Letter From Shanghai No 970 - And The Winner Is..…BANDS Financial

And the winner is…………………

Last night in Singapore, BANDS Financial was recognised as the Best Non-Bank FCM as part of the Asian Capital Markets Awards 2022.

Organised by Global Investor Group/FOW, the awards ceremony “recognises outperformance, innovation and achievement for firms and individuals involved in the Asian capital markets” and is judged by a panel of experienced market professionals.

For me, this marks another waypoint in the journey of our company. I would like to thank the staff of BANDS Financial who, with their belief, hard work and professionalism, have taken BANDS to new heights. I would like to thank their families, as such commitment does not come without a cost. And of course, I would also like to thank our increasing number of clients for recognising the value proposition of using our company.

When Tiger Shi and I formed BANDS in 2015, we wanted the opportunity to own a brokerage company at the intersection between Asia, particularly China, and the international markets. It is an idea that has taken us from PowerPoint proposals to winning awards in the real world. Since 2008 and the introduction of QE and negative rates, futures brokerage has been an unloved section of the financial offering. However, as the support of low or negative rates has now been kicked away, the risks in the equity markets are being more fully understood. We are entering inflationary times, and the need to hedge pricing risks is more urgent. For example, in data released last Thursday, annual producer price inflation in Germany rose to a new high of 45.8% YoY in August, up from 37.2% YoY in July. Of course, energy transmission in Germany is broken, and energy prices were up 139.0% vs 105.0% in July, however, excluding energy, producer prices were higher by 14.0% from a year earlier.

It should be noted that both China and India seemed to push back on Russia at the recent SCO conference in Uzbekistan, a message probably well received by the other SCO attendees who are former Soviet satellites. Although tellingly, I cannot find any report that Presidents Modi and Xi met privately in person. In an obvious demonstration of “Realpolitik”, recent data from InfoLink Consulting suggests that in the first seven months of 2022, China shipped 51.5 gigawatts of photovoltaic (PV) modules to Europe, which is 25.9% more than the whole of 2021. Indeed, according to data from China’s Ministry of Industry and Information Technology, “China supplies over 80% of global photovoltaic products. In the first half of 2022, the country’s output of photovoltaic modules rose 74.3% year-on-year to 78.6 gigawatts.” Which would suggest that 65% of all of China’s output is going to Europe, and it’s logical to suspect much of that production will be going into Germany.

The investor press is awash with articles about what to do now that inflation is a feature, and the consensus in equities is broken. Relying on ideas developed in the 70s, I find most of their answers too simplistic. As investors in 2022 are dealing with inflation, climate change and war, I think we have to look towards agriculture and the component parts of what I will call “new energy”. I also think that manufacturers and consumers must factor in the cost of hedging price risk into every conversation, which I recognise will push costs up, but if they don’t, then the inflation thief will steal everything they have.

Overall, within the current environment, I think the outlook for futures brokers is actually quite good.

Have a great day,

John