Weekly Market Commentary 29 November 2019

FCA’S mini-bond ban proves too little too late for retail investors
Mini-bonds are essentially loans to fund small business. They were portrayed by FCA recognised London Capital & Finance (LCF) as offering returns of between 7-9%, that were both tax and risk-free in the form of a HMRC approved ISA. An alluring prospect to most retail investors but as the 11,600 who bought the mini-bonds quickly found out, complete hogwash in reality. To make matters worse, none of these clients are protected by the Financial Services Compensation scheme.

It’s not the first-time customers have been short changed, but the size of this latest scandal has finally made the FCA sit up and completely ban promotion of mini-bonds to retail investors. Regulation only applies to mini-bonds if an authorised firm has approved a promotion for them. But if a firm offers unregulated products, they can also be bought without advice and subsequently without any right to compensation. Widening the perimeter to ensure mini-bonds fall under complete regulation by the FCA would go a long way in fixing this loophole.

Companies: LVMH Targets expansion in Hard Luxury Market
By buying Tiffany and Co for $16.2bn this week, luxury group LVMH announced a serious intention to increase its market share within the hard luxury market (watches and jewellery). The world’s largest luxury group with a market cap of $200bn will look to put a squeeze on current incumbents like Cartier while closing the revenue gap (€4.2bn, 2018) to market leader Richmont (€9.16bn, 2018).

Elsewhere, private equity firm Silver Lake who specialise in technology investments signed one of the biggest deals in sports history. Silver Lake subject to regulatory confirmation bought a 10% ($500m) stake in City Football Group (CFG), parent company of Manchester City. The deal values CFG at $4.8bn. Abu Dhabi who bought the football club as an oil diversifier back in 2008 will continue to retain majority ownership. Other listed football clubs like Manchester United also benefited from the news with share price surging 10 per cent following the announcement.

Global: Economy continues to show tentative recovery
As long-term growth figures are being revised down, in the short-term, the global economy is continuing to show green shoots of recovery. Global manufacturing growth is stabilising while consumer confidence in key markets like USA, Germany and Korea were all positive. Singapore, often seen as a bellwether for global growth as the size of industrial trade dwarfs the local economy, revised third quarter growth figures upwards. However, the one main detractor to global growth is China.

Falling consumer spending alongside bruising trade tariffs have led to industrial profits taking a hit as production, which accounts for 40% of GDP, continues to deteriorate. Weakening data also puts China in a bind as it gives the US the upper hand in trade negotiations. That’s why expectations of phase one of the trade deal being completed remain high even if President Trump signed a bill backing the civil rights of Hong Kongers.

Latam: Chilean Riots Destabilish Peso
The political temperature in Chile is close to boiling point as violent protests over stark wealth inequality continue to escalate this month. President Sebastian Pinera attempts to appease the nation by sacking his entire cabinet has done little to quell the unrest. At least 23 people have died, more than 13,000 people injured and 25,000 arrested.

So great is the social unrest, that Chile’s central bank had to announce two separate currency interventions this month to arrest a falling Chilean Peso. The first earlier this month was a liquidity injection in both dollars and pesos to the tune of $4bn lasting until January 2020. The second injection announced this week was five times greater and is expected to run until the end of May next year.

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