This one star investor reveals his best picks of the year, and where to position for 2017
Focusing on out-of-favour sectors paid off handsomely for courageous investors this year, but 2017 could be a year for following the crowd
Each year part of my onerous job with the South China Morning Post is to interview one of the world’s best-known and most successful entrepreneurs, Santa Claus.
Claus has built a Christian festival into a global manufacturing and distribution conglomerate in the peace and goodwill sector. His wealth has enabled him to establish Elf and Safety, an investment and philanthropic family office. It is known for its remarkably successful, low risk-high performance, multi-asset portfolio strategy, based on a tested investment philosophy known as hindsight.
Santa manages the assets himself and with the help of magic dust (and some figgy pudding, looking at his profile) he explained to me his winners of 2016.
“Mr Claus; like every good fund manager you’ve closed the books in early December before the markets get illiquid. What was your favourite investment this year?”
He rubbed his silvery whiskers wisely; “Investment is about suspending disbelief when all those around you are looking elsewhere. I picked the unfashionable commodity markets. Prices had got too low. Oil fell from US$115 to US$27.88 in 18 months. Hellooo? So far this year, oil is up 50 per cent and copper 26 per cent. Silver rose twice as much as gold, which is up 11%. Wheat was the worst performer, down 13 per cent - unlike bread in Hong Kong, which keeps going up. Nothing to do with the pricing gouging, fat cat, Hong Kong supermarket cartel,” he barked.
“Santa, foreign exchange underlies all investment performance. What did you do?”
“Everyone wants to be in US dollars - and because commodities are priced in dollars, that gave me a pickup. Naturally, I had earlier bought the yen, the ruble, and the kiwi that all beat the buck by 6 to 8 per cent. But my big favourite was bitcoin, which bossed the dollar by a massive 76 per cent.”
“I am naturally long bitcoin through the business, as it seemed a lot safer than taking Mexico pesos and Turkish lira for my presents. Both currencies were hit 18 per cent by Donaldomics, and rank economic incompetence. Though some might say that they are the same thing!” he roared at his own joke. “ Of course, the obvious strategy was to short the pound at HK$11.42 on 4th January and buy it back yesterday at HK$9.68.”
I couldn’t find a weakness in his analysis so I went on the attack, “you have nothing in the bond markets – what about the dash for yield…?”
Santa interrupted, “dash for yield? You stupid boy! How can you get any return when 13 trillion bucks of sovereign bonds are paying negative interest rates? All risk for no return. That game is over and the fall will be bloody. US bonds gave a pathetic 1 per cent return this year and most bond markets lost on the currency. Take UK gilts; up 7 per cent in pounds and down 7 per cent in dollars”
“And your stock market holdings?”
Santa beamed. “ I was long Russia, up 42 per cent ; and New Zealand up 10 per cent , both in dollars. Nobody picked those moves in January. I stayed out of the Nikkei, which ended flat as the yen rose as much as the market fell. The miserable FTSE did the opposite; up 8 per cent but down 14 per cent in dollars. The S&P is only up 7 per cent but broke all-time highs as my holdings of banks and oil companies, were up 25 per cent. Europe, after Brexit, was a dog – ‘that just don’t hunt’. Hong Kong saw a rise of 3.5 per cent while China fell nearly 10 per cent in dollars”.
“Most investors lost their mojo in the big fall in January and stayed hesitant just as the underlying economies consolidated their strength. The bull market climbed a wall of worry about Brexit, the US presidential election, Putin and Youngspiration – but when they all faded as threats, the markets caught up. They called it ‘the Trump rally’ but I prefer to call it ‘the Santa rally’. In any case, he’s been a naughty boy and won’t be getting any presents from me”.
“The rally will carry on into next year – I expect Hong Kong to break 25,000, up 15 per cent and Shanghai the same”. He motioned to the driverless, electric sleigh. The interview was over. “We had a lot of unknown unknowns last year. The world is more complex; three superpowers, new political landscapes, and desperate debt levels. But before a crash, comes the bubble – it is just beginning. Have a very happy Christmas.”
But there will be no presents for Santa either. We have just heard that the SFC has charged him with insider trading.
Richard Harris is an investment manager, writer and broadcaster – and has lived in Hong Kong for nearly half a century.