Clearwater Capital is an asset management team based in Singapore operating as a Registered Fund Management Company regulated by the Monetary Authority of Singapore. Clearwater specializes in creating External Asset Management solutions for clients as well as developing our own Funds for external investors. Our investment philosophy is based on independent thinking, seeking profit through active management.
This article is a snapshot of our thinking for clients. It is intended to show how we view the world, not as a basis of investment advice.
All enquiries can be directed to email@example.com
MAY 2021 : REOPENING REVERSAL
At the time of writing, Covid-19 is winding up to deliver another curveball in the progression its terrible progress. Clearwater Capital has long been expecting this outcome and has made known these views to clients weeks ago. This month’s thought piece asks, what next? At the time of this newsletter, capital markets teeter on all-time highs with the present ‘reversal’ from Growth back to Value as there are expectations that such a move back towards normalization of the world.
Clearwater Capital has been tracking these matters very closely and our views for Q2 2021 remain the same for the year; disruption and debt remain key themes. But we must now brace for a very real possibility that a ‘reopening’ play will be uneven, unreliable and possibly even undone before it even begins.
In small Singapore, a cluster of cases has broken out. Whilst the mortality is low (largely owing to Singapore’s infrastructure and wealth), the most worrying is that 2/3rds of all the new infected have all received the vaccine already and are in jobs that offer nearly unlimited access to protective gear and a lot of training to protect oneself. The lapse of vigilance notwithstanding, the fundamental thought that has been in our discussion has been since the vaccine was first distributed, what happens if there’s a mutation and the vaccine is rendered useless. It does not mean that one does not go for the vaccine (PLEASE GET YOUR SHOT), but it does mean that the panacea that is anticipated is very far from delivering a normalization of activities for everyone.
And therein lies our biggest risk analysis; if the vaccine works, the way capital markets are priced right now (all time highs or decade highs for commodities), the expectation that demand will explode is extremely optimistic, even in the best case scenario there will be some lag. If the vaccine does not work as well as hoped, and key aspects of the global economy like travel, leisure and easy access to labour do not return; the potential downside risk is tremendous. And all bets are off should the Covid-19 virus mutate to be become more deadly or transmissible, a very very real prospect. As such, we call for caution amid the euphoria.
We also identify a further complication, liquidity risk. Clearwater Capital posits the rare opinion that government liquidity released globally since the start of the global pandemic is now at an inflexion point; most countries have had the biggest drop off in tax revenues since WWII, the lack of revenue and spending money twice as fast with no end in sight means that there is a chance that the cost of funding is about to get much higher.
All Governments globally must find the means to finance further spending. Since every government is simultaneously in the same scenario, the likelihood that there will be some competition for such funding. Liquidity can be fulfilled by monetary theory of course, but that is a self-fulfilling inflation cycle. We put forward the unpopular opinion that the likelihood of sustained inflation (because of liquidity), will be less likely as governments will likely also resort to taxation on the wealthy and asset owners to meet those demands.
Will anyone benefit? As written several months ago, Clearwater Capital carries the opinion that the bet should be with large countries that have large domestic markets and the nascent ability to be self-providing. Global travel is not normal, until it returns, international trade is hampered. Efficiency (lowest cost) has to give way to access and reliability. If I cannot travel around the world to get the best products at the best prices, local substitutes would have to make do. Larger countries will have the highest likelihood of having import substitutions, smaller ones will have to be price takers.
Which brings us what we think we would do in capital markets for the near term; CCPL has been taking a wait and see for an interim. We are confident to make the following assessments.
Cryptos & Democracy
Crypto currency is presently having its time in the sun. Clearwater Capital does not have an expertise nor does it make any advice into the sector. CCPL does suggest extreme caution in this asset class. But in studying it have noted a fundamental aspect of investing in the covid era, the impact that social investing and access to leverage (credit) can have. The use of modern applications (e.g. Robinhood, Futu/Momo etc have allowed a new generation of investors into the market. Worryingly it has given them access to near unlimited credit. This investment capital is primarily being driven by celebrity and social media. This profligacy is a global phenomena and one that we are paying close attention to.
CCPL is in the midst of launching our first algo driven FX fund. We believe the timing is right and we have extremely talented PMs. We will be reaching out to existing clients and potential investors soon. Please feel free to contact myself if you have any questions at firstname.lastname@example.org
Author's Note: The below think piece is from our Feb 2020 publication for clients. Hope that you enjoyed reading it as much as they did (probably not!). Feel free to comment below!
Clearwater Capital is an asset management team based in Singapore that is Registered Fund Management Company regulated under the Monetary Authority of Singapore. Clearwater specializes in creating External Asset Management solutions for clients as well as developing our own Funds for external investors. Our investment philosophy is based on independent thinking, seeking profit through active management. We are presently launching our Creedence 1 Fund which targets to close in Q2 2020.
This is an abridged version of Thesis Thinking piece that we have done for H1 2020.
All enquiries can be directed to email@example.com
Feb 2020: PANDEMIC AND PANDEMONIUM
At the time of writing, the COVID-19 virus has now blown out globally. More than 38 countries have reported the sickness and excess of 2,800 deaths attributed. Global economies are bracing for a reckoning not seen since the 2008 Great Financial Crisis. Serious concerns about supply chains, tourism economies, and global trade and loan obligations are being considered as the policy makers try to fight these multiple fires concurrently. But before this outbreak, there were already deep concerns about the Trade War, Hong Kong and slow down of business conditions in China and of course Brexit.
Our most common questions from clients are, what next and what should we do? We shall confine our analysis to North Asia, particularly China.
At Clearwater, we carry these deep concerns. The global economy will be in peril. No question about it. This illness has already hammered China and at the writing, is blooming uncontrolled in Japan and Korea. The North Asian theatre accounts for about 40% of the global economy. SARS in 2003 was calculated to cost China $40billion, we estimate this hit to be within $500billion to $600billion. That figure has no projections yet for Korea and Japan. This will impact global demand for goods & services, global production from cars to hairdryers; even services will take an unprecedented hit, tourism and air travel are fully exposed (almost every country relies on tourists from North Asia).
But our analysis asks, what will happen after that? We believe that it will end where it began. We believe 100%, the Government of China will beat this challenge. They have the political will and the ability to do so. They appear very cognizant that this is a problem akin to war and are taking the same approach. We believe that when this challenge enters its late stage and the government can turn its attention back the business of running the country, the PBOC will resort to a method that has worked for the same last economic crisis in the USA, Quantitative Easing.
We believe that they will inject more capital into their economy than has ever been done to kick start their economy after this crisis, we estimate that PBOC will unleash at the first round no less than $800billion in near direct cash injections into Financial Institutions and direct their State Apparatus into putting efforts to ensure that should the next crisis like this unfurl, they will be better prepared and even more capable to handle it. It would be logical that the areas that would see the first rounds of this state backed investment would be in