Lunch With A Fund Manager – Bullish Bets

Rarely do I get a chance to go down to Raffles Place even though I work nearby.

A year does make a big difference and cigarettes are now 12 bucks even at the coffee shop ! I was mortified !

Lucky for me, my lunch was free. Courtesy of a fund manager friend whom I count as a very old and familiar friend, having both gone through some extenuating circumstances together in the distant past.

3 months since our last lunch and his views have changed quite dramatically. He is bullish indeed. Describing to me record inflows into his High Yield fund (from Japan ? perhaps), and how his EM bond funds are positively glowing.

He dismissed my skepticism on the economic crippling to come from austerity around the world likening the situation to a balance sheet dress up, reducing liabilities but inflating the off balance sheet items via the QE-Eternity.

He thinks that stocks are not over valued. This run up does not puzzle him given the way major funds are all under allocated and there is so much money in the system (courtesy of the global QEs’) that, in his own words, “there is not enough equity to buy.”

On bonds, he is bullish still, in general. Because bonds get the most leverage (up to 80%) vs equity leverage of less than 50%.

This will be a year of transition, in his opinion. Where investors will have to choose between stocks and bonds. The yields on average for Asia Invt Grade bonds are about 3.5-4% vs the average dividend yield of 2.8% for the STI Index, 2.2% for the S&P 500. The govt bond yields of 1.5% for Singapore 10Y and 1.95% for US 10Y Treasury are inconsequential, afterall, with QE3 going strong.

The obvious choice will be equity and he feels that many retail buyers are still sitting on the side and waiting the outcomes of all the tail risk events that appear to be minimising by the day. [I personally feel that the tail risks are still lurking large and will be dragged out of the closet when we need another scapegoat].

For big money institution accounts, there is just not enough of much to buy and the only market with enough depth will still be bonds. And high yield bonds, in particular, which will have the most to benefit.

On SGD dollar and safe havens, he feels we are seeing meaningful outflow. SGD will underperform the rest of the NEER basket as the rotation into riskier assets continue. Gold will suffer along with it.

He thinks that the MAS will not attempt to strengthen the SGD this April when I challenged him to consider that perhaps the economy could do with a little slowdown. They are already announcing new measures every other day to contain the 2 major inflationary threats – housing and transportation.

Why did they announce yesterday that they would re-look at the car loan rules after 6 months ? Because they screwed up ! They did not consider the low income families who need a car, for all the genius in them.

Well, I asked him has he considered any of the regulatory changes that are about to come ?

He shrugs.

Just revel in the moment and the week. And his new born baby to come in a little more than a fortnight !

Finally, finding fulfillment.

Ps: Not the same fund manager interviewed a couple of months back .