Facing Up to the Bear

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Encarando los mercados bajistas
CC-BY-SA-2.0, FlickrPhoto: Ian D. Kaeting. Facing Up to the Bear

Widespread fears over ongoing stock market and currency weakness in China, the falling oil price, geopolitical tensions, overvalued assets and an end to fiscal stimuli have led to stock markets plunging around the world. The bear appears to have his claws out and investors with shorter memories may well be spooked.

Oil prices have once again played a key part in this fresh round of market sell-offs, with Brent crude slumping to a little over $27.5/barrel on 20 January – down 75% from its June 2014 high of $112/barrel and 39% off the $45/barrel price we saw as recently as November 2015. Indeed, there are fears that the rock-bottom oil price may even put some oil companies out of business.

Bear markets are typically defined by a broad range of indices falling by 20% or more from their most recent peaks. At the time of writing, at 5,673 the FTSE 100 index is 20.3% off its April 2015 peak of 7,122, while the Dow and the MSCI AC World indices are not far behind. If a bear market is also defined as one where investors should expect further sell-offs, then we may well be in the bear’s claws.

Ironically, the drivers of this bear market may be found in economic policies aimed at stabilising global economies. Volatility has been artificially low in recent years due largely to quantitative easing (QE), with markets settling into a pattern of reassurance that modest earnings growth would continue all the while asset prices were being boosted by QE.

I’ve previously referred to this as markets ‘resting easy as they drank from the punchbowl of QE’, but recent events indicate that markets have perhaps had their fill and, even if the QE bowl is not yet empty, it might as well be.

This should not have come as a shock to investors

The recovery of financial asset prices from the nadir of the last financial crisis has been dramatic; indeed, it has been one of history’s most fruitful periods for investors. The six years ending March 31 2015, for example, stand at the apex of historical six-year returns for the US stock market.

The Greek debt crisis made markets sit up and take notice – reminding them that bull runs do not last forever – while in December the US Federal Reserve embarked on a tightening of policy which eliminated one of the financial markets’ greatest tailwinds. The era of asset price reflation, fueled by both post-crisis undervaluation and aggressive central bank easing, is over and we cannot rely on our returns being flattered by QE or other valuation recovery dynamics.

At a global level, expected earnings are lower than they have been for five years while prices are much higher even if, while volatility is high and rising, it is not in territory that typically marks capitulation and is some way off the levels of volatility we saw in 2008.

China, of course, remains a key driver of volatility. Its economy is slowing as it desperately tries to rebalance (even if the recent rate of decline is not as bad as many feared – for example, its recent quarterly GDP figure indicated growth of 6.9%, marginally better than many analysts expected). This slowdown has already resulted in currency depreciation and stock market woes, which have spilled over into other Asian markets and across the world.

Yet fears over China are also not new and we have warned for some time that the ongoing slowdown in the country would pose challenges not only for Asian and emerging markets investors but for financial markets globally.

Now is not the time to throw in the towel

Dollar strength, liquidity, credit spreads and Brexit also remain key concerns. Yet this is not the time for investors to throw in the towel, as some pugilistic analysts and doom-mongers have suggested.

Investors should be aware that 2016 will be a low growth, low return world, with corporate margins pressured by weak end demand and overcapacity in a number of industries.

The outlook for emerging markets (EM) remains challenging, particularly for those countries that have built their economies to serve Chinese demand for commodities. The outlook for these countries is downbeat, and weaker currencies may not help to lift demand for EM exports where consumer and corporate demand is subdued. A world where the US tightens policy but other central banks retain an accommodative stance should mean a stronger dollar, all else being equal. That is likely to be a further headwind for EMs, as there is a strong inverse correlation between the dollar and emerging markets.

