Manish Singh, CFA

Genuine question for fellow QT nerds / financial plumbing experts. The BoE MPC voted to keep the pace of Quantitative Tightening unchanged at £100bn for the next 12 months, c. 90% of which will come through a passive run-off of existing holdings, and c. 10% from active sales. Bank reserves are currently upwards of £700bn, well above the BoE’s own estimate of even the £490bn upper bound of the Preferred Minimum Range of Reserves (which should delineate between what central bankers have started calling “abundant” and “ample” reserves). In other words, by the Bank’s own reckoning, it should have lots of room to shrink its balance sheet before bank reserves start to become scarce. Fine. However, this is happening against the backdrop of exponentially growth in banks drawing on the Bank’s Short Term Repo (STR) facility – not something you would expect in an environment where every bank has “abundant” reserves. If you were sitting on the MPC, would this give you pause? Are there any risks associated with moving out of "abundant" territory too quickly, or are gilt-backed reserves just going to seamlessly get replaced with repo-backed reserves?

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WHY THE CONSENSUS ON GOVERNMENT BONDS IS WRONG It is very tedious when ( virtually ) every commentator when asked about Goverment Bonds just repeats the same old tired narrative about strong US economy ( debatable & becoming more so ) and "sticky" inflation ( transitory ?) Since hitting it's major low in October 2023 the Ultra Long UK Gilt rose 26% in 9 weeks ( in Elliott Wave parlance a clear impulse wave ).It then embarked on a Elliott secondary reaction which saw it lose about 16% from the December high traced out over 4 months.ie it took twice as long to give up about 2/3 of the gain.This is a strong signal that the primary trend of the market is up.On the assumption that this secondary reaction is now over it will be replaced by another impulse wave ie a sharp upward move on a par with the Oct-Dec 2023 but probably bigger - starting anytime now.So in the real world what is going to cause Gilts & Tbonds to take off given the consensus view referred to above.Well yesterday the US Treasury announced a very interesting programme involving buying back US Tbonds ( despite the record deficit ) with the obvious aim of getting the entire yield curve lower in the run up to the US election.This monkeying around with the market also involves a facility where Banks & the Fed can swap low coupon TBonds for Higher ( current ) coupon Bonds to help stave off any Bank runs by boosting the cash flow from the higher coupon Bonds enabling the Banks to offer higher deposit rates in order to deter withdrawals.None of this is priced into the market and when it is put into practice it's effect on the prices of Bonds ( especially Long Bonds ) will be explosive as the demand for long Bonds will greatly exceed the supply irrespective of whether Inflation is "sticky ". A (the ?) major component of sticky inflation has been higher Oil prices and as Oil has now gone into sharp decline so Inflation will now become less sticky.Throw in a probable recession / sharply slowing economy with the long awaited effect on the Jobs market and all the ingredients are in place. It is a strange phenoneum in markets that when a strong consensus develops it usually turns out to be wrong - This could be a classic textbook example

