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Ukraine/Russia negotiations continue

Please find below, an update on the ongoing negotiations between Ukraine and Russia and the impacts on markets, received from Brooks Macdonald, yesterday afternoon – 21/03/2022

  • Global equities rallied last week as Ukraine negotiations continued, China hinted at state support and the Federal Reserve meeting concluded
  • The Bank of England and Federal Reserve both increased interest rates last week, citing fears over inflation
  • The Federal Reserve revealed robust economic growth forecasts despite the impact of inflation on the cost of living

Global equities rallied last week as Ukraine negotiations continued, China hinted at state support and the Fed meeting concluded

Whilst last week proved a very strong week for risk assets, this of course needs to be compared to the volatility of March in aggregate. Technology outperformed, with reports of Chinese state support and the Federal Reserve (Fed) meeting both boosting sentiment towards the sector.

Negotiations between Russia and Ukraine continued last week which helped buoy risk appetite. Last night, Turkey’s Foreign Minister suggested that a peace deal and ceasefire was possible assuming neither side changed its negotiating demands too dramatically. The starting point, that Ukraine will agree to be a neutral country and commit to not join NATO, appears to have softened Russia’s prior hard-line approach to talks. After reports broke that Russia had requested military and economic aid from China, China has been in the spotlight over its position on the Ukraine war. On Friday President Biden and President Xi Jinping discussed China’s position over a call and both sides concluded with hopes for a peaceful resolution which saw no further escalation. The latter comment may well allude to suggestions from US intelligence sources that nuclear sabre-rattling could recommence should the Ukraine war become protracted.

The Bank of England and Federal Reserve both increased interest rates last week, citing fears over inflation

After the Bank of England and Federal Reserve both hiked rates last week, we will hear from a steady stream of central bankers this week, giving us more colour on the content of the discussions. The Federal Reserve ‘dot plot’ of interest rate forecasts showed a wide disparity of views amongst the Fed members, suggesting the speeches this week won’t be running off a shared narrative. Fed Chair Powell will be speaking today as well as on Wednesday. The Bank of England warned on inflation and economic growth when it hiked rates last week, the US has taken a different approach, showing heightened inflation expectations alongside robust economic growth forecasts. How the Fed speakers address their expected resilience of the economy in face of tightening monetary policy and cost of living squeezes will be of particular interest.

The Federal Reserve revealed robust economic growth forecasts despite the impact of inflation on the cost of living

The Fed are likely to come under significant pressure over the next few weeks as many economists have criticised the bullish economic growth projections as disconnected from the reality of consumer demand. Should the bond market conclude that the Fed speakers’ belief in the Fed’s own economic growth numbers is less than universal, we could see an extension of the technology outperformance that we saw after meeting last week, as markets price in the risk that the Fed will need to blink in the face of slowing growth.

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David Purcell

22nd March 2022

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A Double Edged Sword

Please find below, an update on how the Russian invasion of Ukraine is impacting markets, received from Tatton, Friday Evening – 04/03/2022

During the course of this week, the impacts of the war on global financial assets changed in nature. Last week, we wrote that minor sanctions were a help for asset prices even if the sanctions did not match the level of outrage. Starting Sunday, the European Union (EU), US and UK imposed new sanctions almost every day. Perhaps inevitably, this has resulted in equity market weakness.

There are separate aspects of the week’s market moves. One is centred around liquidity and the risk of contagion across the financial system. In a separate article below, we write about how Russian equities and bonds have not only seen their values plummet, the inability to trade them at any price has then impacted broader emerging market mutual funds and exchange-traded funds (ETFs).

Often, as in the global financial crisis of 2008-2009, markets worry about the banking system. As the blue line in the chart below shows, currently European financial credit spreads do not show exceptional levels of stress. That’s potentially quite comforting. However, direct sanctions on Russian banks have created problems for financial institutions that share larger lending and trading flows with them. For example, Raiffeisen Bank of Austria saw its share price dive again this week after Europe’s weekend sanction announcements.

Over two weeks, Raiffeisen’s share price has halved, with the collapse in its value being more than all of the Russian-based assets and businesses it had under management. However, its fall in creditworthiness accounts for the rest – other banks are much less willing to transact with it, so its ongoing going costs rise dramatically.

In our opinion, one difficult aspect has been the interplay between sanctions on Russian banks and energy and commodity markets. For example, European utility companies are not barred from buying Russian oil and gas. However, they have difficulty in paying for it in the normal way. Rebuilding these payment channels will take time. If businesses are still able to buy Russian energy, then authorities must ensure financial channels are open to make those energy purchases. Moreover, companies will need reasonable reassurance that energy sourcing sanctions won’t be put in place later, and that they will be protected from other reputational risks.

