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Backing startups
FinTech
<p>Investment banks suffering from falling sales and trading revenues are turning to Silicon Valley to boost income. None more so than Goldman Sachs, reports the Financial Times. (paywall)</p> <p>“The bank has climbed back up the league tables for tech IPOs, according to Dealogic, and was recently appointed lead underwriter on the IPO of Square, the payments company. So far this year Goldman ranks second among tech underwriters behind Morgan Stanley, and is a clear number one in M&amp;A,” writes the FT.</p> <p>But, there are risks. </p> <p>“If one individual does much of the legwork, banks make themselves vulnerable if that person leaves. That was the case at Goldman when Anthony Noto [one of the three leaders of the bank’s tech, media and telecommunications division] left last year and joined Twitter, via a short spell at a hedge fund."</p> <p>In addition, “cosying up to young start-ups with unpaid work and other favours can also create 'awkward situations', notes another rival banker, if there is no obvious reward at the end of it.”<br /> Photo: Patrick Nouhailler<br /> &nbsp;</p>
Boosting ETFs in Hong Kong
Asset Management
<p>The Hong Kong authorities are rightly jealous of the territory’s status as Asia’s leading financial and commercial center. Its preeminent role as a regional stock trading hub is a major reason why Hong Kong can resist Beijing’s more heavy-handed interference in its affairs.</p> <p>So, it’s important that it doesn’t get left behind as rivals compete to create new products and attract investors and issuers. The latest worry is the failure of Exchange Traded Funds (ETFs) to take off in Hong Kong.</p> <p>A paper published yesterday by a government agency called the Financial Services Development Council (FSDC) calls for looser regulation to rectify the problem.</p> <p>Other recommendations include improving ETF education, promoting use of ETFs in the Mandatory Provident Fund and broadening the product range through cross-listings, reports AsianInvestor. (paywall)</p> <p>“Hong Kong’s leadership position within Asia has been overtaken by Tokyo and Shanghai, as they have introduced more innovative products. Actions must be taken to enhance the competitiveness of Hong Kong’s ETF platform,” warned Laura Chan, chairman of the FSDC.<br /> Photo: Steve Webel</p>
Michael Mauboussin: four common investor biases
Asset Management
<p>When it comes to achieving personal financial goals, you are your own worst enemy. Investors are always held back by common investor biases, which influence decisions and long-term goals.</p> <p>Both neuroscientists and psychologists have looked into these biases. Combined the two fields of science have established a field of neuroeconomics to understand better how the human brain decodes economic decisions.</p> <p>One of the goals of neuroeconomics is to understand how certain behaviors are linked to specific brain activity.</p> <p>In a report published at the beginning of this week, Michael Mauboussin and Dan Callahan, CFA, looked at four key investor biases, which cause investors to make poor choices. In each case, Mauboussin and his colleague looked at what caused the brain to make suboptimal investment decisions and how investors can overcome these biases to improve their decision making.</p> <p>Social conformity, herding or crowding is the first investor bias Mauboussin covered.<br /> Investor Biases number one: Social conformity<br /> Social conformity comes from our social nature as human beings. Conforming to other social trends encourages others to like you, and can confer loyalty and safety. However, you’re never going to outperform a peer group if everyone owns the same investments.</p> <p>The science behind social conformity is rather interesting. In the mid-2000s, neuroscientists used functional magnetic resonance imaging (fMRI) technology to pinpoint the mechanisms of social conformity within the brain.</p> <p>A study by Dr. Greg Berns and his colleagues showed that social conformity is consistent with activity in the occipital and parietal lobes, the visual process regions of the brain associated with perception. The research suggested that different social settings alter what the subjects perceive. What’s more, subjects that remained independent throughout the study showed increased activity in the amygdala -- a part of the brain that decodes emotion and is especially attuned to threats. In other words, independence creates an emotional burden and requires overcoming a wave of fear.