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Equity Distributions with High Cash Flow CLO Equity is having another stellar year. Reported IRRs for CLO Equity: ~15% YTD for many of the top CLO managers. CLOs start with a warehouse line allowing CLO managers to accumulate/ramp their BSL portfolio of performing & highly diversified loans (~200 BSLs when CLO is priced). The most favorable CLO warehouse lines have non-marked-to-market facilities with roughly 4x leverage. Bank facilities provided with favorable terms are about SOFR +125 to +150bp range. During the warehouse ramp, equity seeks to earn 20-30% IRR, but this can vary widely, however it’s for a short period (~3 – 6 months), so the MOIC is low as it’s just a component that drives the overall CLO equity return. The BSL market is performing well. I expect the credit markets to perform well in this environment with default rates for BSL declining in the coming year, which should prove positive for CLOs debt and equity. AAA CLO tranches represent about 60% of the CLO cap stack and AAA’s have tightened to ~+130 from its wide earlier this year of S+150. The CLO equity arb is driven by the difference between the rate earned on the BSL portfolio vs. the liability costs (and admin costs). Holding all things constant, tighter liability costs are accretive for CLO equity investors. Credit selection and asset management is critical to performance as the best CLO managers employ dedicated teams of investment professional’s expert in loan underwriting, building, and managing highly diversified CLO portfolios. Strong credit profile is key to maintain low default rates, and its best to avoid CCCs, as mitigating risk is critical to performance. CLO equity also benefits from reinvestment during the investment period, active management that can add alpha via relative value, and repricing/extensions of CLO liabilities later in the CLO life span. CLO equity holders earn strong current cash distributions for well performing deals, with the potential to earn mid-teens IRRs, strong DPI and MOICs. The added kick is when the CLO manager shares a portion (10-20%) of its management fees they earn from managing the CLO (~40 bps) with the CLO equity investors. This fee sharing arrangement was first introduced post-GFC when CLO managers raised CLO equity funds required under risk-retention requirements as The Volcker Rule was introduced. Since the Volker rule no longer applies to U.S. CLOs, fee sharing arrangements are less prevalent today, but available from select managers. For these reasons and more, I am a proponent of CLO Equity and believe there is a place within in broader portfolio to hold these high yielding assets. Big shout out to Marathon Asset Management's CLO team who just closed Bryant Park 2024-24, a $405M CLO yesterday, bringing Marathon’s CLO capital market transactions to $2.4B YTD.

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Where's the market stress? UK yields rose on the Autumn budget on expectations of higher Gilt issuance and as 30bps of rate cuts got priced out by end-2025 (per Dec-25 3M Sonia), likely on expectations that the budget is stimulatory (I'm yet to be convinced it is). Yields are up sharply, but with sterling up too there is no stress. This isn't a Liz Truss moment and the markets haven't said they don't like the budget. p.s. I was wrong about no increase in CGT. The increase was smaller than speculated on though. Read our full budget analysis at #BMI

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Scrap AiM? Things are really hotting up in the war of words over London's junior market. "The UK’s capital markets are “not fit for purpose” and require “radical surgery”, the report from the Tony Blair Institute for Global Change and the centre-right think-tank Onward said." “Aim has failed in its stated purpose of providing a home for scaling businesses. It should be fully merged with the LSE’s main market, with a special route to listing specifically for high-growth firms in emerging technology sectors. Sorry to say, but I believe that is also wrong and it's not AiM's fault. The solutions put forward are always structural, like merging AiM with LSE makes it all better. The reason that companies are not going to AiM is that it is expensive and the reason that investors are not interested is because it's boring and has been engineered by the regulators to be so. Let's say you start a brokerage to specialise in AiM Securities because you and your investors are passionate about UK businesses and they have a risk tolerance. Firstly you will have to plaster your website with risk warnings about the hideous dangers that lurk in these horrible little businesses... and that, more than likely, you will lose all of your money. Then, when something inevitably happens with one of these small businesses (which is the nature of trading in small businesses), something the management has done but is nothing to do with you.....you will spend months justifying why you allowed people to invest in the business which was clearly a bad and dodgy business.. because the FCA have the greatest hindsight risk management tools you could imagine and will bring those to bear. ..and if they come for you as a Senior Manager you could be personally liable. So, my friend, would you build a business in the UK to allow people to bet on small UK businesses when you can just just take your coms from people trading Tesla? CEOs could not give a monkeys what you call the market, what the structure is or where it is frankly. They want the best deal for their shareholders in costs to list, cost of the ongoing compliance with regulations, liquidity and access to capital. Reforming the structure of UK markets is a start but it will not save them, reforming how people invest in them will. The reason AiM was great in 2006/2007 was that it was exciting. Shares going from 3p to 30p was not unusual. There was a community of investors ripping companies apart and building them up. Like it or not, risk capital is in competition with Crypto because crypto is more exciting. It is, of course, monumentally more risky, and one would have thought the FCA would prefer you gamble on a UK business swinging for the fences than a frog meme coin created by a kid 'for lols'? #AiM #LSE

