22 February/23 February 2020 ★ FT Weekend 17
MARKETS & INVESTING
L AU R E N C E F L E TC H E R
A N D DAV I D S H E P PA R D
Pierre Andurand, one of the best-
known oil traders, has suffered a big
loss in his hedge fund during a
turbulent start to 2020 for energy
markets.
Mr Andurand, founder of London-
based Andurand Capital Management,
one of the last few hedge funds
specialising in oil, experienced a loss of
about 8 per cent in his main fund in
January, according to three people
familiar with its performance.
The fund, which last year was manag-
ing about $1bn in assets, also lost money
in 2018 and 2019 — with January
extending the streak of declines for a
trader who used to pride himself on
beating often volatile oil markets.
The tough start to the year comes
after many energy traders were caught
out by a reversal in one niche part of the
market affecting diesel and high-
sulphur fuel oil.
The fallout appears to have hit Mr
Andurand’s fund. His firm declined to
comment.
Mr Andurand, a kick-boxing devotee
and former champion swimmer, has in
the past recruited a number of Olympic
gold medallists to his roster of analysts
and traders, working out of offices over-
looking the luxury department store
Harrods in Knightsbridge, London.
The 43-year-old trader has a reputa-
tion for taking big directional bets on
the oil price. That helped his fund gain
38 per cent in 2014, ranking it among
the world’s top-performing funds, and
22 per cent in 2016.
Before launching Andurand Capital,
the former Goldman Sachs and Vitoltrader co-founded BlueGold Capital
with Dennis Crema, an ex-Vitol and
Amerada Hess executive.
The fund made more than 200 per
cent in 2008 as oil prices first spiked and
then collapsed. BlueGold closed in 2012.
However, in addition to those big bets
on crude oil movements, Mr Andurand
also tries to profit from smaller ineffi-
ciencies by wagering on changes in the
price of one oil contract against another.
In January, a popular bet had been
that, with the implementation of new
rules on shipping emissions at the start
of the year known as IMO 2020, the
price of diesel would rise while the price
of high-sulphur fuel oil would fall — as
vessels around the world switched to
cleaner fuels.
But the expected tightness in the
diesel market did not materialise as
refiners proved adept at blending lower
sulphur fuel mixes to boost supplies.
As refiners produced less high-
sulphur fuel oil, an unexpected scram-
ble for barrels ensued, sending prices
spiking higher. The result was that die-
sel’s premium over its dirtier rival,
rather than expanding, fell by almost a
third in January.Commodities
Diesel and high-sulphur blow leaves
kick-boxing oil trader on the ropes
TO M M Y ST U B B I N GTO N , A N N A G R O S S
A N D C H LO E C O R N I S HAshmore’s $1bn bet on Lebanon has
become entangled in a political row as
public pressure rises for the cash-
strappedcountrynottorepayitscredi-
tors and as authorities in Beirut probe
debtsalesbylocalbanks.Prices of short-dated bonds have tum-
bled as investors calculate that it has
become more likely that Lebanon’s debt
will be restructured.
The $1.2bn bond due to be repaid on
March 9 — of which London-based Ash-
more owned more than $300m at the
end of December — was trading at 56
cents on the dollar yesterday. It is down
from 75 cents at the end of last week.
The London-based asset manager, led
by billionaire Mark Coombs, also held at
the end of last year more than 25 per
cent of two further Lebanese dollar
bonds maturing in April and June.
That is above the threshold required
to block a restructuring of those bonds.
In Lebanon, there is a growing backlash
against repaying the bond next month
given the dire state of the nation’s
finances and stringent capital controls.Sami Nader, director of the Levant
Institute for Strategic Affairs, said pub-
lic opinion is now mostly in favour of a
default.
“Because, they say, ‘how come you are
not able to give me my $100 a week and
you’re paying an international institu-
tion $1bn?’”
Anger toward local banks has been
fanned by the perception that they sold
some of their bondholdings and “let for-
eigners get a minority blocking stake”,
added Mr Nader.
Nabih Berri, the country’s parliamen-
tary speaker, was quoted in local media
this week backing a debt restructuring.
Mr Berri heads a political party that is
seen as close to Hizbollah, Lebanon’s
dominant Shia Islamist paramilitary
and political bloc.
The central bank has sufficient gross
foreign currency reserves to pay Leba-
non’s creditors this year.
But its net foreign currency reserves
— after deductions such as commercial
banks’ deposits of dollars — are nega-
tive, according to rating agency Fitch.