</p> <p>Additional research supports Dr. Berns’ conclusion: social conformity is associated with activity in the part of the brain that detects errors and interacts with other parts of the brain to correct the error. Your brain notices when you’re going against the group and for many, it’s more rewarding to conform than remain independent.<br /> Investor biases two: Pattern seeking<br /> Mauboussin’s second key investor bias is that of pattern seeking. Humans are natural pattern seekers, but when they try to seek out patterns when none are there, problems arise, what statisticians call Type I error.</p> <p>Technical analysis is a good example of our desire to seek out patterns. We are naturally drawn to imposing order, even in cases where the underlying processes are random. Neuroscientists have looked into this trend and arrived at some interesting conclusions.<br /> "Scientists set up a box with two keys that a pigeon can peck with payoffs that are random. They then make one key much more attractive than the other—for example, the red key provides food with an 80 percent probability and the white key with a 20 percent probability (1 - .80). How will the pigeons choose?</p> <p>Once the pigeons figure out the relative probabilit</p>
Daily Scan: Markets across Asia ex-Japan close down; Hong Kong slips in World Bank rankings
Capital Markets
<p>Updated throughout the day</p> <p>October 28</p> <p>Almost all Asian markets stayed in the red throughout the day and remained that way until the final bell. This is largely thanks to oil prices sliding to two-month lows and investor caution other the course of the U.S. Federal Reserve's two-day meeting which concludes today. The U.S. central bank is widely expected to keep interest rates near zero but investors will be pouring over the post-meeting statement all the same.  As was the case earlier in the day, Japan's Nikkei 225 was the only bourse to see gains, finishing up 0.67%, amid hopes that the Bank of Japan (BoJ) will bring in more easing later in the week.</p> <p>Here is what else you need to know:<br /> Hong Kong slips to 5th in World Bank business rankings. Hong Kong is no longer in the top three best places to do business worldwide, according to a new World Bank report, as Singapore continues to maintain its top spot. In the World Bank’s 2016 Doing Business report, Hong Kong now ranks fifth, as construction permits became harder to maintain and cross border trading more difficult. SCMP (paywall)<br /> South Korea, Japan relations starting to thaw? When Gen Nakatani arrives in Seoul next week he'll be the first Japanese defence minister to visit South Korea in nearly five years, signalling that growing regional security risks are trumping the disputes over territory and history. SCMP (paywall)</p> <p>Better-than-expected revenue gives boost to Alibaba expansion plans. The Chinese ecommerce giant aims to push forward with strategic acquisitions after reporting a 32% increase in revenue for its fiscal second quarter ended September. The New York-listed firm reported revenue of 22.2 billion yuan ($3.4 billion) in the three months to September, up from 16.8 billion yuan in the same period last year. South China Morning Post (paywall)</p> <p>Beijing warns U.S. on warship sailing in South China Sea. China said the USS Lassen was sailing illegally near the Nansha Islands. An official said in a statement: “To this the Chinese side expresses its strong discontentment and resolute opposition.” Wall Street Journal (paywall)</p> <p>Iran invited to Syria talks. For the first time, Iran will likely join the U.S. and Russia in international talks about the Syrian conflict. Iran is Syrian President Bashar al-Assad's closest ally, and the country has spent billions of dollars to support Assad's government. The invitation for Iran is less enthusiasm from Washington, and more tolerance and understanding of Iran's involvement. BBC</p> <p>Twitter shares drop 11% after hours. The social media company beat earnings expectations but disappointed with a lower than expected revenue outlook. The company had a net loss of $132 million, compared with a loss of $175 million a year earlier. Twitter expects fourth quarter revenue to be between $695 million and $710 million, below the expected $741 million. MarketWatch</p> <p>Apple revenue up 22%, beating expectations. IPhone sales pushed the company's quarterly earnings up, with ne</p>