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To quote Danica McKellar, “Maths is the only place where truth and beauty mean the same thing”. With that in mind, welcome to this insightful Investing Matters interview with the hugely successful #FundManager, Jean R. CFA, the Lead Manager of #FTSE-listed Schroders UK Mid cap #Fund and one third of Schroders Wealth Management' UK Small Mid cap Team with Andrew Brough and James Goodman. Where we discuss how Jean and the team find #stocks that go onto to become multi-baggers. Please listen here now ⏩ https://lnkd.in/ei8GREnr ⏪ After attaining a Master’s Degree in Financial & Industrial #Mathematics from Dublin City University, Jean was successful in being selected for Morgan Stanley’s graduate programme and commenced her #investment career in 1999. As an Equity Analyst, Jean covered the #tobacco sector, food producers, then general #retail. Jean also worked for Panmure Gordon, before moving to Hargreave Hale in 2013 as a Fund Manager. Having been personally selected by the hugely talented and respected #investing legend Andy Brough, Jean joined #Schroders in 2016 and became Fund Manager of Schroders UK Mid Cap Fund plc in February 2021, having been Co-Fund Manager since September 2016. They have been successfully compounding fantastic investment return for Schroders and their investors ever since. Most recently Jean was nominated for the award of Fund Manager of the Year in the Plc Awards. In this Investing Matters interview, Jean gives a brief overview of her roles and responsibilities at Schroders, the #winning analytical methodology and processes undertaken by the Schroders Mid Cap team when selecting long-term holdings, the importance of checking balance sheets, compounding winning stocks, her own personal investing strategy & much more. Topics and discussions also include: -The Schroder Mid Cap team’s #winning #investing philosophy, methodology & strategy -The #Heineken index. - #Stocks include, Games Workshop Ltd, 4imprint, Chemring, Babcock International Group, Bodycote, QinetiQ, Inchcape plc, Dunelm, Man Group, Renishaw, Oxford Instruments plc -When to sell a holding. -Unique, Flex & stocks to avoid. -#ESG / #Sustainability. -#DigitalTransformation. -Personal investing strategy, #Pension. -#ETFS. -#Diversity / #Inclusion / The Diversity Project Charity brainchild of Dame Helena Morrissey -Finding 30x #multibaggers, what are the characteristics -#Psychology -#ArtificialIntelligence / #Ai / #QuantumComputing -#Leadership / #Teamwork / #Analysis / #Research -Long-term investing / Compounding returns & much more Thank you to all our listeners - we hope you enjoy this podcast, ⏩ https://lnkd.in/eKvwQ3YQ ⏪ & we look forward to hearing your feedback. Please subscribe to this podcast on your platform of choice and follow the @InvMattPodcast on Twitter. Sue Noffke Duncan Lamont Simon Keane Ailsa Craig