Ashmore, which manages $98bn of
assets, has continued to buy short-dated
government bonds as prices swungwildly back and forth this year, accord-
ing to traders and investors in the mar-
ket. This included buying ahead of a
proposed debt swap orchestrated by the
central bank, which would have seen
holders exchange their bonds maturing
in 2020 for longer-dated debt.
Central bank governor Riad Salameh
on January 3 said at a meeting with
banks that “one of the most important
foreign funds with regards to Lebanon’s
debt” was open to the swap.
The plan collapsed later that month
after rating agencies warned it would
constitute a “selective default”.
Some local banks refused to partici-
pate, instead choosing to offload their
bonds at a discount to foreign buyers.
Ashmore declined to comment.
The justice ministry has launched a
probe into bond sales by local banks,
according to a person familiar with the
ministry’s thinking, including whether
or not the deals were made under repur-
chase agreements. The central bank’s
public relations office did not respond to
multiple calls. Marie-Claude Najm, the
justice minister who ordered an investi-
gation into the bond sales, did not
respond to requests for comment.Fixed income
Ashmore swept up in political furore
over repayment of Lebanese debt
Pierre Andurand has a reputation
for taking big directional bets on oilFastFT
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ft.com/fastftPAT R I C K T E M P L E- W E ST— N E W YO R K
Companies with the best environmen-
tal, social and governance scores have
opened up what one analyst calls a
“monstrous” valuation premium in a
sign of rampant demand for the hot
investment theme.
Investors last year ploughed a record
$21bn into socially responsible invest-
ment funds in the US, almost quadru-
pling the rate of inflows in 2018, accord-
ing to Morningstar, the data provider.
Companies with strong ESG creden-
tials are starting to show the benefits of
that surge of interest in a once-niche
area. Those with the top ESG rankings
trade at a 30 per cent premium to the
poorest performers as measured by
their forward price-to-earnings ratios,
said Savita Subramanian, head of US
equity strategy at Bank of America.
“This is not just a function of growth
stocks doing better than value
stocks,” Ms Subramanian said, describ-
ing the dichotomy in US markets as
“monstrous”.
Inflows into ESG funds, she said, “are
driving this valuation discrepancy”.
Some analysts welcome the price
gaps, seeing them as validation of the
idea that listed companies should pay
attention to the needs of all stakehold-
ers — including employees, customers
and society as a whole.
Others worry about a bubble in areas
such as renewable energy, pushing
prices to unsustainable highs.
Meanwhile, some note that the valua-
tion gaps imply a lot of faith in the judg-
ments of the likes of MSCI, Sustainalyt-
ics and RepRisk, which define the
groups tracked by ESG funds by
applying all sorts of screens to sift
certain stocks from others.
Companies are complaining about the
integrity of such scores, arguing they
can be set arbitrarily.
Even so, the trend seems well rooted.
Analysts at Bernstein wrote in a report
this month that, in Europe too there
appears to be a link between ESG
rankings and valuation discounts for
“bad” companies.
Usually, Bernstein said, such spreads
disappear as investors scoop up bargain
stocks but, with “the wall of money
coming into ESG funds” as well as loom-
ing green regulations, “this time — in the
dreaded phrase — it may be different”.
ESG effects have been clearest in the
energy sector where oil and gas stocks
have faced big headwinds, given their
carbon emissions.
But a surge in renewable energy
stocks in the last three to six months has
prompted some analysts to question
whether these assets are overheating.
“There appears to be a growing dis-connect between operational perform-
ance and share price returns,” said
Eugene Klerk, Credit Suisse’s head of
global ESG research. “There is a growing
awareness or nervousness around this
particular topic.”
Solar stocks — poor performers in
recent years — have roared to life.
A good example is Enphase Energy,
a California-based solar systems
provider, which was trading at about $
in February 2019.
It rose to $58.73 on Thursday, up
about 45 per cent on the week, giving it a
forward P/E ratio of a heady 57 times —
more than double the benchmark
Russell 2000 index.
Israel-based SolarEdge Technologies
leapt by more than a quarter this week,
adding about $1.5bn in market capitali-
sation after a bright earnings report.
“We hear in passing many clients con-
cerned about ESG bubbles forming,”
said the Bernstein analysts. “It certainly
feels like there might be an ESG bubble
forming.”
Last year, the Nachhaltigkeit Plus I
fund run by Green Benefit AG, a Nurem-
berg-based asset manager, ranked asthe top sustainable fund in Europe with
a 76 per cent return, according to
Morningstar.