Daily Scan: Twitter earnings disappoint; Apple revenue up 22%; Walgreens to buy Rite Aid
Capital Markets
<p>Earnings season is keeping everyone excited, but the major indexes were largely unmoved Tuesday. Oil prices pulled energy shares down, and oil finished the day just above $43/barrel. Brace yourself for Wednesday -- the Federal Reserve will be issuing a monetary policy decision in the afternoon. An interest rate rise doesn't seem likely, but the Fed could give a hint as to when the rates will rise.</p> <p>Here’s what else you need to know:</p> <p>Twitter shares drop 11% after hours. The social media company beat earnings expectations but disappointed with a lower than expected revenue outlook. The company had a net loss of $132 million, compared with a loss of $175 million a year earlier. Twitter expects fourth quarter revenue to be between $695 million and $710 million, below the expected $741 million. MarketWatch</p> <p>Apple revenue up 22%, beating expectations. IPhone sales pushed the company's quarterly earnings up, with net income at $11.12 billion, or $1.96/share. Net sales were up to $51.50 billion from $42.12 billion. The company also reported having $205 billion in cash on hand. Reuters</p> <p>Walgreens to buy Rite Aid for $9.6 billion. The No. 2 and No. 3 drug store chains are joining forces; the price is 48% above Rite Aid's closing price on Monday. Healthcare companies have seen $520 billion in merger activity in 2015. Wall Street Journal (paywall)</p> <p>Iran invited to Syria talks. For the first time, Iran will likely join the U.S. and Russia in international talks about the Syrian conflict. Iran is Syrian President Bashar al-Assad's closest ally, and the country has spent billions of dollars to support Assad's government. The invitation for Iran is less enthusiasm from Washington, and more tolerance and understanding of Iran's involvement. BBC</p> <p>Theranos gets more pressure from FDA. The FDA says that the tiny vials used by startup laboratory Theranos is an "uncleared medical device." Theranos has been shipping the vials across state lines, but stopped using the vials for all but one test after the FDA conducted and inspection. The FDA also said there were deficiencies in Theranos's quality assurance processes. Theranos founder Elizabeth Holmes said the company had decreased their use of the vials, but it was a voluntary move. WSJ</p> <p>UPS surprises with earnings. But revenues disappointed as a result of the strong dollar. Reuters</p> <p>Pfizer, Merck, Bristol-Meyers Squibb show muscle. A series of pricey cancer drugs helped boost profits higher than expected for big pharma. Reuters</p> <p>Ford earnings double but still miss. The stock is off nearly 5% after it posted EPS of $0.45/share vs expectations of $0.46. The car company said higher taxes were to blame. CNBC</p> <p>White House, Republicans reach deal on budget. The deal is one of John Boe</p>
Hedge fund managers stand to win millions from Brexit
Hedge Funds
<p>A group of billionaire hedge fund managers are supporting the drive to take Britain out of Europe, and stand to benefit financially from such a move.</p> <p>Two of the five top hedge fund billionaires in the country already have connections to campaigns supporting a so-called Brexit, writes Michael Bow in The Independent. Others are set to pledge their support in the next few months.</p> <p>Financial community split on Brexit<br /> The financial crisis of 2007 led to strict European rules on hedge fund activity, which would be threatened if the UK left the EU. Hedge funds stand to save around $393 million if the rules are lifted.</p> <p>“There are quite a few hedge fund managers who are anti-EU,” said one Mayfair hedge fund boss, who declined to provide his name. “Many are generally opposed to it.”</p> <p>The Governor of the Bank of England, Mark Carney, has pledged his support for continued UK membership of the EU. Financial firms in the City of London are split on the idea, with multinational investment banks such as Goldman Sachs and Citigroup backing continued membership while the Mayfair-based hedge funds call for an exit.