Lai See
Downgrade or not, flight to quality still ends with US Treasuries
So Standard & Poor's finally bit the bullet and, after nearly choking on its own mathematics, downgraded the United States' AAA credit rating. That leaves 18 countries and seven companies, including our own MTR Corp, with a better credit rating than the US, according to Bank of America Merrill Lynch.
So you would expect this to be reflected in the yields at which these bonds trade. However, the yield on MTR Corp's AAA 10-year bond, which matures in January 2014, closed at 1.52 per cent yesterday, from 1.56 per cent earlier that day. However, the newly rerated US Treasuries, which mature at the same time, were yielding 0.323 per cent, from 0.329 earlier.
So what are the markets telling us? Stocks are falling as investors flee equities and buy bonds. Meanwhile, yields on US Treasuries are tightening due to erm ... a flight to quality?
A matter of perceptions?
We have not heard much in recent months about Jing Ulrich, JPMorgan's chairwoman of global markets for China. However, we had a note from the bank's corporate communications people alerting us to her inclusion in FinanceAsia's top 20 women in the regional finance industry.
So she is clearly still on top of her game. The magazine says she has been 'an important figure in shaping the international community's approach toward investing in the mainland'. Those who attend JPMorgan's China conference over which she presides, say it is a wondrous event - in a class of its own.
Perusing the top-20 list, we see there is another woman from JPMorgan, Catherine Leung, vice-chairman of Asia investment banking and head of Hong Kong investment banking. But there was no word from JPMorgan on Catherine - strange.
Back to being contrary
A few weeks ago, we noted that investor Marc Faber appeared to reach a new level of gloominess about the world economy. He predicts that 'America will keep piling on debt and printing money, as will Europe, leading to war and the collapse of governments'. This made him even more bullish on gold. But, with practically everyone else bullish, we wondered if as a contrarian this put him in a slightly uncomfortable spot.
Anyhow, this discomfort has been rectified with his comments on Bloomberg TV yesterday. With investors fleeing equity markets, he reasserted his contrariness by observing that he thought S&P's downgrade of US debt was good for equity markets, as it sent a message that there is a risk to holding government debt.
'I think and - believe you me I am the most bearish person in the world - but believe me, for the next 10 years you'll be better off in equities and precious metals than in government bonds.'
While he does not expect markets to hit new highs this year, he thinks they are 'incredibly oversold at the current level' and expects them to bottom shortly and rally.
Private musical chairs
Citigroup is the latest bank to announce a major shakeup in its private banking division. The bank has appointed Bassam Saleem as chief executive of Citi Private Banking, replacing Aamir Rahim who has been shunted off to head Citi's public sector group for the Asia-Pacific region. The changes follow those at Credit Suisse and BNP over the past year. A key number that these banks have their eyes on is that by 2015 private assets in Asia are expected to overtake those of the US and Europe combined. However, given recent events in those regions, that might be happening sooner rather than later. That is why the banks want to get all their ducks in a row now.
Rattling the same drum
The Financial Times ran a wry letter from a former HSBC investment banker reflecting on the bank's tortuous restructuring. Paul Barry, who presumably does not intend to work for the bank again, observed: 'You will struggle to find anyone at HSBC who in recent times hasn't heard about the bank's strategic refocus on its Asian backyard, coupled with a smart expansion in emerging 'growth markets'.'
Indeed, the bank seems to have been refocusing for about four or five years now. He continues: 'I was part of HSBC's last big push into the not-so-traditional world of investment banking, a world it had so consistently failed to break into meaningfully in the past. Stuart Gulliver was at that time responsible for a division that had developed levels of internal communication so dire that the result was a workforce of limited motivation and depressed ambition.' Ouch.
