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June 2017

Jun 30
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If You Think Stocks Are Dull, Look at the Economy

By Financial Markets & Economy

According to Justin Lahart of the Wall Street Journal, volatility has seemingly vanished from the stock market, and the simple reason is that economy itself is so calm.

Economic volatility within the U.S. and across the globe is incredibly low, and with this low volatility comes the risk that investors may become far too complacent.

Over the past three years, the standard deviation of the annualized change in U.S. GDP has only been 1.5 percentage points, which is historically about as low has it has ever been. Amazingly enough, global GDP is displaying the same trend.

According to J.P. Morgan economist Joseph Lupton, this lack of volatility not only stems from less shakiness within individual economies, but also because they have become less correlated with one another.

From an investment standpoint, low economic volatility is a good thing, because investors get hit with fewer surprises, however, it can also lure them into complacency and leave them much more vulnerable if volatility were to increase in the future.

Link to article

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Jun 21
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MSCI announces China A-shares to be included in the MSCI EM Index: What does it mean for investors and the China markets?

By Endowment Index™

This morning the MSCI announced the landmark decision to add 222 China A-share stocks to the MSCI EM Index, all of which are accessible via the Shanghai and Shenzhen – Hong Kong Stock Connect programs.  This initial addition will account for 0.73% of the MSCI EM Index and helps pave the way for a substantial inclusion of the A-shares in the Index over the mid to long-term that will force investors to re-evaluate their view and allocation to the world’s second largest economy.

Snapshot of MSCI EM Index:

  • Index funds and ETFs have over US$2 trillion bench-marked against the MSCI EM Index with Hong Kong stocks currently accounting for around 26% in the Index.
  • If a full inclusion of China’s A-shares were realized then Hong Kong and China combined would account for more than 45% of the Index.

What the A-share inclusion means:

  • We expect an initial US$12-14 billion in assets to flow into the MSCI EM Index due to the inclusion.
  • Whilst this first inclusion is small, it holds significant relevance as we expect A-shares to increase as a constituent to account for over 18% (or over US$300 billion) of the Index in the next 3-5 years.
  • The inclusion will help to institutionalize China’s domestic markets, a move that will be welcomed by the regulators in the retail dominated markets.
  • Global institutional investors, including the world’s largest fund houses, have expressed their support for the inclusion and we expect many to re-evaluate their allocation to A-shares, both passive and active.
  • The regulators will continue to adjust the QFII, RQFII and Stock Connect programs to allow greater access to the markets and ensure a steady increase to the number of constituents added to the MSCI EM Index.

To summarize, the inclusion is a milestone event that we believe will improve the efficiency and transparency of the China markets whilst forcing investors to re-evaluate their long-term view on the China markets.

Our Endowment Index splits our exposure to Emerging Markets into two: 1) Diversified Emerging Markets allocation using “IEMG” ETF and 2) China A Shares allocation using “ASHR”. Go to www.EndowmentIndex.com to learn more about this Index.

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Jun 01
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Internet Trends Report 2017

By Alternative Investments, Venture Capital

Here’s a first look at the most highly anticipated slide deck in Silicon Valley. This year’s report includes 355 slides and tons of information, including a new section on healthcare that Meeker didn’t present live.

Here are some takeaways:

  • Global smartphone growth is slowing: Smartphone shipments grew 3 percent year over year last year, versus 10 percent the year before. This is in addition to continued slowing internet growth, which Meeker discussed last year.
  • Voice is beginning to replace typing in online queries. Twenty percent of mobile queries were made via voice in 2016, while accuracy is now about 95 percent.
  • In 10 years, Netflix went from 0 to more than 30 percent of home entertainment revenue in the U.S. This is happening while TV viewership continues to decline.
  • Entrepreneurs are often fans of gaming, Meeker said, quoting Elon Musk, Reid Hoffman and Mark Zuckerberg. Global interactive gaming is becoming mainstream, with 2.6 billion gamers in 2017 versus 100 million in 1995. Global gaming revenue is estimated to be around $100 billion in 2016, and China is now the top market for interactive gaming.
  • China remains a fascinating market, with huge growth in mobile services and payments and services like on-demand bike sharing.
  • While internet growth is slowing globally, that’s not the case in India, the fastest growing large economy. The number of internet users in India grew more than 28 percent in 2016. That’s only 27 percent online penetration, which means there’s lots of room for internet usership to grow. Mobile internet usage is growing as the cost of bandwidth declines.
  • In the U.S. in 2016, 60 percent of the most highly valued tech companies were founded by first- or second-generation Americans and are responsible for 1.5 million employees. Those companies include tech titans Apple, Alphabet, Amazon and Facebook.
  • Healthcare: Wearables are gaining adoption with about 25 percent of Americans owning one, up 12 percent from 2016. Leading tech brands are well-positioned in the digital health market, with 60 percent of consumers willing to share their health data with the likes of Google in 2016.

Download the Internet Trends Report here: Internet+Trends+2017+Report

Source: KPCB, Recode