<br /> Hedge fund managers riled by stricter EU regulations<br /> Crispin Odey, founding partner of Odey Asset Management, has been supporting a lobby group called Vote Leave.  “We joined an economic union, not a political union, and you should give voters a say,” Mr Odey said. “This is nothing to do with hedge funds and the EU. My criticism of the EU pre-dates the regulations which have come in.”</p> <p>Sir Michael Hintze, the fourt-richest hedge fund boss in the UK, is also connected to the campaign, although Vote Leave campaign head, Dominic Cummings, said last week that “no hedge funds have bankrolled us so far.”</p> <p>Financiers used to operating in the shadows were ruffled by the Alternative Investment Fund Managers Directive, which called for more transparency and a limit on individual salaries. The directive is estimated to have increased operating costs by 5% per year, according to KPMG.</p> <p>The Independent estimated that these costs are equivalent to around $393 million, but hedge fund trade body the Alternative Investment Management Association did not provide an estimated figure.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Paul</p>
Nerd Alert: Download the NYFed app
Capital Markets
<p>Your Saturday night plans are set. The New York Federal Reserve has its own Economic Research Tracker app for everyone interested in perusing the bank's research in their free time. Brace yourself- there are also "fun" posts from the Liberty Street Economics blog written by NYFed economists.<br /> Photo: Jim Sher</p>
Recently spotted: A unicorn startup that is both profitable and from the Midwest
Venture Capital
<p>&nbsp;</p> <p>Now here's something really different:</p> <p>A unicorn startup that is both profitable and based in the Midwest. Should we call it a uni-unicorn?</p> <p>The rare beast is Chicago-based Uptake, which has raised $45 million from GreatPoint Ventures and other investors, giving it a $1.1 billion valuation, reports The New York Times.</p> <p>Uptake partners with well known companies to create software for gathering and interpreting data. CB Insights reports a total of 139 unicorns.<br /> Photo: yosuke muroya </p>
Alibaba beats expectations on Q3 as marketplace volumes jump 28%
Capital Markets
<p>Alibaba beat expectations on third quarter earnings and the stock is rallying hard,  gaining 7%. Yahoo came along for the ride, gaining 1.58%.</p> <p>Business Insider explains:<br /> The Chinese e-commerce giant posted sales of 22.2 billion yuan ($3.5 billion) for its fiscal second quarter that ended in September, up 32% year-over-year. Analysts had estimated sales of 21.3 billion yuan.</p> <p>Net income came in at 22.7 billion yuan ($3.6 billion).</p> <p>The metric that many analysts watch closely is the total value of transactions made across the Alibaba marketplace, called gross merchandise volume. That rose 28% year-on-year to $713 billion yuan ($112 billion).<br /> And Howard Lindzon chuckled:<br /> Alibaba has dedicated their earnings call to Barron's (negative cover story $64) ... Today's price $84$baba</p> <p>— Howard Lindzon (@howardlindzon) Oct. 27 at 08:46 AM<br /> Photo: leighklotz<br /> &nbsp;</p>
Problem children aren't derailing consumer staples ETFs
Asset Management
<p>Give the Consumer Staples Select Sect. SPDR (ETF) (NYSE: XLP) some credit. The largest consumer staples exchange-traded fund by assets is up 6.6 percent year-to-date despite strong dollar headwinds and the subsequent challenges created by speculation, though now dwindling, that the Federal Reserve will soon raise interest rates.</p> <p>Add to that, XLP has mustered its &gt;6.6 percent gain, one of the better year-to-date showings among the nine sector SPDR ETFs, with no help from Procter &amp; Gamble Co.(NYSE: PG) or Wal-Mart Stores, Inc. (NYSE: WMT).</p> <p>Procter &amp; Gamble, the world's largest maker of household products, and Wal-Mart, the world's largest retailer, are two of just seven members of the Dow Jones Industrial Average down at least 10 percent this year. Procter &amp; Gamble and Wal-Mart are XLP's largest and sixth-largest holdings, respectively, combining for 16.5 percent of the ETF's weight.</p> <p>Full story available on Benzinga.com<br /> Photo: Mike Mozart</p>