Figure 1 Country ETF performance: never fear Trump is here?

Source: Charlie Bilello

September is already threatening to vindicate those who believe, just like history, equity markets rhyme: all major indices are lower so far this month and are falling one by one into the red for the year to date. Bloomberg reckon that global market cap has fallen from around $90tn in January to $70tn now. All markets, including the US (just) are below their all-time highs, some significantly so. In some ways, therefore, the rather shocking amount of red numbers in Figure 1 should give some comfort to global investors as they contemplate the mounting damage in Q3 that is undermining their bumper results in Q2 and into July: few major players will have been betting exclusively on Wall Street, Tel Aviv and Oslo, far less a cocktail of them. Retail investors can be consoled too as promising earlier gains dissipate: it really is difficult to make money in these markets. Of course, if he caught sight of Figure 1 Mr Trump might claim that thanks to him not only are US equities topping the charts but his staunchest friends are also doing well. However, amongst his ‘friends’ only the Israeli market is ahead in September while amongst other ‘winners’, Norway and New Zealand might prefer not be associated with him in any way. In fact, Figure 1 shows the risks as well as the rewards of punting by geographical or market indices. Only 10 countries’ stock exchanges have market caps of $1tn or more: US, China, Japan, Hong Kong, UK, Canada, France, Germany, India and Switzerland and even some of them are dominated by a few very large companies. Such market dominance is an even bigger problem in most smaller markets. It should be noted that Figure 1 is quoted in USD, which is by far the most widely-used base currency for ETFs. UK investors, assuming they did not hedge currency risk, would have fared some 3% better in sterling terms but, of course, the strong dollar is one of the main reasons why so many emerging market companies are out of favour. Unfortunately, Mr Trump is not able to do anything about the strong dollar, much as he would like to. Most of these ETFs in Figure 1 seem set to stay in the red through into 2019 at the earliest.

Alastair Winter Chief Economist

Figure 2:  Communicating the launch of the Communications sector

Source: Google Stock Images

Taking the debate in investment circles beyond geography and market indices there are questions as to whether you should think about opportunities at the global or other thematic level such as industry sector vs. individual stocks.  Smart investors have enough internal intellectual bandwidth to move between all of these.  In today’s market some of the most interesting shifts are occurring at the sector level.  The rise and rise of the technology sector has been well documented but its rising omnipresence in our lives has helped inspire a new sector in the United States: ‘communications’.  You can see the biggest stock names in the index in the picture above with technology royalty Facebook (FB in the US) and Alphabet (GOOG and GOOGL in the US) accounting for a staggering 43%+ of the index.  Such weightings reflect the rampant progress of both shares over recent years but typically more compelling relative value is found lower down the list of individual sector participants.  Both players in the ongoing Sky (SKY) takeover battle Comcast (CMCSA) and Disney (DIS) are important sector tier players with either side of a 5% index weight.  The latter seems of particular interest to us with a second-to-none content heritage and an imminent plan to launch an eponymously-branded streaming channel to appeal to burgeoning consumer preferences regarding film and media content.  Even in a new sector it is often the Mouse that roars.  Disclosure: www.globaldynamicopportunitiesfund.com has a holding in Disney.

Chris Bailey Chief Investment Officer

Figure 3: Mondi plc share price: the trend is its friend

Source: Google Stock Images

One of the least known FTSE 100 constituent is Mondi (MNDI) despite its having a market cap of £7.6bn and a dividend yield of 7.5%. The Group started life in a demerger from Anglo American in 2007 and is also listed on the Johannesburg Stock Exchange. It has 26K employees in 30 countries with most revenues generated in Western & Central Europe, Russia and North America but only 3% in the UK. The paper and packaging sector is often neglected but the smaller RPC Group has been in the news this week. High market expectations for Mondi’s Q3 results (due on October 11th) are helping to keep the share price on a steep upward trend line. Figure 3 shows support has successfully held six times already this year and  that a seventh test is currently underway.

Steve Shelley Investment Hub

Chart 4: CyanConnode Holdings plc: into the Light

Source: Google Stock Images

CyanConnode (LSE: CYAN) yesterday reported interims to 30 June that included a 40% increase in  revenue to £1.6m with reduced operating losses at £3.3m (full year loss £11.1m). Market reaction, possibly an over-reaction, was harsh with the share price falling by 25% and the market cap to around £10M. Of particular concern is net cash of £2.2M representing only 4 months’ historical burn. The part that seems to have been forgotten is that, with R&D spending well past its peak, costs are increasingly attributable directly to high margin contracts. The current sales pipeline, we estimate, is over £100m and depending on the mix of sales between hardware, software and maintenance fees gross margins are between 40% and 79%. Consequently, further funding could include debt rather than just equity. Cyan have developed a leading a narrowband RF mesh network that enables Omni Internet of Things (IoT) communications, initially focused on Smart Meter networks. It provides customers with long-range, low-power, end-to-end networking solutions and high-performance applications that help them enhance service delivery, improve business efficiency and save energy. The network allows meters to be read remotely, which can then be billed.
On the back of £34m of investment Cyan is winning contracts for Smart Metering networks with large utility customers: e.g. a $19.3m order from Bangladesh. A recent $3.2m follow-on order in India  is to build on an existing IOT network canopy. There are legislative changes in India favourable to Smart Metering and further orders seem likely in this substantial market. The ability to win such follow-on orders over the next few months should increase confidence in the fundamental strength of Cyan products ……..and show the Company in in a better light.

Jon Levinson Corporate Broking

Chart 5: Rouble is top traded fiat currency on P2P bitcoin exchanges: follow the money?

Source: Brugel Think-Tank

Regular readers will be aware of my caution in respect of crypto-currencies and I was intrigued by Figure 5 from the Bruegel think-tank, which tracked the volumes of fiat currencies traded on localbitcoins.com, a Helsinki P2P platform that claims to have over one million subscribers in over 200 countries. The clever Bruegel team are too polite to resort to inuendo on either count of the rouble’s becoming the most traded or of volumes in renminbi (CNY) falling away after several wild swings in the last two years. They are, however, not afraid of questioning the conventional wisdom of ‘the underlying technology of distributed ledgers and blockchain offering benefits for many applications beyond finance’. Even the founder of Ethereum now thinks we may have passed ‘peak blockchain’. Bruegel folks rightly fret over important issues such as money laundering and terrorist finance, consumer protection, financial stability, taxation and contract law enforcement. Their call for regulation is surely likely to be heeded. The market value of crypto-assets peaked at $800bn in January this year and has been falling away sharply since to below $200m. Somehow, I doubt many small punters have had the courage to cash in, still less go short.  Somehow, I also doubt that many big ‘promoters’ are out of pocket. The last few days week have seen the largest crypto-currencies take a beating but fortunes are apparently being made in the latest ‘cryptos of the day’: Dodgecoin (20th largest by market cap) and Bitcoin Diamond (28th) . Maybe the Russians can tell us?  Caveat emptor!

Alastair Winter Chief Economist

 

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By Alastair Winter

Cheif Economist at Daniel Stewart

alastair.winter@danielstewart.co.uk