The fund, which had just €8m in
assets at the end of last year, was 40 per
cent invested in solar companies and
scored big wins with Enphase,
SolarEdge and SMA Solar of Niestetal,
Germany. So far this year, the fund is up
29 per cent.
Manfred Wiegel, Green Benefit chief
executive, said he can see indications of
“overpricing” in companies in the
hydrogen and fuel-cell sector, which is
closely linked to the demand for clean
energy storage solutions, especially for
vehicles.
Ballard Power Systems, for example,
which makes hydrogen fuel cells for
forklifts and buses, has had its share
price more than quadruple since last
May. The Vancouver-based company,
which listed on Nasdaq in 1995, has not
turned an operating profit since then.
Some analysts said a really dangerous
bubble in ESG was a long way off.
Sectors such as European renewable
infrastructure were seeing a lot of
money flowing in but investors had not
lost their discipline, said Johanna Köb,
head of responsible investment at
Zurich, the insurance group.
“This is just the beginning of the
[ESG] approach really starting to bite,”
Ms Köb said. “I believe that jumping to
the conclusion of warning of bubble
territories is a little bit premature.”
In a report this month, Morgan
Stanley warned of excesses building
over time — but not yet.
The outperformance of ESG really
started six to nine months ago, it said,
adding that similar thematic trades —
such as the “Bric” or “Fangs” cycles —
lasted at least five years. “ESG is likely to
be a defining theme of the 2020s,” it said.Inflows into ESG equity funds
drive up prices for companies
with strong ethical credentials
‘There
appears tobe growing
disconnectbetween
performanceand share
price returns’Bright spot:
stocks of US
solar-panel
makers have
rebounded
David Paul Morris/BloombergEquities.Valuation premiums
‘Monstrous’ gains for green
stocks trigger bubble fears
D O N W E I N L A N D— B E I J I N GChinese banks have been given the
go-ahead to trade in domestic bond
futures, a landmark in the reopening of
a market that was shut in the 1990s after
a panicked sell-off that saw the collapse
of the country’s largest brokerage.
China’s securities regulator said yes-
terday that the five largest state-owned
commercial banks, including the world’s
largest bank by assets, Industrial and
Commercial Bank of China, will take
part in a pilot programme that allows
them to trade in Treasury derivatives.
Certain insurance companies will also
be permitted to join the test run before a
planned wider rollout.
The reform has been more than 20
years in the making and is part of a mul-
tiyear plan by Chinese regulators to
broaden participation in the $13tn bond
market, the world’s third-largest.
Foreign banks are not part of the pilot
but the introduction of new hedging
instruments for Chinese banks is
expected to boost liquidity and help
with price discovery for bonds.
Policymakers hope this will attract
more foreign investors, who often com-
plain about the lack of liquidity despite
the size of the market.
China launched trading in bond
futures — buying or selling contracts for
future delivery of a bond — in 1992 onthe Shanghai Stock Exchange. But
regulators were forced to shut down
trading three years later when the coun-
try’s largest brokerage at the time,
Shanghai Wanguo Securities, collapsed.
In February 1995, Shanghai Wanguo
placed a huge “sell” order of futures
without holding sufficient funds to back
the trades in margin accounts.
Prices plummeted, leading to disar-
ray in the market and a swift move to
shut the firm down.
Shanghai Wanguo’s chief executive,
Guan Jinsheng, known as the godfather
of China’s securities industry, was jailed
for his role in the affair. The fiasco is
remembered as the “327 incident”, tak-
ing its name from the code of a three-
year government bond futures contract.
Regulators have moved painstakingly
to reopen the market. Trading in bond
futures was relaunched in 2013, two
decades after the first run, but the com-
panies allowed to participate have been
limited. Concerns remain among mar-
ket-watchers on regulation and the
potential for liquidity shocks.
China is also experiencing a record
level of bond defaults as economic
growth slows to a 30-year low. The coro-
navirus is expected to hinder many
more companies’ ability to repay debts.
But analysts have remained upbeat on
the long-term prospects for the market
in Chinese bonds, which have been
added to a series of global indices such
as the Bloomberg Barclays Global
Aggregate index.Fixed income
China reopens
bond futures
trading to big
local banks
GuanJinsheng, known as
the godfather of China
securities, was jailed forhis role in the affair
‘Cleantech’ companies wallop S&P
Share prices and index rebasedSource: FTNov Feb - Enphase Energy
Ballard Power Systems
SolarEdge
S&P FEBRUARY 22 2020 Section:Markets Time: 21/2/2020 - 19: 06 User: stephen.smith Page Name: MARKETS1, Part,Page,Edition: LON, 17 , 1