40
Friday 27 December 2019
BUSINESS DAY
FT
ANALYSIS
Top trades: the winning market bets of 2019 From Greek bonds to sterling gyrations, the year delivered opportunities to shine
U
S stocks had a stellar year in 2019, again, while other developed markets did well. But those looking for slightly more offbeat winners still had a chance to shine. Here is our pick of some of the most striking strategies. Pound foolish Sterling seems an unlikely success story. At the start of the year, the political backdrop was dire enough to force many investors to simply avoid the currency as much as they could. In the autumn, the UK currency shook around in a narrow range while politicians stumbled from one Brexit flashpoint to the next. At one point, the pound was more volatile, and seen as a more risky bet, than the Mexican peso. And yet, the pound finished 2019 as the second best performing major currency in the world against the dollar, gaining 1.7 per cent over the course of the year. Since early September it has risen 7.4 per cent — a great bet for anyone brave enough to put it on at the time when Prime Minister Boris Johnson and Ireland’s Leo Varadkar found a somewhat more united strategy on Brexit. Much now depends on what Mr Johnson does next on Brexit, with his newly enhanced mandate after December’s general election. It will be a testing ride in 2020 but Goldman Sachs, for one, says sterling remains one of its favourite bets for the coming quarter. Eva Szalay Line chart of $ per £ showing Politics made for an unusually volatile pound this year Century duty If one asset exemplified the year’s bond market rollercoaster, it was Austria’s “century” bond. When the Alpine nation sold 100-year debt in 2017 at a yield of just 2.1 per cent, it was viewed in some quarters as proof that markets
had become unhinged. But buyers were laughing all the way to the bank in 2019. By the time the global bond rally peaked in late August, the debt was trading at 210 cents on the euro — with investors sitting on an 87 per cent year-to-date return — while the yield was down to 0.9 per cent. The stellar performance reflects the almost insatiable hunger of investors such as pension funds and insurers, which need long-maturity assets to match their long-term liabilities. It was also a demonstration of the acute sensitivity of longer-dated bonds to moves in interest rates: Vienna’s century bond was merely an extreme example of a powerful rally that swept up all highly rated long-term government bonds. Those properties meant ultra-long bonds were hit hardest when global bond markets cooled in the autumn. But even after a heavy sell-off, holders of the century bond are still up by almost 50 per cent in 2019. Long-term investors will be hoping the next 97 years are a little calmer. Tommy Stubbington Line chart of Price of 100-year government bond (€) showing Austria’s century bond takes off Up the Greek In 2012 markets refused to lend to Greece at any price. This year, investors could hardly get enough of the country’s debt, which has stood out in a bumper year for eurozone bonds. Investors’ enthusiasm owed much to the gradual healing of the Greek economy after this decade’s brutal slump, along with a calming of the country’s often volatile politics. But Greece was also the beneficiary of a desperate search for yield, which drove investors into corners of the bond market typically seen as relatively high risk — dragging down yields there too.
Rescued Chinese bank’s ex-chair set for life in jail Death sentence for embezzling $110m likely to be commuted at end of 2-year reprieve TOM MITCHELL AND SHERRY FEI JU
T
he former head of a regional bank rescued by Chinese authorities this year is set to spend the rest of his life behind bars after a court convicted him of corruption and other crimes on Thursday. Jiang Xiyun, former chairman of Hengfeng Bank, was sentenced to death with a two-year reprieve — a punishment usually commuted to life in prison after the reprieve — by a court in eastern Shandong province, where the troubled financial institution is based. Jiang, who had been accused of embezzling about $110m, was also convicted of illegal destruction of financial documents, according to the Yantai Intermediate People’s Court. Hengfeng was the largest of three regional banks rescued by Beijing authorities this year, with more than Rmb1.4tn ($200bn) in assets. The first to fall, Baoshang Bank in Inner Mongolia, was controlled by Xiao Jianhua, a billionaire who was abducted from Hong Kong three years ago by Chinese authorities and smuggled back to the mainland. Officials are yet to comment officially on the charges Mr Xiao will face. Baoshang’s rescue, funded by the central bank, spooked the country’s financial markets because creditors above a certain size will not get all of their money back. The Chinese government forced
larger state-controlled financial institutions to come to the rescue of Bank of Jinzhou in Liaoning province and Hengfeng. China’s largest lender, Industrial and Commercial Bank of China, and two state-owned asset management companies, Cinda and Great Wall, took large stakes in Bank of Jinzhou. Hengfeng’s rescue was led by Central Huijin Investment, a unit under China Investment Corp, Beijing’s sovereign wealth fund. Last week Hengfeng announced it would raise Rmb100bn ($14.3bn) in new capital, about 60 per cent of it from Central Huijin. Singapore’s Union Overseas Bank, which previously had a 13 per cent stake in Hengfeng according to Reuters, took less than 2 per cent of the new placement, diluting its shareholding. Yi Gang, China’s central bank governor, warned in September that shareholders in institutions such as Hengfeng, which undertook huge expansions at the beginning of the decade, “must be responsible for the actions of their banks . . . and need to have the ability to identify risks”. Despite such warnings and the seemingly harsh sentence for Jiang, Chen Long, partner at Beijingbased research firm Plenum, said death sentences with two-year reprieves were typical in corruption cases involving similar amounts of money. “It is unusual to see death penalties [carried out] these days,” he added www.businessday.ng
The quirky markets that offered big opportunities in 2019 From wine and fried chicken to balsa wood — niche trades of the year
W
