TheChek News Flow

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In 2016, Latin America was the biggest contributor to overall hedge fund returns than anywhere else with a gain of 27.2%.

And at the beginning of this year – as the HFRI Latin America index gained another 6.4% in January – Latin America continued to lead record flows to emerging market hedge funds, along with Russia.

Russia has been courted by Trump; Mexico defamed by him. Yet hedge fund interest in Latin America has even extended to Mexico, with at least one fund investing beyond Brazil, the region’s biggest magnet for capital.

London-based Altavista Investment Management sifted through Mexican stocks in the aftermath of the Trump election when the Mexican currency and equity markets corrected significantly on “concerns of increased protectionism and anti-Mexican rhetoric”, said Vinod Nair, who co-founded the firm in 2010.

Looking for stocks with attractive internal rates of return, Altavista found Walmex, a leading food retailer in Mexico and which Nair described as a consistent share gainer.

“Food retailers are less sensitive to the economy and tend to benefit from inflation, which is a likely consequence of the currency devaluation. The correction afforded us a chance to buy a best-in-class business at a discount,” Nair said.

At least it shows that Latin America is attracting hedge funds for ‘long’ opportunities. Hedge funds may like volatility, but at least they are not after putting a ‘big short’ on Latin America.

Kenneth J. Heinz, president at HFR which compiles hedge fund indices, told Funds Europe: “Capital inflows into Latin American-focused hedge funds are not indicative of investor expectations for Latin America’s market decline. Hedge fund investors are generally constructive on the market areas of focus in which they invest.

“However, they also understand opportunities can be created through volatility and periodic pullbacks [in various asset classes] and by combining these in hedged and convergence trades [they try] to realise the best return.”

Both long/short hedge fund investors and long-only mutual fund customers are putting money into Latin America because they are optimistic about the region.

So what about wider emerging markets? Will they continue to bounce back?

Ali Chughtai, a portfolio manager at Whard Stewart, a hedge fund that targets macro and currency opportunities, said: “2017 has started with an appreciable rally in EM [emerging market] currencies as the post-Trump victory outflows from EM have reversed…”

Chughtai said markets had reconsidered the boost to US growth from the Trump administration’s policies, which had led to US bond markets stabilising.

Chughtai added: “While EM currencies offer long-term value, this rally in EM may pause if the new administration re-affirms its stance on border tax and/or renegotiating terms of its membership of multi-lateral trade organisations.”

For context, Google’s cloud business was previously estimated to have an annual runrate revenue of about $1 billion, according to RBC Capital Markets analyst Mark Mahaney, trailing Amazon Web Services’ $12.2 billion and Microsoft Azure’s estimated $2.7 billion. (Snap also has a $1 billion contract with AWS.)

But what is Snap actually getting from Google for all that money?

Google wouldn’t say exactly which services Snap has signed up for, but there are four key products that fall under Google’s cloud services: Cloud Storage for storing data on servers managed by Google; Compute Engine for retrieving and managing data; App Engine for developing and running applications; BigQuery for data analysis; and a suite of machine learning tools.

We know Snapchat was built on App Engine, which basically allows clients to host their main software on datacenters managed by Google. That differs from just hosting your own servers, since cloud services allow a company to make use of more servers as needed, allowing the app to run faster and more efficiently.

App Engine is one of Google’s core cloud services. It provides users with tools and services to build software, ensure its security and test new features. It also allows apps to handle an increasing amount of traffic. Other companies that use App Engine include Best Buy and enterprise cloud phone system Dialpad.

Here’s how different tools may be useful to Snap based on how other companies use Google’s cloud offerings.

For example, Google cloud customer Spotify uses BigQuery to analyze user listening data, according to a report from analyst firm Enterprise Strategy Group. ESG cited a query for top tracks by age, gender and market: What took five hours with other tools, Spotify’s use of BigQuery took about eight minutes.

Then there’s Dialpad, a startup that sells workplace communications services like UberConference, which runs on Google’s cloud service, according to CEO Craig Walker. That includes using App Engine, which the company uses for such essential processes as initiating and routing users’ video, voice and conference calls.

But Dialpad processes the actual voice and video calls through its own data centers so it can more closely control the quality of calls, according to Walker, a former Googler. Even a tiny lag in a voice call can upset users, so controlling the servers directly is important, he said.

That means companies that make heavy use of Google cloud won't necessarily use it for everything, since there are some limitations to using the service. Dialpad’s approach when it comes to calls could be relevant to Snapchat, which lets users place calls from within the app.

Snap might also make use of Google’s machine learning software, which largely refers to more sophisticated programs that can automate certain tasks.

Snap uses a machine learning system right now that helps it to improve ad targeting. It predicts which ads users are more likely to respond to and shows the ad to the right users. The goal is to increase a certain action, like downloading an app, instead of just showing more impressions.

However Snap uses Google cloud, the company is clear that the product is critical to the startup’s operations. The company’s S-1 filing states, “Any disruption of or interference with our use of the Google Cloud operation would negatively affect our operations and seriously harm our business.”

Former President Obama is getting ready to jump back into the political pool, former U.S. Attorney General Eric Holder said Tuesday.

Holder said he has been talking with Obama about different ways to help the new National Democratic Redistricting Committee, according to Politico. Obama asked Holder to be chairman of the group last year.

