-based fatty acid methyl ester (FAME) for B30.

If prices stayed constant, mixing 40per cent FAME would require around 60 trillion rupiah (US$4.16 billion), he said, while noting adopting B40 would likely boost palm oil prices by shrinking global supply, making the programme even more expensive.

“That is what we’re considering, how capable are we in terms of the levies. We have to provide bigger financing, but it doesn’t have to come from higher levies,” Dadan said, without elaborating on alternatives.

The Indonesian Palm Oil Association (GAPKI) had already said in January it expected B40 to be delayed beyond 2022.

On the technical side, Dadan said the water and monoglyceride contents in FAME must be reduced for B40 to work, requiring new investment by biodiesel producers.

Although biodiesel promises lower emissions, the use of palm oil as a feedstock raises concern about deforestation in the clearance of land to grow it. The European Union is planning to phase it out as fuel for transport.

(US$1 = 14,425.0000 rupiah)

(US$1 = 4.1860 ringgit). REUTERS

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Indonesia central bank anticipating risk of rising inflation in 2022: Governor

Indonesia central bank anticipating risk of rising inflation in 2022: Governor

Indonesia’s central bank expected inflation to be within its target range of 2 per cent to 4 per cent in 2021 and 2022, but warned of potential price pressures next year, Governor Perry Warjiyo said on Wednesday (Aug 25).

“We need to anticipate a risk of rising inflation in 2022, in line with a rise in domestic demand and increasing global commodity prices,” he told a coordinating meeting on inflation management.

Indonesia’s annual inflation rate has stayed below BI’s target range since June of 2020 as the coronavirus pandemic dampened domestic consumption.

July’s rate was 1.52 per cent. REUTERS

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BUSINESS

Dollar settles near 4-1/2 month highs as risk appetite cools

Dollar settles near 4-1/2 month highs as risk appetite cools
An exchange office clerk counts U.S. dollars. Onur Coban/Anadolu Agency/Getty Images

The dollar held near a 4-1/2 month high versus a basket of major currencies on Wednesday as simmering concerns about the global economy forced investors to seek safety in the greenback before the release of the Federal Reserve’s July meeting minutes.

Sterling and the commodity-exposed Australian and Canadian dollars all hovered near recent lows against the dollar as the broad market mood remained cautious. The dollar index held steady around 93.09, just below an early April high of 93.20 hit last week.

“The FX market is trading exactly as one would expect when growth worries are the dominant theme,” said Marios Hadjikyriacos, a senior investment analyst at XM.

Even the New Zealand dollar, which briefly rose after the central bank set out a hawkish outlook for interest rates, swooned as a mild wave of risk aversion swept through markets.

The Kiwi was down 0.5per cent at US$0.6888 in London trading having risen earlier to US$0.6952 after the Reserve Bank of New Zealand said it would keep rates at 0.25per cent, after the country was put into a snap COVID-19 lockdown.

A monthly fund manager survey by investment bank BoFA Securities showed that investors flipped to a net overweight on the dollar for the first time in nearly a year.

That shift in positioning was evident in more high-frequency weekly data as well with hedge funds ramping up their net long bets on the greenback to the most since March 2020.

While the dollar failed to draw any sustained strength from Fed Chair’s Jerome Powell’s comments and mixed U.S. data, markets shifted focus towards the annual Jackson Hole symposium next week where some expect the Fed to signal a change in direction with regards to its asset purchase plans.

U.S. retail sales fell 1.1per cent in July, more than economists expected but industrial production numbers showed that output at U.S. factories surged in July. and

Elsewhere, the Canadian dollar hovered near a one-month low. [CAD/]

In cryptocurrencies, bitcoin traded at US$45,244, not far from Saturday’s three-month high of US$48,190. Ether stood at US$3,042. REUTERS

 

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Tencent Music posts over 15per cent rise in quarterly revenue

Tencent Music posts over 15per cent rise in quarterly revenue
Tencent submitted a proposal to separately list its subsidiary Tencent Music. NIKKEI

China’s Tencent Music Entertainment Group posted a 15.5per cent rise in quarterly revenue on Monday, as its advertising business rebounded and more people subscribed to its music streaming platform.

Total revenue of the Tencent Holdings Ltd-controlled company rose to 8.01 billion yuan (US$1.24 billion) in the second quarter. Analysts were expecting revenue of 8.13 billion yuan, according to IBES data from Refinitiv.

(US$1 = 6.4742 Chinese yuan renminbi). REUTERS

 

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Credit Suisse brings in former UBS executive to head risk committee

Credit Suisse brings in former UBS executive to head risk committee
A Swiss flag flies over a sign of Swiss bank Credit Suisse on May 8, 2014 in Bern. AFP/Getty Images/Fabrice Coffrini

Credit Suisse has drafted a former Chief Operating Officer of UBS and heads the Risk Committee of the Board of Directors. The new chair, Antonio Orta Osorio, has been strengthening the bank’s defenses following a series of scandals.

Axel Lehmann, who left UBS in January, will join Credit Suisse’s board of directors on October 1. Juan Columbus, who played a risk role at Lloyds Banking Group and Alter Osorio’s Santander, will also join Credit Suisse’s board of directors.

