Early premarket gappersGapping up:
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Gapping down:
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Macro hedge funds hopeful the good times are back
down Broader market conditions look more favourable after QE’s distorting effects
Life has not been good for many macro hedge funds in recent years — but the green shoots of recovery are beginning to appear.
Quantitative easing has been a big drag for traders by pushing bond yields lower and for longer than many had expected, distorting fund managers’ fundamental analysis of markets and suppressing the volatility they like to trade.
Macro hedge funds epitomise what many people imagine the hedge fund industry to be — traders taking punchy bets on a move in the yen or the path of US interest rates.
So modest positive returns in the first quarter are raising hopes that broader market conditions have become more favourable since the European Central Bank ended its bond-buying programme at the end of last year.
While hardly spectacular, the first quarter’s 2.6 per cent average gain, according to data group HFR, would equate to an annualised return of more than 10 per cent, should it be maintained. That would be a welcome improvement after a loss of 4.1 per cent last year and lacklustre performance in the previous three years.
One boost has come from the steady decline in bond yields since late last year. A number of traders, such as Brevan Howard and Goldman Sachs Asset Management’s macro fund, had been betting on falling yields (the flip side of rising prices), and were able to profit.
Computer-driven funds that try to latch on to trends in global futures markets have also found the decline in yields positive for returns. Bets on lower bond yields have proven the most profitable trade on an asset class this year, according to Société Générale’s Trend Indicator, a model portfolio that simulates the bets such funds may take.
Gains in sterling and the rally in global equities have also provided opportunities to make money.
The woes of macro traders in recent years echo many of the frustrations of the wider hedge fund industry, which has lost money in two of the past four years. With macro returns improving, managers of other hedge funds are hoping that the good times are back.
Online start-ups target $120bn travel activities market
Newcomers backed by SoftBank, Sequoia and others take on Airbnb, TripAdvisor and TUI
A group of start-ups led by a Hong Kong-based company Klook and backed by investors such as Japan’s SoftBank are expanding internationally in the $120bn travel activities industry, the fastest growing segment in the tourism sector.
The companies, which offer services ranging from amusement park tickets to cooking classes and walking tours, are targeting millennials, particularly in the rapidly expanding Asian travel market, forcing traditional travel agencies to invest more heavily in the sector.
“Asian inter-regional demand itself is as sizeable as the US or Europe, then you add on the growth,” said Eric Gnock Fah, co-founder of Klook, which claims to have raised the most capital of any tours and activities company globally. “In five years' time I think Asia as a whole will be bigger than the US and Europe. That’s why I think investors in general are optimistic about this sector.”
Klook received a $225m cash investment from SoftBank this month, bringing the total it has raised to $520m from investors that also include Goldman Sachs and Sequoia Capital and giving it a valuation of over $1bn.
Founded in 2014, the company offers more than 100,000 activities in more than 270 cities. Mr Gnock Fah said it had taken advantage of explosive growth in younger Chinese travellers with 85 per cent of its customers Asia-based.
Klook, which claims it accounts for half of Asian online sales in the activities sector, is forecasting triple-digit growth in its $1bn volume of transaction revenues last year. With the new capital injection, the company said it would expand into Japan, as well as boosting its presence in Europe and the US.
Klook enters capital cities first, then expands into more niche areas. In Khao Yai, a town outside of Bangkok, customers can visit farms and vineyards.
“Tour and attraction companies are going to become a travel essential,” said Neel Laungani, head of telecoms, media and technology coverage in Asia Pacific for Deutsche Bank.
“These young companies have become full-service platforms, from recommending the best attractions in a city to processing the booking and generating an electronic ticket instantly. They have figured out that if you can engage on a much more regular basis with customers it increases the engagement and ultimately allows these companies to cater to and transact more frequently with that customer.”
Similarly, Berlin-based GetYourGuide, backed by investment firm Battery Ventures and private equity group KKR, has raised $170m and is focused on growing further in the US after cementing its position in Europe.