“He's ready to roll,” Holder told reporters at a briefing.

Obama and other top Democrats are focusing efforts on state-level races and ending the reconfiguring of voting districts through the politically-laded process known as gerrymandering – a combined effort to end “Trump-ism” and help their party regain control of Congress and legislatures across the country.

Politico reported that the group seeks to direct resources into winning certain state elections, push ballot initiatives for nonpartisan district-drawing commissions and wage legal wars to existing maps.

By accomplishing their goals, the group hopes it would put Democrats at a better advantage in state legislatures and the House of Representatives.

Obama indicated before leaving the White House last fall that his short-term, post-presidency focus will be on General Assembly races and redistricting after the 2020 Census. Voting districts are redrawn after a federal Census to reflect the changes in population and other demographic. Much of the redistricting across the country is done by the political party that controls the state legislature.

Marc Elias, a top election lawyer advising the group, said they expect states to file new lawsuits to change the districting maps and are guiding states on where they could see legal victories.

Holder said the fight will be more difficult with Jeff Sessions running the Justice Department. He added that the decision to throw out a challenge to voter laws in Texas was “disheartening.”

“This is really a battle for our democracy,” Holder said. “The notion that people are denied their ability to cast a meaningful vote … is inconsistent with who we say we are, inconsistent with what we say our democracy is about.”

Didi Chuxing’s deal to acquire Uber China seemingly left the Chinese ride-hailing giant as the last man standing and therefore sole winner of China’s vast ride-sharing market. However, Didi’s success has also served to open new opportunities for other competitors. It would seem that there’s no way for a single company to gobble up the entire market as a whole, even if it’s Didi.

UCAR, a prominent rival of Didi in China, announced this week that it raised an initial RMB 4.6 billion ($670 million) in new funds from four investors including China’s interbank network, UnionPay. The company counts high-profile names like Warburg Pincus and Jack Ma among its roster of backers.

There’s more to come, however. Board chairman Lu Zhengyao told local media [Chinese] that the total financing will surpass RMB 7 billion ($1.02 billion) via additional commitments. He said the money raised will be used for marketing, recruitment, expanding its offline presence and increasing its fleet.

UCAR is no stranger to large investment deals. Last October it raised RMB 10 billion ($1.45 billion) via a private placement plan. Impressive though that is, Didi has the financial clout to blow rivals out of the water, as did with Uber China. Didi has raised more than $10.5 billion from investors, including its most recent $7.3 billion round which included input from tech heavyweights Apple, Tencent, Alibaba and SoftBank.

While Didi relies on private cars and crowd-sourced drivers, UCAR offers its services via an in-house fleet and licensed drivers. These drivers provide UCAR with a way to potentially increase margins and also, importantly, avoid government concerns around its legal status.

The firm currently operates four product lines: Car. Inc, its Hong Kong-listed car rental arm, Shenzhou Zhuanche, the chauffeured car service, as well as an online car marketplace and a car loan service. That’s quite a spread but CEO Charles Lu disclosed that the company is keen to venture into new areas. He said that all of its business units are on track to record a profit this year, and that car manufacturing is one possible expansion up for consideration.

Like many Chinese tech startups, UCAR is listed on the Chinese over-the-counter (OTC) market. It was the first of its kind when it was went public in September last year and is currently valued at RMB 40.93 billion, $5.95 billion. Didi has not gone public yet and no specific timetable for its IPO has been disclosed.

Despite the fierce competition and government constraints, local companies continue to fight their way into to China’s ride-hailing market. LeEco-backed Yidao is another upstart that is hoping to fill a gap once Didi completes its protracted acquisition of Uber China. Yidao itself completed a $700 million funding round at a valuation of $1 billion in 2015.

Beyond those services, China’s top local services firm Meituan recently added a car-hailing function to its app, while car manufacturer Geely has expanded its ride-summoning service Caocao Zhuanche to more cities.

Major mergers — like the coming together of Didi Dache and Kuaidi Dache in 2015 and the ongoing Didi-Uber China deal — left many predicting that the battle in China’s ride-hailing industry is over. UCAR’s news investment shows that while the market is more mature now, the war is not over just yet.

We stick with Icarus Trade targets: SPX 2500, GT30 3.5%, DXY 110, oil $70/b; best trades = long NKY, CAC, RTY, banks, energy, short US rates, EM, REITS; yes risk assets overbought, yes sentiment bullish, yes easy money made, but we think March Fed hike into strong data will initiate final melt-up, capitulation into risk assets.

Fed has hiked just 2 times past 10 years; on March 15th Fed likely tightens 2nd time in 3 months. The “great fall” in risk assets comes when hawkish Fed & weaker EPS (Chart 1) combine in H2. Note once Fed tightens they keep tightening until “financial event” (USGerman rate differentials already at 28-year highs!)…buy long-dated puts.

2017 global policy theme is “Economic Nationalism” (Trump, May, Putin, Le Pen…); success means higher inflation, as well as higher interest rates. We remain bullish Joe Six-Pack assets (EAFE, value, banks, TIPS); infrastructure & defense = good fiscal stimulus alternatives if tax reform diluted/delayed by Obamacare repeal.