Comment and opinion for retail investors in the UK
Or to be more precise – diddy (DiDi) trouble.
If you have not read about the Chinese ride sharing conpany DiDi (like Uber), you may not know that its IPO on the US stock market raised over 4 billion US dollars, but the share price did not fly away from launch. In fact the opposite happened.
It is increasingly obvious that we are living at the end of a cycle when it comes to global political systems. But not necrssarily ending in the way we might have expected a few years back.
A long term status quo was first disrupted by the tearing down of the Iron Curtain, fall of the Berlin Wall and apparently successful popular uprisings in Arab and middle European Countries. Even the election of a black president in the USA seemed to offer hope that modern democracy was maturing in a way that would serve citizens rather than exploit them under dictatorships or plutocracies.
This week’s post is shortish because I will publish a fuller subscriber only Watching Brief over the weekend or early next week.
The title refers to the categorisation of funds in Sustainability terms under the EU’s recently in force SFDR sustainable finance directive. Although the UK is not of course in the EU, all fund managers wanting to market funds in Europe (which includes all the large UK fund managers) will comply with the rules.
As usual with EU policy documents, the rules run to many pages, but for our purposes, we only really need to get used to the 3 ‘articles’ or categories of fund referenced in the title.
Morningstar have published some early data from about half the funds with domicile in Luxembourg, the favourite base for non-European fund managers to use for selling into Europe, on how funds are coming out as the process gets under way.
It is probably a good idea to keep in mind that when any new rules are published, they are subject to varying intepretations, especially when talking about categorisations (think of Covid-19 death rates). So I would assume that some fund groups are going to be more liberal with the rules and others more literal, or pedantic.
It is no surprise that European groups as opposed to UK or US fund businesses are in the main showing a higher proportion of category 8 and 9 funds because it is well known that European investors have been more in favour of ESG filters for a while and one might also speculate that the European fund managers are a little cuter at tuning their documentation to fit in with EU rules – just my idea!
On this early data funds classified as Article 8 or 9 represent 21% of European funds by number and 25% of European assets. This data is extrapolated by Morningstar, rather prematurely in my opinion, to suggest that the ESG funds market in Europe is worth EUR 2,5 trillion. Not a trifling sum even in these days of money sloshing around everwhere.
In case you are interested the French firms Amundi and BNP Paribas have the highest number of funds in 8 or 9, well into the hundreds. The UK’s top player was Legal & General with around 50 funds and even the mighty Fidelity International only has just above 50.
When it comes to actual money invested, unsurprisingly, Nordic and Dutch asset managers fill all the top spaces. SEB, a Swedish bank that operates in my region classified 95% of its assets in categories 8 and 9. The bank I personally use, also Swedish, too small as a fund manager to make this survey, has 100% of its funds ESG assessed as far as I can tell – the facts sheets always include a significant ESG commentary.
I think it does. I have been pretty sure for some time that the global enthusiasm for sticking a ‘sustainable’ label on investments and booing loudly everything that superficially is not sustainable will be the biggest driver of investment fund flows for years to come. So even if you are more sceptical than me about the quality of the labelling on ESG funds, it makes sense to to at least keep up with this bandwagon, even if you don’t want to jump on.
As I got not a single question from subscribers, I will consider the Q&A idea to be a non-runner!
I will turn the tables.
My question: who knows what the above initials stand for?
I suspect no-one, yet the introduction of CBDCs has the potential to undermine the operations of every private sector bank in the world and change the whole balance of power in both democratic and autocratic countries.
I think it is possible that the wholesale introduction of CBDCs could be the best opportunity in around 150 years for governments to wrest back the power they have steadily lost to corporations since the late 19th century.
The acronym stands for Central Bank Digitised Currency.
Digital currencies are an interesting and current topic, but like most new ‘products’ have all sorts of hidden risks at the early development stage. Maybe that is why the UK Regulator the FCA is banning the sale and promotion of digital currency derivatives (the most risky way of ‘playing’ with an investment or commodity) to retail investors from next year.
Serious Bitcoin fans who want to take out hedges and so on will get around this by dealing on overseas exchanges, I guess.
And you may know that Facebook thought having a digital currency – Libra – was a good idea and that the G7 nations were seriously opposed to that, rather supporting my proposition that controlling currency will be the new battleground between states and mega corporations.
The news is that China is encouraging Hong Kong residents to get their hands on a chunk of Chinese government digital money by giving away lottery tickets and Shenzhen residents are already able to open digital Renminbi accounts with e-wallets. China is where about a quarter of all the people in the world live, so what happens there is significant.
Would you want to put your money with a government bank?