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🌪️ No one thought that a 15 bps hike from #BoJ would lead to this carnage. 📉 JPY/USD is suddenly back to $140, causing a global unwinding of Yen carry trade positions and significantly contributing to the sharp decline in global stocks. 📊 Allow me to explain what this means for the degen and what this could mean for macro and crypto: 1. The Yen Carry Trade: 💸 Think of traders as caffeine-fueled bargain hunters at Japan’s perpetual low-interest coffee shop. They borrow Japanese Yen (JPY) at rock-bottom rates, like getting their caffeine fix for pennies. 💵 They then exchange this JPY for US Dollars (USD) and head to the Wall Street buffet, loading up on high-yielding US stocks. 2. The Impact of Rising Japanese Interest Rates: 📈 Imagine the Bank of Japan (BOJ) as a grumpy barista who’s just hiked coffee prices. This sudden increase in interest rates has turned the JPY into a financial heavyweight, flexing its muscles against the USD. 😱 Now, traders are in a bind. It’s like finding out their bargain lattes come with a surprise surcharge. They must now pay higher interest on their borrowed JPY and are also facing a giant forex hangover because their USD investments no longer cover the beefed-up JPY debt. 3. Unwinding the Trade Positions: 🔥 This situation is causing a frantic unwinding of these trades. Picture traders as chefs in a kitchen disaster, scrambling to put out financial fires everywhere. 💥 Facing mounting losses and margin calls, traders are selling their US stocks faster than a hotdog vendor at a baseball game. They’re converting the proceeds back to JPY to pay off their loans, creating a financial stampede. 4. Short-term Market Implications: 🐘 This mass exodus from US stocks is putting additional pressure on the market, like a herd of elephants stampeding through a china shop. Adding to the chaos are geopolitical tensions in the Middle East and US political drama, turning the stock market into a rollercoaster ride of fear and panic. 💎 For the savvy investor, this turmoil is like finding hidden treasures at a yard sale. The panic-induced sell-offs allow them to snap up high-quality US stocks at bargain prices. By taking advantage of temporary mispricings caused by short-term crises, they can fortify their portfolios and potentially come out richer. ☕ So, while others are running for cover, the wise investor is the one sipping their metaphorical coffee, calmly buying up valuable stocks on the cheap (think Buffett or corporations full of cash). Join my telegram channel for more regular alpha: t.me/hashtalk1

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We were quoted Thursday by The Epoch Times—in an article by Indrajit Basu, titled “US Funds Shy Away From #China, Shift Focus to #India”—regarding foreign direct investments (#FDI) in China and #EmergingMarkets (#EM). ALSO QUOTED WERE: —Tariq Dennison TEP, GFM Asset Management LLC —International Monetary Fund Deputy Managing Director, Gita Gopinath —Devina Mehra, co-founder of First Global —Gary Dugan, CEO at The Global CIO Office BACKGROUND: Several emerging market nations find themselves navigating sensitive political terrain. The recent inauguration of Lai Ching-te as #Taiwan's new president could exacerbate already strained relations with China. Concurrently, major elections to select national leaders are underway in #Mexico, #SouthAfrica, and India. The outcomes of these votes possess the potential to significantly influence economic conditions and asset valuations within those countries. China’s continued recent improvement in leading indicators denote continuing demand for Chinese goods as global growth expands, but because China is becoming more self-sufficient it may impede its development of long-term competitive advantages. CAPITAL PROTECTION: Intellectual property rights (IPRs) are a key element in #technology transfer and production, and can influence foreign direct investment (FDI) decisions in several ways; when threatened, as has been the perception lately, fresh outside #capital becomes hesitant. Property rights are important for attracting FDI and foreign investors are often concerned about the security of their capital in countries where they invest, which can involve large amounts of sunk costs. Threats from local individuals, elites, municipalities, or the national government reduce incentives to invest, especially if contractual obligations can’t be enforced or if rules change unexpectedly. China's regulatory crackdown on sectors like technology and education in 2021-2022 raised concerns about government intervention risk, which still lingers for some investors, and longstanding wariness around accounting standards, auditing issues and lack of corporate transparency for Chinese companies listed abroad still weigh on sentiment. QUOTED EXCERPTS: “Heightened tensions between China and the West, particularly the U.S., over issues like Taiwan, human rights, trade, and potential tariff wars create an uncertain environment that makes investors cautious on China exposure,” said Michael Ashley Schulman, CFA chief investment officer at the California-based Running Point Capital Advisors. Still, “many foreign investors may be hesitant to make large long-term direct, private equity, or private credit investment commitments to China where capital could be tied up for years [due to its faltering economy],” Mr. Schulman told The Epoch Times. “Some of this capital has already shifted to India, Vietnam, and Indonesia where growth prospects remain high and political perceptions are friendlier.”