Active managers using multi-asset allocation strategies are well-placed to ride out short-term shocks in markets. The rising tide of global QE that had lifted all boats will begin to ebb, and in that environment it will make sense to differentiate within and across asset classes. In this world, a focus on valuations and fundamentals – ‘old school’ investing if you like – should be more important than it has been in recent years, when markets were backstopped by abundant and growing liquidity.

Longer-term investors know that what can feel like an emergency in the short-term may not hold as much significance some years down the line, so a focus on old school investing values makes particular sense in such a volatile world.

Tackle the bear

But if we are to tackle the bear, we would ideally like to see some markers of stability. If China and its investors could accept the country’s need to rebalance its economy, we might see a smoother stock market ride. Oil price stability would also help, but the situation in the Middle East is difficult to fathom, defined by Saudi Arabia’s continued willingness to pump oil even at current prices and its squabbles with Iran. With demand falling, partly as a result of US shale oil flooding the market, oversupply remains a key issue and it remains to be seen how the geopolitical factors in play will pan out.

Even if the prospect of further interest rate rises have been pushed a little further towards the horizon, they arguably remain one of the key threats. The macro and company indicators that we are seeing at the moment – subdued growth and inflation, soft final demand and a deteriorating outlook for corporate earnings – are not the kind of the things that one would expect to see when the world’s most important central bank, the US Federal Reserve, is starting an interest-rate tightening cycle.

It is clear that the Fed is very keen to start normalising interest rates, but if one simply looked at the data in isolation, it is hard to come to the conclusion that the Fed needs to raise rates quickly or aggressively. The recent US jobs data releases have been strong, but they need to be set in context – labour participation rates in the US are still at 40-year lows. Markets do expect the Fed to act, and we expect the FOMC to do so in a controlled and sensible manner. If the Fed loses control of its own narrative and policymakers are seen to ‘flip-flop’, markets could react strongly.

What does all this mean from an asset allocation perspective? In terms of valuations, we still regard equities as more attractive than bonds and expect to retain that positioning for now in our asset allocation portfolios, although with less conviction than we have done for some time. However, compared to their longer-term history, equities still offer better value than bonds.

Mark Burgess is CIO EMEA and Global Head of Equities at Columbia Threadneedle Investments.

 

Time for a Conservative Equity Approach

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La volatilidad en las bolsas está asegurada para todo 2016: es hora de ponerse conservador
CC-BY-SA-2.0, FlickrPhoto: OTA Photos. Time for a Conservative Equity Approach

For the past seven years, explained Charles Gaffney, Equity Portfolio Manager at Eaton Vance, equity markets have been nothing short of exceptional. A consistent combination of strong stock returns, relatively low volatility, and a periodic dose of monetary medicine has kept the bears comfortably sleeping. In fact, points out the expert, history suggests this may be one of the best bull market runs on record with seven consecutive years of positive returns in the S&P 500 index.

However, 2016 has gotten off to a rough start with the market down nearly 9% at its lowest point, representing one of the worst starts in recent history. An analysis of economic data arguably suggests the global economy is facing some headwinds, including a slowdown in China, heightened volatility in energy markets, slower growth, and a cautious consumer. As a result, investors should be prepared for increased volatility throughout the year, said Gaffney.

“In this environment, establishing a high-quality, modestly conservative equity approach that can withstand the potential of heightened market volatility while seeking to protect the gains of previous years is a good starting point worth consideration”, resume the Portfolio Manager at Eaton Vance.

 

Playboy Mansion Still Listed For $200 Million

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A la venta la mansión de Playboy por 200 millones de dólares
Photo: Youtube. Playboy Mansion Still Listed For $200 Million

One of America’s most famous addresses, known for legendary parties and lavish lifestyle, The Playboy Mansion, has been listed for $200 million, The Agency and Hilton & Hyland announced.

This is the right time to seek a buyer for this incredible property who understands the role the Mansion has played for our brand and enables us to continue to reinvest in the transformation of our business,” said Playboy Enterprises CEO, Scott Flanders. “The Playboy Mansion has been a creative center for Hef as his residence and workplace for the past 40 years, as it will continue to be if the property is sold.” 

