I’ve refrained from writing about the Donald Trump administration in this column for a while. In part, I wanted to avoid adding to the overcrowding effect in the media, but it was also because markets were behaving themselves sufficiently that any comment on the background noise from the White House seemed like a distraction from the main event: the rise of US stocks and the dollar.
The volume of that background noise went up last week though, Treasury yields contracted sharply, equities slumped and the dollar retreated. I can best encapsulate the market’s thinking by relaying what quite a few bankers told me last week: the market’s been short volatility for too long and now it’s waking up to reality.
Trump seems to have managed to do within the space of four months what it took his apparent (perhaps unintentional) role model Richard Nixon years to achieve: to get to the point at which your elected peers wish to impeach you.
President Trump’s potential impeachment is apparently on rather a lot of betting slips around the world. And last week it seemed that the dam might be about to burst, having held up for longer than you would ever have imagined against the Monty Python-esque content emerging consistently from the White House and other official channels.
I SUSPECT THE dollar capital markets are going to be a rather wild ride for quite some time, whether or not the escalating background noise elevates vice president Mike Pence to the top job.
The smart money is now buying the hell out of US stock, bond and currency volatility, I imagine, adding a bit of the VIX from the same stance. They may also want to play the sterling dollar cross with a bit of imagination (a Labour victory is my favourite outlier, the unlikely outcome of which could provoke a major sterling rally given the party’s attitude towards Brexit).
One has to wonder precisely how serious the situation would become if an impeachment does emerge. It contains much of the ingredients for significant market swoons in the past, including a major challenge to the credibility of US political institutions – as during the Watergate crisis under Nixon.
A geopolitical wildcard also exists in the shape of Trump’s belligerence towards North Korea, just to add a bit of extra spice.
In the midst of this new set of market circumstances I found myself at a conference in Singapore devoted to the subject of investment in education in Asia.
It might seem like a intellectual hipster party game to connect these two subjects: the potential collapse of US equity markets and the dollar with the attractions of putting your money into Asian education.
In fact, the conference made it rather easy to make that connection. Indeed, one presentation rather surprised me with the information that Asian bonds had underperformed real estate and REITs over the past decade, with a negative return of around 4% versus a positive return of around 10%.
To add to that equation, an investment in education seems to be largely an investment in relatively risk-free real estate - most educational establishments in the region lease their premises – with the franchise and fee-earning part of the business something of an add-on.
FROM WHAT I learned last week, I would have been better off ignoring the income and capital gains on an Asian bond portfolio and simply putting my money into a REIT or a fund with exposure to leasing to educational establishments in Asia.
The underlying story is compelling, with the emergence of an Asian middle class which values education above most other things, flush investor liquidity and a relatively benign regulatory backdrop (notwithstanding the quintessentially political nature of education – something which explains the Chinese authorities’ insistence that history be taught in its international schools by Chinese nationals).
It’s also interesting to note that Chinese education stocks last year delivered positive returns while the main Chinese equity indices put in on one of the worst performances in the global markets.
And an exciting piece of information to emerge from the conference was that the big Chinese “One Belt One Road” infrastructure initiative is about to prompt a round of consolidation in the education sector, both within China and on the route of the “Silk Road”.
The shtick of the participants in the education conference was all about long-term investing. So, rather than getting tied up in knots trying to play the Trump endgame trade, why not just park your money in Asian education assets? I’d also throw in a side bet on Trump’s impeachment just to make it interesting at 15/8 – the latest odds I saw from a leading European bookmaker.