Credit Suisse’s reputation for risk management has been hit this year by two crises surrounding professional finance firm Greensill Capital and the family office Arquegos. In two incidents, Credit Suisse liquidated a $ 10 billion investment fund, losing $ 5.5 billion in the worst transaction loss in 165 years of history.

NS Damn report Regarding the loss of Arquegos announced last month, it describes the “fundamental failure of management and control” and “lazy attitude toward risk” at Credit Suisse’s investment bank.

Alter Osorio, who escaped Lloyds from the financial crisis, Join Credit Suisse Board of Directors In April, he said the bank’s plight was the worst he had ever seen in his career. He also promised an urgent review of risk management, strategy and culture. The final details of the review are scheduled by the end of the year.

On Friday morning, Alter Osorio said the proposed appointment of Lehman and Columbus to the board would help strengthen Credit Suisse’s risk management.

“With both deep experience in risk management and business leadership and a career of nearly 30 years in financial services, they are in shaping the strategic restructuring of banks and strengthening the culture of risk management and personal responsibility and accountability. Will make an immeasurable contribution. “He said.

Lehman was Chief Operating Officer of UBS and President of Private and Corporate Banks. His career at UBS and earlier in the Zurich Insurance Group included several risk management roles.

Columbus was Lloyd’s Chief Risk Officer and Chief Operating Officer from 2011 to 2020. Previously, he was Executive Director and Chief Risk Officer of Santander’s UK operations. He has been a member of ING’s Audit and Risk Committee since 2020.

Andreas Gottschling resigned from his role as Chairman of Credit Suisse’s Risk Committee in April after several major shareholders have shown that they will do so. Vote against his reelection..

Richard Meddings, TSB Bank’s executive chair, has been the Interim Chairman of the Credit Suisse Risk Committee since April. He will continue to lead the bank’s audit committee.

Last month, Credit Suisse Hired David Wildermas, Former Deputy Risk Officer and Chief Risk Officer of Goldman Sachs. Wildams will move from New York to Zurich to take up his new position by February 2022.

Credit Suisse brings in former UBS executive to head risk committee Source link Credit Suisse brings in former UBS executive to head risk committee. FT

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Global shares mixed as caution sets in on coronavirus worry

Global shares mixed as caution sets in on coronavirus worry
A woman wearing a face mask is reflected on an electronic foreign currency exchange rates in downtown Seoul, South Korea, Thursday, Aug. 12, 2021. Asian shares were mixed Thursday as caution set in among investors following another wobbly day of trading on Wall Street. AP Photo/Lee Jin-man

Global shares were mixed Thursday as caution set in among investors after banks and industrial companies helped lift stocks mostly higher on Wall Street.

France’s CAC 40 inched up less than 0.1% to 6,860.88 in early trading, while Germany’s DAX was virtually unchanged at 15,826.76. Britain’s FTSE 100 slipped 0.2% to 7,205.48. U.S. shares were set to be mixed, with Dow futures up nearly 0.1% at 35,398. S&P 500 futures inched down less than 0.1% to 4,439.25.

Japan’s benchmark Nikkei 225 edged down 0.2% to finish at 28,015.02. South Korea’s Kospi slipped 0.4% to 3,208.38 after seesawing earlier in the day. Australia’s S&P/ASX 200 ended up less than 0.1% at 7,588.20. Hong Kong’s Hang Seng declined 0.5% to 26,517.82, while the Shanghai Composite fell 0.2% to 3,524.74.

Worries continued in the region about the recent regulatory crackdown in China. Analysts said the next target appeared to be the online insurance industry.

“This comes amid increasing COVID-19 risks, with further tightening of restrictions in several cities potentially impacting the services sector near-term,” said Yeap Jun Rong, market strategist at IG in Singapore.

COVID-19 infection cases are also surging in Japan, where a state of emergency has been in place, even as the nation hosted the Tokyo Olympics and plans to do the same for the Paralympics, which open later this month. New cases are reaching record highs in Tokyo and several other regions. Medical officials say hospital facilities are getting stretched thin.

“On the COVID-19 front, worries over growing restrictions are becoming a cause of concern. Growth expectations in the region will likely take a hit in the coming weeks. The recent resurgence of the virus will probably slow the economic recovery,” said Anderson Alves, a trader at ActivTrades.

After a stumbling start to the week, stocks have been moving higher on the back of strong earnings and better-than-expected economic data. Investors’ concerns about inflation and uncertainty about the U.S. Federal Reserve’s future plans to ease up on its support for low interest rates have been hanging over the market.

While the headline figures may seem bad, most of the rise in consumer prices has been tied to very specific goods that are not expected to impact the long-term health of the economy, like used cars, building materials and hotel rooms. These items came into short supply during the pandemic, and the increased economic activity has made prices for them rise faster than usual.

The Federal Reserve has repeatedly said it believes any increase in inflation would be temporary and largely a result of supply disruptions that happened because of the pandemic. Investors will get another inflation snapshot Thursday, when the Labor Department issues its July wholesale price data.

In energy trading, benchmark U.S. crude fell 4 cents to $69.21 a barrel. Brent crude, the international standard, edged up 1 cent to $71.45 a barrel.

In currency trading, the U.S. dollar slipped to 110.40 yen from 110.41 yen. The euro cost $1.1740, up from $1.1738. AP

 

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