“GetYourGuide was the first digital company to start bringing a fragmented, decentralised, analogue global market online,” said chief executive Johannes Reck.
Phocuswright, the travel industry research company, said turnover in the tours and activities market would reach $120bn in 2019, with more than a third of that being spent with Asian suppliers. The opportunity for growth for online players, particularly with mobile platforms, was huge given that only about 20 per cent of sales in the industry would be online this year.
“Whether there will be one dominant player in the future is of course a question we always ask, but so far that’s not happened in any aspect of travel,” said Phocuswright analyst Maggie Rauche. “No one can claim to have created travel activities.”
Traditional operators are increasingly moving into the space. TUI Group last year acquired Milan-based tours and activities start-up Musement.
The original disrupters in online travel are also trying to gain market share in the activities sector. TripAdvisor bought tours and activity agency Viator in 2014 and last year acquired activity reservation tech platform Bokun. The world’s three biggest online travel agencies — Booking, Ctrip, Expedia — all sell tours and activities.
Airbnb, meanwhile, launched its Experiences platform in 2016.
“Much of this growth is coming from emerging markets in Asia that are powering the growth of global tourism,” said Parin Mehta, Director, Airbnb Experiences, Asia Pacific.
Europe’s investment banks braced for more pain
Analysts forecast investment banking revenues will fall as much as a quarter
European banks are set to report a third consecutive quarter of grim investment banking revenues, which analysts predict will drop as much as a quarter, intensifying calls for another round of job cuts and retrenchment.
After US banks reported a tepid start to the year on Wall Street, analysts have downgraded their assumptions for their subscale European cousins, which for years have been steadily losing market share.
Overall quarterly revenues will drop 24 per cent at European investment banks versus an 11 per cent fall reported by their big Wall Street rivals, analysts at Morgan Stanley forecast. Citigroup and JPMorgan expect the decline to be 22 per cent and 20 per cent respectively due to European banks’ greater reliance than their US peers on equities trading, the hardest hit area in the first three months of the year.
“We are not talking about a couple of percentage points off earnings here, we are talking about business models under threat,” said Magdalena Stoklosa at Morgan Stanley. “Banks will be forced to forgo optionality they don’t need and really think about the flow trading businesses, which without scale are difficult to maintain and [are] lossmaking on their own.”
The travails of the industry across the EU are well-documented — collectively their stocks fell 25 per cent last year, wiping out $380bn in shareholder value, according to analysts at Autonomous Research. But recently their problems have intensified.
Sergio Ermotti, chief executive of UBS, warned last month that his investment bank had one of its worst starts to a year in recent history with revenues dropping about a third. He has put the Swiss bank, which reports quarterly results on Thursday, in “fuel saving mode”, delaying hiring and investment, in an attempt to save $300m in costs.
Deutsche Bank is on track for its eighth consecutive quarter of declining investment bank revenue. Analysts at Barclays estimate trading revenues will fall 30 per cent year on year at Deutsche, which is in merger talks with its domestic rival Commerzbank.
“Deutsche has to do a deeper restructuring, a downsizing of the investment bank as part of this, reduce its size by 20 to 30 per cent mostly from the US,” said a major bondholder of the German bank. “Regardless of what happens with Commerzbank, they need to do it, but it’s easier for them to sell it to the market as part of the merger.”
France’s BNP Paribas and Société Générale have already started retreating after heavy losses in the fourth quarter, with the latter announcing earlier this month 1,200 investment banking job cuts as part of a plan to eliminate €500m in costs.
BNP is in the middle of a root and branch review of its trading operations as it attempts to strip out €350m of expenses.
Barclays will also be under the microscope. Its chief executive, Jes Staley, recently parted ways with Tim Throsby, head of investment banking, after the two men clashed over whether the bank’s “sacrosanct” return targets were achievable.