The crown jewel of L.A.’s “Platinum Triangle” situated on 5 picturesque acres in Holmby Hills, The Playboy Mansion is a nearly 20,000 square foot residence that is both an ultra-private retreat and the ultimate setting for large-scale entertaining. The Mansion features 29 rooms and every amenity imaginable, including a catering kitchen, wine cellar, home theater, separate game house, gym, tennis court and freeform swimming pool with a large, cave-like grotto. The property also features a four-bedroom guest house.  In addition, it is one of a select few private residences in L.A. with a zoo license.

The principal agents are Drew Fentonand Gary Gold of Hilton & Hyland and Mauricio Umansky of The Agency. “The Agency couldn’t be prouder to represent one of the most well-known estates in the country,” said Mauricio Umansky. “With its iconic style and immaculate grounds, the Mansion has inspired so many properties throughout Southern California.”

Despite an Over 40% Correction, the Chinese A-Share Market is Still Over-valued

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According to a presentation by Rahul Chadha, co-director of Mirae Asset Global Investments Investments, despite the over 40% correction seen in recent months, the A-share market in China is still overvalued. However investors should not panic because “valuations in Asia are still very attractive with a price over book value of 1.25x. At these levels, investors have historically achieved positive returns in 12 months” Chadha writes.

The presentation notes that 85% of the A-shares market is held by retail investors, of which 81% operate at least once a month, whereas in the US, 53% of retail investors operate monthly. One important thing to note is that according to Chadha, more than two thirds of new retail investors did not attend or finish High School.

For Portfolio Positioning, Chadha identifies key differences in between what he considers Good China vs. Bad China. Under Good China he highlights industries that are Under-penetrated, less capital intensive, with sustainable economic moats, such as healthcare, insurance, clean energy, internet / e-commerce, travel & tourism. While on the Bad China side we can find Well-penetrated industries that are capital intensive, have low barriers to entry and weak pricing power such as steel, cement, capital goods and banks.

You can find the document in the attachment.

 

Mark Rogers Becomes Vice Chairman at Northstar

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Mark Rogers Becomes Vice Chairman at Northstar
. Mark Rogers Becomes Vice Chairman at Northstar

Northstar Financial Services Limited, a Bermuda based financial solutions firm announced that Mark Rogers is due to play a more prominent role going forwards and that the firm is to begin operations in the Middle East and Africa.

Mark joined Northstar as a Director in July 2015 but, in his new position as Vice Chairman, he will be more actively involved in the global activities of the company and will spearhead the Middle East and Africa initiative. Northstar is in the final stages of establishing its office for the Middle East and Africa in the DIFC and is set to make an announcement regarding the Key Representative to be based in the region imminently.

Northstar’s Head of Distribution, Alejandro Moreno commented: “Having enjoyed such a successful relationship as colleagues at our previous firm, I am thrilled to be working so closely alongside Mark again. His vast experience and global network of relationships should prove to be invaluable as we continue to enhance our product range and expand into new territories. The Middle East and Africa in particular represent a significant opportunity for Northstar and I look forward to working with Mark in those regions.”

Mark Rogers commented: “I couldn’t resist the opportunity to play a more central role at Northstar. With a robust operating history stretching back 17 years, a compelling range of products and a highly experienced team, Northstar is perfectly positioned to support the growing demand for international investment products.”

“Longer Term, The Ability of Central Bankers to Normalise Policy Is Constrained by Powerful Deflationary Forces”

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jupiter
Foto cedidaJulian DIpp se une a Jupiter AM.. dipp

Ariel Bezalel, fund manager of Jupiter Dynamic Bond Fund, explains in this interview with Funds Society the opportunities he sees in the Fixed Income space.

In the current low yield scenario and bearing in mind the US rates hikes we are starting to see, do you believe fixed income still offers value?

