2023 Sohn Hong Kong Investment Leaders Conference - Bloomberg TV and Radio

1 min
July 21, 2023
Print Friendly and PDF
Print Friendly and PDF
No alternative text description for this image

Back in May, I was fortunate enough to get a speaking slot at the Sohn Conference in Hong Kong, their first live event in four years! The format is 15 invited managers each get just over 10 minutes to present a favourite stock, but I was a little more ambitious and tried also to set the context of investing in the new New Normal, our ongoing investment theme. At the time, we hadn't yet launched the Tosca Market Thinking fund although I made reference to the fact that European Financials was one of our preferred themes. This of course then tied in to our colleagues and partners at ToscaFund in London where the specialty long/short financials fund has been going for over 20 years and where for the first time in many years they have been very excited about the prospects for European Bank stocks as the end of QE also means the end of the headwinds that have dogged the sector for so long.

Thus the shift to the new New Normal invites/requires a shift in investment strategy and that includes a focus on companies that benefit from normalisation of rates, from improvements in pricing power, from operational gearing and from strong balance sheets. At the stock level. we would also like stocks that are currently good value and that everyone, currently, loves to hate. European Banks fit all of these criteria.

1) Companies that benefit from normal levels of short rates

  • Net Interest Margins going from 1.5% to 3.5%

2) Companies with improved pricing power under normal levels of competition

  • Elimination of many ‘Challenger Banks, private credit, private equity that benefited from previous regime

3) Companies that are highly operationally leveraged able to deliver significant profit and cash flow growth from modest top line growth

  • Profits coming in not just 40% higher, but 40% higher than consensus expectations
  • All European Banks regulated as highly as Tier 1 US Banks

4) Companies with strong balance sheets able to pay out dividends and buy back shares

  • European banks forced to triple capital and not allowed to pay dividends or buy back shares. Until now.

5) Companies that are ‘cheap’ and will benefit from re-rating as well as cash flow growth

  • Valuations close to all time lows

6) Companies that everyone loves to hate because of a Top Down story

  • ‘Everyone’ hates Europe
  • ‘Everyone’ thinks the US banks story maps onto Europe
  • ‘Everyone’ thinks an economic slowdown ‘isn’t in the price’

We then had to pick our preferred stock, for which I chose one from the Tosca Long Short Fund with the biggest forecast uplift in profits due to the factors listed above. Sohn themselves subsequently released the video of the presentation. If you want to find out what stock we recommended you will have to watch the video! Please note that the contents of these videos and this blog post are for information and hopefully entertainment purposes only and that you should do your own research and contact your financial advisor before making any investment.

The good news is that, at current standing, our stock pick is up around 16% since the conference, that puts us in third place. Not that we are competitive!

The event was a huge success and raised a lot of money for the Karen Leung Foundation a fantastic HK based charity specialising in female cancer prevention. Thanks again to Katherina Reimer and her fantastic team for organising everything!

Sohn Conference 2023 - Presentation Video

Link to the presentation video

At the time of the conference, I did some TV and Radio with Bloomberg, where we discussed the broader background, but not the stocks. They are here:

Bloomberg TV

Link to the video on Bloomberg TV

Bloomberg Radio

Link to the audio on Bloomberg Radio

Continue Reading

More September Memories, when Lehman killed the working capital system

Fifteen years ago Ben Bernanke had to ask for $700bn to bail out the US Financial system otherwise "We might not have an economy on Monday", but the often overlooked reason why a financial crisis became an economic one was the role of the Money Market Funds which were effectively funding corporate working capital through Commercial Paper markets. When they froze, so did the economy. Fifteen years on, they are once again dominant, but this time crowding out bank deposits rather than bank loans. Let's hope they don't cause a similar, but different liquidity problem this time.

Try to remember the kind of September

Recency Bias makes us focus on what just happened and ignore even recent history, while the end of history illusion makes us think that there will be less change in the next five years than in the last five. A quick recap on the last 5 Q4 periods reminds us of the dramatic changes we have seen, and while the next 5 years may not be as dramatic, we would see these changes as pressaging further changes on paths now revealed, be it BRICS+ disrupting the financial system, AI and working from home disrupting the service sector globally or just the retsoration of the proper price of money and liquidity through the end of QE.

You're now leaving the Market Thinking website

Please note that you are about to leave the website of Market Thinking and be redirected to Toscafund Hong Kong. For further information, please contact Toscafund Hong Kong.