hile big investors crow about their timely bets on sterling or their clever navigation of eurozone bond yields, 2019 also delivered some bumper returns in more esoteric areas. Here is our pick of the best. Italian fine wine Italian top-end wine prices had a vintage year in 2019, amid an otherwise largely groggy year for fine wine investors. Piedmont-based Giacomo Conterno’s Barolo Riserva Monfortino 2002 topped the list, gaining 75 per cent this year to £10,390 for a case of 12 bottles, according to data from online wine market Liv-ex. Also performing well was Gaja’s Barbaresco 2007 and 2011 vintages, which rose 35 per cent and 31 per cent respectively. “While the top wines of Piedmont and Tuscany compare favourably to Burgundy and Bordeaux in terms of critic scores, prices are often lower,” said Liv-ex in a research note. This year they have been catching up. “You suddenly see people saying ‘there’s a lot of value in the top Italian wines’,” said London-based wine trader Gregory Swartberg, managing director of Cru Wine Limited. Liv-ex’s Italy 100 index rose 4.6 per cent this year. Its benchmark Fine Wine 100 fell 2.5 per cent, hit by the US-China
trade war, the protests in Hong Kong and US tariffs on European wines. Laurence Fletcher KFC Japan: tasty For almost three years, no matter how finger-lickin’ good the recipe, shares in KFC Japan were stuck at ¥2,000 a share. New menus, clever promotions and the weird convention whereby many Japanese celebrate Christmas with a bucket of fried chicken: none of it seemed to make any difference. But in July, the shares mysteriously began to climb. By October, with volumes now rising high above their long-term average and retail investors salivating, they hit a 15-year high. Then followed an even sharper ascent to ¥3,595 — a rise of 80 per cent for the year for a company that has really not veered far from its old business model. What is going on? Nobody is completely sure, but retail investors still love the story. The best bet, say the brokers, is that the retail end of the market is on the lookout for net cash companies that are a bit cheap for their sectors and — critically — are listed subsidiaries that might be in line for consolidation by their parents in 2020. Leo Lewis Balsa wood: blown away 2019 was a dismal year for model aeroplane enthusiasts, who bore the brunt of fierce competition to secure
their favoured lightweight material — balsa wood — from the grips of green energy. But it was stellar for balsa bulls. The wood is used as a core material in wind turbine blades, and the rapid rollout of clean power this year left turbine makers scrambling to secure it. The price for block-like planks of balsa has doubled to about $800 per cubic metre, and the shortage is now so severe that it could delay the deployment of new wind turbines. “Balsa supply can’t follow the increase in demand,” said Rudolf Hadorn, chief executive of Gurit, a supplier of wind turbine blades. The rally looks unstoppable. Wind turbine manufacturers are gearing up for a surge in new wind power capacity installations. Next year, 75 gigawatts of wind power capacity will be added globally, up 12 per cent from 2019. As demand rises, Chinese intermediaries are going directly to producers with higher offers for the wood. Ecuadorean producers and traders say prices are going up weekly and likely to keep rising. Plastic materials threaten to displace balsa but the wood remains the best performing material for structural sections of turbine blades. Supply will eventually catch up to demand but balsa trees take at least four years to grow until harvesting. Harry Dempsey Popped by corn
Grab v Gojek: inside the tech battle for south-east Asia Two of region’s biggest start-ups are jostling for dominance while chasing profitability MERCEDES RUEHL
E
ven visitors to the Indonesian capital find it hard to miss the fierce fight between southeast Asia’s two largest tech start-ups — Gojek and Grab. At Jakarta’s Soekarno-Hatta airport, rival billboard-sized LED screens stand metres apart, greeting passengers with competing offers of trips through traffic-clogged streets into the city’s central business district. Gojek and Grab, which were founded in 2010 and 2012 respectively, each want to be the superapp of choice in south-east Asia’s largest economy. This year, they have expanded into new business lines, moving beyond ride-hailing and food delivery into digital payments and wealth management. Backed by some of the biggest names in tech — Gojek’s investors include Google, Temasek, Warburg
https://www.facebook.com/businessdayng
Pincus and Tencent, while Grab is funded by SoftBank, Microsoft and Didi Chuxing — the two companies have burnt through billions of dollars over the past several years, even as they continue to raise money. While they show no signs of slowing down, the heads of both businesses say this year has brought about a new focus on reaching profitability. “There is no desire to live outside our means,” said Ming Maa, president of Grab. “Our current business plan does not require any additional capital being raised by outside investors.” A graphic with no description For Grab, which has raised more than its rival at around $8.7bn and is now valued at $14bn, that has meant shifting focus from a growth-at-allcosts approach to being more strategic — for instance moving away from high subsidies and promotions to acquire users. Gojek, meanwhile, has also expanded outside of Indonesia, launching in its rival’s home @Businessdayng
market of Singapore in early 2019, where order sizes and commissions are larger. But Indonesia, the world’s fourth most populous country, remains the priority for both companies. Gojek now operates in 207 cities across four countries in south-east Asia, 203 of which are in Indonesia. Grab is present in 339 cities across eight countries, and the majority — 224 — are also in Indonesia. On the basis of weekly active app user numbers, Gojek has the upper hand in the country by consistently ranking higher than its competitor this year, according to statistics from California-based analytics group App Annie. This is despite its rival’s use of rival “brute force” subsidies, according to Andre Soelistyo, Gojek’s president and cochief executive. “The reason why many users use Grab in my opinion . . . is due to the heavy discounts. If something is for free, you use it,” he said.