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#BSE equity derivatives contracts rise a whopping 2,400% to ₹34.6 trillion in FY24 from a mere ₹1.38 trillion in the preceding fiscal year. #NSE’s turnover jumped 111% to ₹324.9 trillion in FY24 from ₹153.5 trillion in FY23

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From phones to E-trading - then from E-trading to more advanced trading techniques. As Coalition Greenwich (a division of CRISIL) reports, "63% of fixed income traders highlighted access to liquidity from a single blotter as the most attractive functionality, closely followed by 51% of respondents confirming that aggregation of market data from multiple sources/formats was the number one desire." Yet “factors including cost and quantifiable return on investment (ROI) still hinder traders who are considering the adoption of new trading technology” Ediphy remains the quickest and most cost efficient way for buy-side firms to simplify access to multiple liquidity end-points with a normalised trading interface. Our approach is unique, novel and not for everyone. However if you are truly looking for meaningful innovation in fixed income execution technology without the need for multi-million dollar integration projects - do get in touch with our team: https://lnkd.in/e9C3TDJQ https://lnkd.in/egjk_8PZ

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Cᴀꜱʜ ɪꜱ ᴋɪɴɢ ɪɴ Jᴜɴᴇ Despite positive global equity markets in general, Money Market GBP was the most popular classification with UK #fund investors in June (£3.81bn), reversing last month’s outflows. A lot of the volatility in this asset class can be attributed to the fact that corporates use MMFs to stow cash before dividend payments and other corporate actions. That said, it could also be a reaction to the fact that bonds, despite their popularity from 2023 to date, are not delivering. For example, while Bond GBP Government took £606m over the month and £8.02bn over 12 months, the average return for these funds over both Q2 and YTD is still negative, while MFFs are in the black. That said, the same argument could be made last month, with most govvies still down over the month and year to date, and where Money Market GBP funds saw the second largest outflows. It seems unlikely, then, that performance of other ostensibly ‘risk-free’ assets explains the volatility in MMF flows. More details on UK flows for the month in Everything Flows, published next Tuesday. Only five sleeps to go... 😊 𝗟𝗮𝗿𝗴𝗲𝘀𝘁 𝗣𝗼𝘀𝗶𝘁𝗶𝘃𝗲 𝗙𝗹𝗼𝘄𝘀 𝗯𝘆 𝗟𝗦𝗘𝗚 𝗟𝗶𝗽𝗽𝗲𝗿 𝗚𝗹𝗼𝗯𝗮𝗹 𝗖𝗹𝗮𝘀𝘀𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻, 𝗝𝘂𝗻𝗲 𝟮𝟬𝟮𝟰 (£𝗯𝗻)

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InCred Asset Management & Alternative Investments, the alternative asset management arm of InCred Capital, has announced the first close of its maiden private equity fund, InCred Growth Partners Fund - I (IGPF-I). ◾ The fund has raised over Rs 330 crore, supported by commitments from large HNI and UHNI investors. ◾ The fund targets a final close of Rs 500 crore and aims to invest in growth and late-stage companies across consumer, financial services, and enterprise/technology sectors. ◾ The average ticket size for investments will range between Rs 40-80 crore. IGPF-I is led by investment veteran Vivek Singla as the Managing Partner and Chief Investment Officer for Private Equity. ◾ The fund plans to follow a concentrated strategy, investing in no more than 7-9 companies where it has high conviction. ◾ The successful first close is a testament to InCred's strong track record and investor confidence, according to Singla. ◾ With this fundraise, InCred Alternative Investments now oversees around Rs 3,000 crore across alternative and equity investments. #funding #investors #privateequity #startups #entrepreneurs #founders