We do not believe that the US Federal Reserve will hike rates aggressively this year. Nevertheless, our portfolio is defensively positioned and our allocation to high yield is the lowest it has been in a while. We see pockets of value in fixed income.

Are there more risks than opportunities in the bonds markets?

Policy mistakes by the US Fed, a China hard-landing and the broader emerging markets’ crisis are some of the risks in the bond markets at the moment. Opportunities persist and one of our top picks at the moment is local currency Indian sovereign bonds.

Is it harder than ever to be a fixed income manager?

We may be in a more challenging environment for bonds but the advantage of a strategic bond fund like ours is that we can move in and out of different fixed-income asset classes, helping us to steer clear of riskier areas.

Some managers in charge of mixed funds used to see the fixed income as a source of protection and returns. Do you believe that this asset plays now a much more limited role?

Fixed income can still provide protection for investors – default rates are far from recent highs.

Where can you find investment opportunities in fixed income right now (high yield, investment grade, public, private, senior loans…)? Any particular market or sector?

We are running a bar-bell strategy in the funds – in which we have a large allocation to low risk, highly rated government bonds and a balancing exposure to select higher-yielding opportunities. We like legacy bank capital and pub securitizations within the UK. Within EM, we like local currency Indian sovereign bonds, Russian hard currency corporate debt and Cypriot government bonds.

What is going to be the effect of the US interest rates hike we saw last week? Which will be the next steps of the Fed in 2016?  Will we see a decoupling between the US and the European yields?

It will be several months before we can assess the impact of the Fed’s move on the US economy. However, a number of leading indicators suggest to us that the US economic recovery is less secure than is commonly believed. The Evercore ISI Company Surveys, a weekly sentiment gauge of American companies, has weakened this year and is currently hovering around 45, suggesting steady but not spectacular levels of output. The Atlanta Fed’s ‘nowcast’ model indicates underlying economic growth of 1.9% on an annualised basis in the fourth quarter, a level consistent with what many believe is a ‘new normal’ rate of US growth of between 1.5% and 2%.

More worryingly, the slowdown in global trade now appears to be affecting US manufacturing. The global economy is suffering from acute oversupply, not just in commodities but across a range of sectors, and industrial output in the US is now starting to roll over. In this climate, there is a genuine risk that the Fed will end up doing ‘one and done’. In some ways, it seems that the Fed is looking to atone for its failure to begin normalizing monetary policy earlier in the cycle, before the imbalances in the global financial system became so pronounced.

Longer term, the ability of central bankers to normalise policy is constrained by powerful deflationary forces, including aging demographics, high debt levels and the impact of disruptive technology and robotics, a reason why we are comfortable maintaining an above- consensus duration of over 5 years.

What are the forecasts for the emerging debt in 2016? Do you see a positive outlook for the bonds of any emerging country?

We have adopted a cautious stance towards emerging markets (EMs) recently at a time when many developing countries have been experiencing economic and financial headwinds. Currencies and bond markets in countries such as Brazil, Turkey and South Africa have been uncomfortable places for investors to be over the past 12 months as the strengthening US dollar, lower commodities prices and high dollar debt burdens have proved to be a toxic combination.

We have benefited though from situations where indiscriminate selling has left opportunities, and we have found a couple of stories that we really like.

In Russia, we have been investing selectively in short-dated names in the energy and resource sectors including Gazprom and Lukoil. Russian credit sold off last year as the conflict in Ukraine, the country’s involvement in Syria and the oil price sell-off caused the rouble to depreciate. Investor aversion towards Russia has meant we have been able to find companies with what we believe are double A and single A rated balance sheets whose bonds trade on a yield typically more appropriate for double B or single B credits.