Mr Staley has taken personal control of the unit, which is under attack from activist investor Edward Bramson, who wants to see it cut back to the bone. Another revamp could be required after analysts slashed their consensus estimate for 2019 pre-tax profit by a tenth for the unit housing Barclays’ investment bank.
“We do not see the current cost measures announced so far by European investment banks as adequate to generate sustainable returns of 10 per cent,” said Kian Abouhossein, an analyst at JPMorgan. “This could trigger new restructuring measures, especially in the case of Deutsche Bank unable to reach its 4 per cent return on tangible equity target.”
Unlike in the US, European banks have less able to rely on the “boring” retail parts of their businesses to prop up the flagging investment banking side due to negative eurozone interest rates and intense competition for customers on the overbanked continent.
“European banks’ investors have limited appetite for expansionary strategies in investment banking,” said Ronit Ghose, head of banks research at Citi. “Their future is retail and commercial banking run efficiently, with few people and smarter technology, plus investment banking in their home geographies.”
Huawei revenues surge 40% despite US pressure
Huawei has reported a 39 per cent year-on-year rise in revenues to Rmb179.7bn ($26.77bn) in the first quarter of the year, undeterred by US efforts to persuade countries to ban its telecoms equipment from their fifth generation networks.
Washington’s bid to win over other countries to its move to block Huawei on the grounds that its equipment creates a security risk has been only partially successful: several European countries have rolled back on initial hardline stances while Australia and Canada have both joined the US in blocking Huawei kit.
However, quarterly results released Monday suggest minimal impact on Huawei’s finances. The increase in revenue is sharply above last year’s annual rise of 19.5 per cent while the net profit margin of “about” 8 per cent was slightly above the year-ago figure, Huawei said.
Huawei is privately held and the latest figures are unaudited.
By the end of March Huawei said it had shipped more than 70,000 base stations globally and 59m smartphones. Last year it overtook Apple to become the number two supplier of smartphones and now has industry leader Samsung of South Korea in its sights.
Stocks in Asia fluctuated Monday as the Easter holiday weekend continued in many countries. Crude oil pushed higher on a report over Iranian oil waivers.
Chinese stocks and bonds fell as investors wagered future monetary policy stimulus will be limited, while shares in Japan and Korea swung between gains and losses. U.S. futures slipped. The dollar ticked higher alongside Treasury yields. Traders will look to a week full of company earnings releases, in particular from technology firms, before turning their focus to the U.S. economy, with first quarter gross domestic product data due Friday.
Nikkei +0.16% Hang Seng Closed CSI -1.75% Shanghai -1.23% Shenzen -0.95%
Eur$ 1.1244 CNH 6.7119 CNY 6.7109 JPY 111.92 GBP 1.2996 CHF 1.0147 RUB 63.8335 TRY 5.8298 WTI$ 65.50 +2%
S&P -0.17% EuroStoxx Closed Dax Closed FTSE Closed SMI Closed
Macro :
- Sri Lanka Probes for Answers as Death Toll Hits 290 From Blasts
- New York Fed’s GDP Model Sees 1Q U.S. GDP at 1.4%
- Goldman Works Out Best Times to Enter, Exit Earnings Trades
- Spain Socialists Would Need Pact to Govern: Confidencial Poll
- Ukrainian TV Comic Scores Landslide Victory to Clinch Presidency
- U.S. Said to End Iran Oil Waivers After May 2 Expiration (1)
Keep an eye on :
- AC FP : Accor 1Q Rev. Rises 34% to EU987m, *ACCOR: HAVING DIVERSIFIED ACTIVITIES HELPING OVERALL BUSINESS
- AIR FP : French Pilot Union SNPL Threatens to Strike May 6-11: Tribune
- AI FP : Air Liquide Names Ellerbusch to Head Large Industries in U.S.