Any of you that have National Savings Certificates or Premium Bonds have already taken that decision and many did so because they thought it was the most secure option.
That makes me think that a government sponsored e-wallet account would quickly take market share from commercial banks.
The institution that has all your money and also controls the legislative process may be one to worry about. What do you think?
No, this is not about the US President’s recent remake of Driving Miss Daisy because if it was the word ‘or’ would be inappropriate.
I am referring to the way in which many governments of the developed world are dealing with the pandemic. Any one who has spoken with me over the last few months will know that I believe the phrase “second wave’ is unhelpful and probably a mispreprestation of the facts.
It implies, I think, that the course of the pandemic is predictable based on what has been observed in the past with other viruses. That is possible, maybe even a reasonable way of preparing, but should not be an excuse for failing to observe what is actually happening and acting decisively.
Here are what I think are the facts as we know them now and which are not being bluntly (honestly?) put in front of the public of many of he world’s most developed nations. Especially those where politicians raise a lot of money from vested interest groups on all sides of the political spectrum.
Those are some of the established facts about the virus. Other facts that are pretty obvious relate to the economic consequences:
A sensible person would conclude:
Governments must admit that there is no feasible balancing act in which the maximum number of lives are preserved and an economic shock is avoided.
There are really 2 options only:
Any other approach is a fudge, a pretence that some sort of half baked lockdown, switched on and off, revised, dropped, localised and so on after a crisis has arisen will save the most lives and keep businesses open. Anything that is not option 2 is option 1 with a misguided attempt to fit some airbags and crash impact zones.
Those countries that opted for option 2 for just long enough to see their numbers improve and then relaxed have really just wasted all the advantages they built up and reverted to option 1 without telling anyone. During that time, the populations of those countries have become disillusioned and are less likely to do what they are asked.
Maybe you disagree, or maybe you would say you know all that already.
My point would remain that the politicians in the Western world that I hear from via the (now broadcast and electronic) news media are not displaying leadership, are pretending that all will soon go away magically (especially Trump but also many others) and in the meantime policy making is shambolic, confused and ineffective, frequently reacting to events.
That is like crashing a car in the rain because all four tyres were bald and just replacing the airbags and driving off again.
This matters firstly because more people will get ill and die without any obvious gain. It is tough to suggest that there is any gain in more people dying, but wars have taught us that the process of human existence means that at times some people die because humanity is fighting for a civilised future. What adds to the pain is if they die because of totally incompetent leadership, rather than in the pursuit of the general good by the most effective means.
For us as investors, this matters a great deal as well.
The feeble, half-witted, misdirected and plain dishonest management of the pandemic response in countries accountable for a very large proportion of global economic activity will in due course feed through to a recession that will compare with the one between the Wars.
I started by saying this was not about the US President, but he features!
As then, the very rich will come through in pretty good shape, but I doubt if the rest of us will avoid some severe pain if we are not prepared.
Rant over!
I refer to the childrens’ rhyme about liars, of course. UK citizens have to make their mind up about who is more trustworthy: the Durham police, who say they politely reminded Mr Cummings and family about the lockdown laws, or Mr Cummings who says they didn’t. At least, that is what I read.
This is not directly of relevance to investors but as Boris Johnson is backing Mr Cummings – how could he not, it would be like switching off his own pacemaker – then we might speculate that the incident is going to accelerate the rate at which the British public, like many in the US, begin to see ongoing restrictions on their lives as an attack on their personal freedom. So the behavioural scientists on the SAGE committee of experts tell us.
That in turn raises the question of a possible profile for Covid-19 infections that is a plateau for a while, maybe even an upward sloping one, rather than the anticipated bell curve, falling away to virtually no cases.
I personally don’t think stock markets will in the short term assess this as a relevant risk. I would suggest that it probably is, but may be mitigated by other factors: treatments that work, better weather, a potential vaccination (still unlikey to be soon in my view), or just something about the way the virus speads that has not been understood.
On the last point, I don’t think enough work has been done on links to industrial air pollution. With my intuitive feel for links between data sets, that has been an obvious line of enquiry for me from right back to the rapid spread in the Po valley in Italy.
So as at today, I would expect markets to sustain the positive mood. What will break that is a whole series of really poor data sets about the ecomonies of the world (a near certainty) or evidence that the pandemic is not over and may even kick off again seriously.
With those facts in mind, I would at this moment prefer to be investing in funds that are being run to be recession and virus proof (or at least have that risk hedged), or if a really cheap ‘sold off’ fund tempted me (as an experienced and adventurous investor), balance the risk by matching the purchase with something super defensive, like gold.