India is another emerging market story we like. Monetary policy has become more prudent and consistent. Inflation has fallen from a peak of 11.2% in November 2013, aided by lower oil prices which has supported the rupee against major currencies. Our approach has therefore been to seek longer-duration local currency bonds. We rely on rigorous credit analysis to select what we believe are the right names, particularly as the quality of corporate governance remains low in India.

Will emerging currencies keep depreciating vs the US dollar?

With the US Fed raising rates in December and economic weakness persisting in emerging markets, we believe the trend will be for gradual depreciation of emerging currencies.

Which are the main risks for the fixed income market these days?

US Fed policy mistake, China hard-landing, emerging markets crisis.

We have seen a notorious crisis in the high yield market in the last weeks. What is exactly happening? Does the lack of liquidity concerns you?

Much was written at the end of last year concerning certain US funds that have frozen redemptions. In addition to this we have seen material outflows from US high yield mutual funds. We have been concerned about US high yield for some time, and have limited exposure to this market. Furthermore, the other concern we have had for a while is some sort of contagion to European credit as credit in emerging markets and US credit have continued to come under pressure. For this reason we have been reducing our European high yield exposure and within our high yield bucket we have been improving the quality and also preferring shorter dated paper.

Yes, liquidity has been the other big risk for the credit market. Due to regulatory reasons investment banks simply cannot support the markets as well as they did in the past. At this late stage of the credit cycle, and with the Fed tightening policy even further (the combination of a strong dollar and quantitative easing coming to an end in the US is a tightening of economic conditions in our opinion) caution is warranted.

What are the prospects for inflation in Europe? Do you see value in the inflation-linked bonds?

We think inflation will remain low in Europe driven by stagnating economic growth and lower oil prices. One of the key measures of inflation expectations, the 5y5y forward swap, demonstrates that investors do not expect inflation to increase materially.

Guillermo Ossés joins Man GLG as Head of Emerging Market Debt Strategies

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GLG Man refuerza sus estrategias de Renta Fija de Mercados Emergentes con la incorporación de Guillermo Ossés
CC-BY-SA-2.0, Flickr. Guillermo Ossés joins Man GLG as Head of Emerging Market Debt Strategies

Man GLG, the discretionary investment management business of Man Group plc, announced on Monday that Guillermo Ossés joined the firm as Head of Emerging Market Debt Strategies, based in New York.

Guillermo, who brings 24 years of experience in emerging markets fixed income investing to Man GLG, joins the firm from HSBC Asset Management. Guillermo joined HSBC in 2011 and led the firm’s emerging markets fixed income capabilities, managing in excess of $20 billion. Prior to this, Guillermo was an emerging markets fixed income portfolio manager at PIMCO and held emerging markets positions at Barclays Capital and Deutsche Bank. He holds a BA in Business from Universidad Católica de Córdoba in Argentina and an MBA from the Massachusetts Institute of Technology Sloan School of Management.

The recruitment of Guillermo follows the acquisition of Silvermine and the recent hire of Himanshu Gulati last year, demonstrating Man GLG’s commitment to expanding its presence in the US, and further strengthening the firm’s capabilities.

Guillermo Ossés will report to Man GLG’s co-CEO Teun Johnston. According to whom, “it is with great pleasure that we welcome Guillermo to Man GLG. He has extensive experience in investment management and a distinctive investment process, alongside a proven track record of investing and managing investment teams in the emerging markets fixed income space. As Head of Emerging Market Debt Strategies, Guillermo will be instrumental in broadening our capabilities in the fixed income space and enhancing our client offering.”

Guillermo Ossés said: “Man GLG is a performance-focused business and its institutional framework, combined with an entrepreneurial environment and collaborative culture, make this a very compelling opportunity. I am very excited to be joining the firm, and working alongside Teun and his team as we strive to build a world class emerging markets fixed income investment management business.”