- ATL IM : Atlantia Denies Board to Meet April 26 on Alitalia: Spokesman
- BARC LN : Shareholder Adviser ISS Backs Barclays in Bramson Battle: FT
- BINCK NA : Saxo’s BinckBank Bid Too Low, Fentener Van Vlissingen Says: FD
- BP/ LN : BP, Socar Agree to Build New $6b Oil Platform in Caspian (1)
- BVI FP : *BUREAU VERITAS BUYS SHENZHEN TOTAL-TEST IN CHINA
- CNA LN : UBS says Centrica has become a possible target - FT
- DSY FP : Dassault Possible Medidata Deal Aids Health-Care Cloud: BI React
- DIS US : MLB Ends Bid to Buy Disney’s Regional Sports Networks: NYPost
- ELIOR FP : Elior Names Olivier Poirot CEO of Elior North America
- ENI IM : ENI, CDP, Fincantieri, Terna to Develop, Build Wave Power Plants
- EL FP : Funds Seek EssilorLuxottica Board Seats Amid Fight for Control
- FB US : Facebook Needs EU-Wide Data Use Scrutiny, Consumer Group Says
- FER SM : Apax Interested in Buying Ferrovial Service Unit: El Economista
- FUM1V FH : Fortum Offered Gazprom Asset Swap in Russia, Kommersant Says
- GNFT FP : France's Genfit Faces Street Review as It Eyes NASH Throne
- JLG LN : John Laing Among Bidders to Build Israeli Hospital: Calcalist
- KTCG AV : Kapsch TrafficCom Wins U.S. Appeal in E-ZPass Patent Fight
- KORI FP : Korian 1Q Rev. Rises 8.1% to EU871.6m
- LRE SM : Lar Espana Received No Acquisition Offer, CFO Tells Economista
- MGLN US : Magellan May Draw More Than $75/Share in Takeout: SVB Leerink
- OMV AV : OMV Says Schelling, Schmid, Stadler Proposed New Board Members
- RI FP : Announces payment of interim cash dividend of €1.18 per share on 10 July 2019
- PFC LN : Petrofac Drops on Report Iraq Oil Ministry Ends Project Talks
- PRY IM : Prysmian Renews EU1b Long Term Revolving Credit Line
- RNO FP : Nissan Motor to Cut Global Production by 15%, Nikkei Reports
- RNO FP : Ghosn Spent $30,000 of Nissan Money On Luxury Items: L’Express
- RNO FP : *PROSECUTORS INDICT GHOSN ON NEW BREACH OF TRUST CHARGES: TBS
- SDR LN : Glass Lewis Asks Schroders Investors to Reject Dobson: FT
- SEBA SS : Swedish FSA´s Swedbank, SEB AML Reviews Focus on 2007-2019: DI
- SO FP : Somfy 1Q Sales Rise 4.6% to EU283.1m
- UHR SW : Swatch Group Sales Can Top $10 Billion, CEO Hayek Tells Le Temps
- SNBN SW : SNB’s Jordan Says Franc Still Highly Valued, Blick Reports
- TKWY NA : Takeaway Says German Delivery Hero Brands Moved to Lieferando
- TCG LN : Thomas Cook Is Holding Talks With Bidders About A Takeover: Sky
- UN01 GY : Uniper Holder KVIP Requests AGM Agenda Amendment on Power Spin
- DG FP : Vinci JV Wins EU373m Contract for Dublin Ring Road Services
- VNC US : QIA Co-Invests With Crown Acquisitions in Vornado NYC Portfolio
- WDI GY : BaFin Order Prohibiting Net Short Position in Wirecard Expired
>>> Up
* Highlight Comms Upgraded to Buy at DZ Bank; PT 5.35 Euros
>>> Down
* Autoliv Downgraded to Sector Weight at KeyBanc; Price Target $95
* Fresnillo Downgraded to Market Perform at BMO; PT 9 Pounds
* Kesko Downgraded to Sell at SEB Equities; PT 45 Euros
>>> Initiation
* Genfit Rated New Overweight at Barclays
>>> Call