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DERIVATIVE INSIGHT Benchmark Indices continued the uptrend for the eighth consecutive week, with Nifty closing higher by 1.2% at 24835. Overall rollover for the August series stands at 91% vs. 94% in the last series, which is in tandem with the 3M average of 91%. Nifty rollover for the new series is lower at 70% vs. 76% in the last series, and it is also lower than the 3M average of 71%. Nifty PCR ratio increased from 1.11 to 1.36. Indian VIX closed for the week at 12.25, down by 17.4%. On the upside, 15.50 is the immediate resistance level to watch out for. On the downside, 10 is the support level to watch out for. Stocks that saw a long buildup for the week were Torrent Pharma, ONGC, IGL, Naukri, Voltas, IOC, MCX, GodrejCP, Mphasis, Escorts, and Hind Petro. Stocks that saw a short buildup for the week were Manappuram, RBLBank, Reliance, Axis Bank, and Bank Baroda. 24500 strike price has the highest OI among the Nifty August month-end call option, with an OI of 28.09 lakhs. For the week, 24700, 24800, and 24900 call options saw the addition of 4.5 lakhs, 6.2 lakhs, and 3.3 lakhs, respectively, with IV decreasing, indicating the writing of an option. 24500 strike price has the highest OI among the Nifty August month-end put option, with an OI of 37.85 lakhs. For the week, 24700, 24800, and 24900 put options saw the addition of 8.2 lakhs, 9.4 lakhs, and 5.5 lakhs, respectively, with IV increasing, indicating the buying of an option. In the derivative segment for the week, FII were net sellers in the index futures to the tune of Rs. 7,243 crores, with OI decreasing by Rs. 5,000 crores compared to net buying of Rs. 1,842 crores, with OI increasing by Rs. 3,703 crores in the previous week, indicating a long unwinding. FII unwounded 162605 long contracts and added 63238 short contracts in index futures, indicating a long unwinding and a short buildup in the current week.  FII net long exposure in index futures stood at 62.7% vs. 56.8% at the beginning of the August series. In the stock futures, FII were net buyers to the tune of Rs. 3,775 crores, with OI decreasing by Rs. 8,817 crores compared to net buying of Rs. 10,119 crores, with OI increasing by Rs. 5,996 crores in the previous week, indicating a short covering. Looking at the option data and FII statistics, Nifty does cross the level of 24855, and 25200-25500 are the levels to eye on the upside. On the downside, 24450 is the immediate support level to watch out for on Nifty.

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A budget for growth, or for higher bond yields? Market reaction in the couple of days post the UK budget has been negative, albeit far from disastrous. On the latest abrdn Macro Bytes #podcast, Lizzy Galbraith Luke Bartholomew and I discussed the macro and market implications in more detail. The market is concerned about the only-very-modest growth impacts the OBR expects the budget to have over the five-year forecast horizon, and the narrow headroom against the fiscal rules. As a first approximation, adding fiscal stimulus to a full-employment economy results in higher interest rates and crowding out, not stronger growth. A rise in trend growth from higher investment spending and Labour’s broader programme of supply-side reform is very plausible, but it may take time to accrue. The gilt sell-off is still much smaller than that seen after the 2022 mini budget. However, coming after the rise in bond yields that occurred between the OBR finalising its forecasts and the budget being delivered, it may have removed the chancellor’s headroom against the stability rule, meaning additional taxes and borrowing could be coming. 🎙 Give the podcast a listen here -> https://lnkd.in/e2JAtuJk

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UK outflow 2nd highest on record - looks very structural to me! Calastone data showing £1.1bn of outflows from UK equity funds in May, which is now 36 consecutive months of outflows. The improvement in the UK market recently has been driven by M&A and share buybacks which have offset the outflows. This is why it is essential to encourage UK investment in UK companies otherwise we will not have a smaller companies sector to the detriment of the UK economy, jobs and tax revenue. Core to necessary changes are UK pensions investing in UK companies, a UK ISA, a national wealth fund and abolishing stamp duty to ensure the UK is competitive. Rt Hon Rachel Reeves Darren Jones Jeremy Hunt Bim Afolami

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