Don’t Fight Today’s Markets With Tomorrow’s Money

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No luche contra los mercados de hoy con el dinero de mañana
CC-BY-SA-2.0, FlickrPhoto: Pictures of Money. Don't Fight Today's Markets With Tomorrow's Money

Crude oil has now fallen below $28 per barrel. Not so many months ago, no one could have predicted — or even imagined — that this commodity would drop from over $120 per barrel so far and so fast. And with this deep decline in the price of oil, the US dollar is rising and global trade is slowing.

It is still my strong contention that cheap oil means more spending and growth. But that isn’t happening yet.

So where do I stand now? Here are my new points:

  1. The majority of the world’s economies seem to be faring a bit better. A number of the eurozone’s peripheral countries have shown signs of turnaround. And in the United States, we haven’t seen the excesses that are typically associated with the risk of recession.
  2. Looking at history, recessions haven’t occurred because commodities are cheap — usually it’s the other way around. Many of the world’s consumers and producers ultimately stand to benefit from low energy costs.
  3. This is not the same situation we faced in 2008, when we were on the brink of the global financial crisis. The global banking system is exposed to oil and China now, but not nearly in the proportions we saw with exposures to risky US mortgage debt then.
  4. I do think the smoke will eventually clear on the business cycle. However, until we get more data to indicate whether the slowdown in manufacturing, the weakness in exports and the stutter step in earnings will persist, fear could rule the markets for riskier assets.
  5. In this unsettled environment, with so many unknowns, there’s a risk of jumping into the global equity markets too early. An investor with new money may want to consider a more conservative asset mix to ride out this storm.

James Swanson is MFS Chief Investment Strategist.

 

 

Funds Society celebrated its 3rd Anniversary party in Miami and presented its objectives for 2016

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Funds Society celebra en Miami su fiesta de III Aniversario y presenta sus objetivos para 2016
CC-BY-SA-2.0, FlickrPhotos: Pablo Blazquez. Funds Society celebrated its 3rd Anniversary party in Miami and presented its objectives for 2016

On January 14th, Funds Society celebrated its 3rd Anniversary party in Miami. The rain did not deter over 160 professionals from leading Asset and Wealth Management entities in Miami and New York that attended.

Some friends and readers from Mexico, Barcelona and Madrid, who did not want to miss the occasion, also joined us for the event. During the party, photos of which can be seen in the attached video, Funds Society presented a corporate video with last year’s main achievements and its objectives for 2016.

The latter includes the launch of a print magazine for the Spanish market following the success achieved by its US Offshore edition, and creating a directory for the Asset and Wealth Management sector, segmented by major regions in which Funds Society has a presence: US Offshore, Spain, and Latin America.

In 2016 Funds Society will hold its second edition of the Fund Selectors Summit in Miami during the month of April, to be followed in October by an event aimed at fund selectors in New York.

Driving Mr. Andy

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Uber, a la conquista de China
CC-BY-SA-2.0, FlickrPhoto: Carlos ZGZ . Driving Mr. Andy

Uber, the U.S. ride-sharing company, has big plans for China, and it says the number of Uber trips there is almost as large as it is in the U.S. While Uber has raised more than US$1 billion for its standalone Chinese unit, its mainland market share is dwarfed by that of a local competitor, DiDi. But on a recent trip to China, I was less interested in the numbers than in discovering why some Chinese prefer to drive for the foreign underdog rather than the dominant, homegrown ride-hailing firm.

Same App, Same Credit Card

I was impressed to discover that I could use the U.S. app to request an Uber ride in Shanghai, and bill it to my American credit card already on file. For my first trip, Mr. Xie pulled up in a new Toyota, bemused to see that his passenger was a foreigner. He’d only been driving for Uber for a few days, but was enthusiastic. “My main business is P2P (peer-to-peer) lending, and all of the work is at night, taking prospective clients to dinner and drinking. So I have lots of free time during the day,” he told me.

Mr. Xie was keen to chat about his private lending business. So keen, in fact, that he missed the exit to get us into the tunnel under the Huangpu River, adding 20 minutes to my journey as we were swallowed up in traffic.

