Jane Street’s path to “obscene” riches.

One thing to start with: Mark Rowanco-founder of Apollo Globalbelieves we are on the cusp of a new era in finance as asset managers replace banks as essential cogs in the flow of credit. Don’t miss it my colleague Antoine Garahis profile of the man with a plan to remake Wall Street.

In today’s newsletter:

• How Jane Street rode the ETF wave to “obscene” riches.

• China’s foreign investors hope stimulus will end ‘deep winter’

• Investors buy European stocks to get cheap US exposure

New Titans of Wall Street: Jane Street

When Wall Street rushed to launch bitcoin funds earlier this year, there was only one trading company named in regulatory filings as a market maker for each: Jane Street.

The move underscored how a quirky, opaque New York firm used its dominance in exchange-traded funds and adopted fancier financial securities as a springboard to become the most profitable of all the trading firms that are now a force significant in the markets.

In the latest installment of our new Titans of Wall Street series, Will Schmitt in New York and Robin Wigglesworth in Oslo I bring you the story of Jane Street’s rapid expansion.

Last year was the fourth year in a row that Jane Street generated more than $10 billion in net trading revenue, according to investor filings. Its gross trading revenue of $21.9 billion was equivalent to about one-seventh of the combined equity, bond, currency and commodity trading revenue of all ten major global investment banks last year, according to The Greenwich Coalition data.

“The amount of money I make is almost obscene. And that comes from handling tools that a lot of other people don’t want to touch,” said Larry Tabba long-time industry analyst who now works at Bloomberg Intelligence. “That’s where the biggest rewards are, but also the biggest risks.”

There are no signs of Jane Street slowing down. In the first six months of 2024, net trading revenue rose another 78 percent year over year to $8.4 billion, according to people familiar with the matter. If it can match these revenues in the second half of 2024, it would mean that Jane Street will bring in more trading revenue than the much larger one. Goldman Sachs done last year.

If the 70% profit margin disclosed in investor filings also holds, it would mean Jane Street will easily outperform the likes of Blackstone or BlackRock this year, according to analyst forecasts collected by LSEG. Read the full story here

China: “Groundhog Day or a Fresh Dawn?”

When news broke last month of China’s latest political attack to address its sagging economy and weakened capital markets, the initial reaction of many foreign investors — some of whom had been burned by previous policy-led rallies — was one of caution.

“Groundhog day or a fresh dawn?” is the question posed by a Lombard Odier the research note following the initial briefing by Chinese financial authorities, it says Arjun Neil Alim in Hong Kong.

But as the market digested Beijing’s proposed unprecedented measures to support capital markets — including a $100 billion war chest to lend to non-bank financial institutions to buy stocks and companies to and buy back their own shares – caution returned, in many cases, to FOMO.

While the details of any additional fiscal stimulus are yet to come, the shift in sentiment toward China has been notable. David Tepperfounder of Appaloosa Managementsummed up the upbeat mood with his call CNBC: buy “everything” in China.

“When Xi Jinping get involved, you know the answer is unlimited support” for the scholarship, he said Beeneet Kotharifounder of the speculative fund Tekne Capital Management.

“We appreciate that (global) funds will have to restore their Chinese investments to a more rational level,” it added Yu Chen Jundeputy chief investment officer for equities at Value partners.

For now, it appears that foreign investors are buying the bullishness, sending shares in mainland China and Hong Kong’s Hang Seng index higher.

However, while some global investment banks are cautiously starting to raise their price targets and allocations to Chinese stocks, others are holding back on getting into the “all-in” trade with China.

“Is this time different? We’ve seen these fits and starts where China puts some kind of stimulus in place and it hasn’t led to a constructive long-term recovery,” he said. Saira Malikchief investment officer of the $1.3 billion asset manager Nuveen.

“This time it still seems to us that its impact is greater for the stock market than for the economy. Before we become more structurally optimistic, we would look for more follow-through on a recovery in economic activity.”

Chart of the week

Investors seeking profits from the buoyant US market are turning to European stocks that have significant US exposure but are trading at a discount to their transatlantic counterparts, writes Rafe Uddin in London.

Groups such as the UK defense group BAE Systemsof France Schneider Electric and the pharmaceutical giant Novo Nordisk are among the big European names that have surged this year as investors seek cheaper, similar versions of top-performing U.S. companies.

BAE rose 17%, Schneider rose 29% and Novo Nordisk rose 11%.

“The fact that you can bring these businesses to a lower valuation is overlooked,” he said Dev Chakrabartiglobal growth investment director focused on The Bernstein Alliancewhich holds positions in several European companies with high US exposure, incl SAP.

“This is a pricing inefficiency that we continue to exploit and we expect to be paid for that inefficiency,” Chakrabarti added.

Strong U.S. jobs data on Friday bolstered investor expectations that America will pull off a so-called soft landing, in which inflation falls quickly but maintains robust growth and strong employment. However, sentiment on the outlook was more negative in Europe, where business activity slowed as inflation eased.

Dozens of large European companies generate most of their sales in the US. Novo Nordisk, which is the best seller Ozempic and Wegovy weight loss drugs, earns nearly 60 percent of its revenue from the US, while the market accounts for nearly 50 percent of the BAE Systems giant’s turnover.

Five must-see stories this week

Wall Street is cheering on the US presidential candidate Kamala Harris after weeks of behind-the-scenes courtship between donors and her campaign, even though some executives are still leaning toward Donald Trump and his plans for deep tax cuts.

John Kerrythe former US secretary of state and climate envoy joined the billionaire fund manager and big Democratic donor Tom Steyerhis green investment group Galvanize Climate Solutions as co-executive chair.

Charles Schwabits longtime executive director Walt Bettingerwho oversaw its rise in the wake of the 2008 financial crisis, will retire at the end of the year and be replaced by the company’s chairman. Rick Wurster.

The Bank of England warned of growing “vulnerabilities” in the financial system as hedge fund bets against US government bonds surged to a record $1 billion in recent months.

Some of the UK’s largest wealth managers including Quilter, AJ Bell and Hargreaves Lansdowne they warned the chancellor Rachel Reeves that people are taking money out of pensions early because of “uncertainty” about potential tax changes in the Budget.

And finally

René Magritteit’s fascinating Empire of Lights is the centerpiece in the upcoming sale of the designer and philanthropist’s collection Little Ertegun TO Christie’s. Magritte himself said of the series in 1956:

“The conception of an image, that is, the idea, is not visible in the image: an idea cannot be seen with the eyes. What is represented in a picture is what is visible to the eye, it is the thing or things that must have been devised. Thus, what are represented in the image Empire of Light they are the things we imagined, i.e. a nightscape and a sky as we see it during the day. The landscape evokes the night and the sky evokes the day. I call this power: poetry.

If I think this evocation has such poetic power, it is because, among other reasons, I have always felt the greatest interest in night and day, but without ever having preferred one or the other. This great personal interest in night and day is a feeling of admiration and wonder.”