He said he hoped that driving for Uber would be a great way to meet new borrowers, and that attracted him more than the pay. “I started driving for DiDi, but the customers were not really the kind I’d want to lend to. Uber riders are richer, so I’m sticking with Uber,” he added. Mr. Xie noted that lots of foreigners also use Uber, but he didn’t think they would end up borrowing from him.

Rich and Bored

While the original Uber app worked well in Shanghai, all of the communications were in Chinese, which might be an obstacle for all but the most adventurous foreigner. But a few days after returning to the U.S., I received a message from Uber: “We’re thrilled to bring you a language-specific service, ENGLISH, to make it a bit easier for expats and global travelers to get around the city [of Shanghai].” According to the message, you just open the app and enter the referral code “zaishanghai” (meaning “in Shanghai”) and then “unlock the English option.”

My second driver in Shanghai rolled up in a brand new Mercedes sports coupe. Mr. Zhang looked like he was about 23 years old, and I couldn’t help but start the conversation by asking why a young guy with a very expensive car was driving for Uber. “Well, my dad has a successful business, so I haven’t had to get a job . . . and I’m bored. One of my friends told me I could meet interesting people driving for Uber,” he said.

I asked how that was working out. “Well, today is my first day,” he replied. “But it is pretty cool to drive a foreigner.” I’d be surprised if he lasted more than a couple of days.

My Own Boss

Mr. Wang was more experienced, having driven his Buick for Uber for a few months. Prior to that, he drove for a company, but he quit for the freedom to set his own schedule. Initially, Mr. Wang drove for DiDi, although he said, “I make more money with Uber, and the customers are better.” He thought many riders were switching to Uber from DiDi, because it is easier to get a car. “DiDi drivers can see the customer’s destination before they pick him up, so often they will reject a fare they don’t like, while with Uber, we don’t know until the customer gets into our car,” he said.

Not a Cop

When I climbed into Mr. Zhou’s Toyota Camry, he said he was thrilled to discover that his next passenger was a foreigner. “This business isn’t really legal, and other drivers have told me that cops are ordering rides and then fining drivers 10,000 renmimbi (RMB or US$1,570). And when I saw you, I knew you couldn’t be a cop!”

Mr. Zhou told me that his son, who is studying in the U.S., bought the car for him specifically so he could drive for Uber. I asked if he was retired. “Ha, no. But I work for a state-owned company, which is almost like being retired! I’ve got nothing to do all day, so I just leave the office and drive to make extra cash!”

Better than Driving a Truck

Mr. Luo quit his job driving a truck to join the ride-sharing economy. He told me he started with DiDi, but said Uber passengers are “better behaved,” something I heard frequently from drivers who couldn’t really explain the difference. 

He said the money was okay, taking home RMB700 (US$110) for a 12-hour day of driving.

Better than Driving a Taxi

Mr. Yu gave up a long career as a taxi driver to strike out on his own. He also started with DiDi, but switched to Uber because “DiDi charged me too many fees. Either is much better than a taxi. More relaxing as there is no boss, and I can take a break anytime. And Uber passengers are much better than taxi passengers,” he said. He estimated that he took home about RMB7,000 (US$1,099) a month driving for Uber.

The Long Haul

Overall, the Shanghai Uber experience was pretty good. Two drivers never appeared—I watched as one drove by without stopping, possibly assuming that a foreigner couldn’t have been the customer—and in both cases I was automatically charged a cancellation fee of RMB10 (US$1.60). But when I filed a complaint through the app, those fees were immediately refunded.

The fares were ridiculously low, presumably due to large subsidies from Uber as they try to grab market share from DiDi. That will be just one of the many challenges the American firm faces in the future, along with an uncertain regulatory environment, and the issue of retaining drivers after the novelty wears off.

Andy Rothman is Investment Strategist at Matthews Asia.