The confluence of issues has led to another surge in global oil and European gas prices. In past weeks of rising spot prices, the prices of log-dated contracts didn’t rise as quickly. It has therefore been interesting how futures markets have seen longer-dated contracts moving up sharply, perhaps indicating a more extended surge in costs.

And therein lies the other aspect prompting equity market weakness combined with bond market strength. Government bond yields across the developed world have dropped sharply. This is almost certainly because investors have substantially downgraded real growth estimates amid greater inflation pressures for this year. The epicentre has been Europe, but the rise in energy costs has meant the US is also affected.

Bruce Kasman, JP Morgan’s chief economist gave us his team’s thoughts on Thursday evening. They have revised global growth for 2022 lower by 0.8%, down to 3.1%. Here is the table of their new estimates and the extent of the revisions:

Russia is expected to contract almost 10% (in rouble terms). Europe’s growth is now expected to be +2.5%, down from +4.6% previously. The main hit will be for this first quarter.

US growth stays almost unaltered (+2.7%, from +2.8% previously) while China remains at +5.6%. The stability of their stock markets in recent days suggests that investors are broadly in line with these estimates.

Bond markets are telling us a similar story. In particular, the yields on inflation-linked bonds have headed down sharply as increased demand for safe haven assets saw bond prices soar. US ten-year ‘real’ yields are back down to -1.0%, where they were last year. Fixed coupon yields have fallen back to 1.75%. German inflation-linked bonds are at -2.6%, substantially below last year’s low of -2.1%. Fixed coupon yields moved back into negative territory, at -0.16%.

These bond moves also may be telling us that central banks could look through the current input cost-push inflation and keep monetary policy accommodative for the time being, thereby allowing elevated levels of inflation persist for longer. In his three-hour testimony to Congress, US Federal Reserve (Fed) chair Jay Powell said interest rates will still almost certainly go up 0.25% on 16 March, less than the 0.5% almost universally expected two weeks ago. Even today’s startlingly strong US employment numbers (non-farm payroll data) (which suggested the US economy added 678,000 jobs in February) failed to push up fixed coupon yields.

JP Morgan’s economists suggested their growth forecasts are probably still too high. A lot depends on the passage of energy prices so, with European natural gas prices pushing up to new highs again on Friday afternoon, equity markets remain vulnerable.

So, is there any hope? We believe there is. As JP Morgan suggests in its forecasts, the damage is to Europe growth estimates. While there will be a big hit from energy costs, a lot of nominal spending will be unaffected. Impetus from the EU’s Next Generation Fund will continue through this year and next, come what may. And, the massive increase in defence spending by the German government will also come through quickly. A lot of this will be spent among European defence manufacturers (the UK should also benefit). Defence spending has a large ‘multiplier’ effect – the spending being recycled round the economy. Looking out beyond 2022, growth could be shifted up to a higher, not lower, level over the next few years.

Over the short term, as has been the case for the past weeks, much depends on energy costs and how long they remain elevated. While the de-coupling of bond yields to oil prices is heartening, it would be good to see the Brent crude spot price fall back from today’s $120 per barrel to a more manageable level well below $100.

Ultimately, when risks are obvious and emotions are running at a high level, markets will overshoot the downside at some point. Of course, it’s difficult to know when that is. Meanwhile, the strategy of remaining calm and waiting for the market to cool off has usually proved beneficial, and we think it probably still is.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses

David Purcell

7th March 2022

Team No Comments

Brewin Dolphin: Markets in a Minute

Please see the below market update from Brewin Dolphin, received yesterday evening – 21/12/2021.

Stocks fall as central banks turn more hawkish

Most major stock markets ended last week in the red as central banks moved to raise interest rates and rein in their support for the economy.

In the US, the Nasdaq slumped nearly 3.0% after the Federal Reserve’s survey of policymakers found a majority now expect three interest rate hikes in 2022 instead of two. The S&P 500 and the Dow also fell 1.9% and 1.7%, respectively.

The UK’s FTSE 100 slipped 0.3% after the Bank of England surprised the market with an increase in the base interest rate to 0.25%. The pan-European STOXX 600 also dropped 0.4% as Covid-19 restrictions tightened in several European countries.

Over in Asia, China’s Shanghai Composite slid 0.9%, with technology stocks particularly hit hard by the Federal Reserve’s more hawkish interest rate outlook.

Surge in cases gives investors the jitters

Stocks started this week in the red as a surge in Covid-19 cases gave investors the jitters. The FTSE 100 fell nearly one percentage point on Monday (20 December) with travel and leisure stocks under pressure after an emergency cabinet meeting was convened to discuss possible pandemic restrictions.

Wall Street stocks also closed sharply lower, following news the Omicron variant has now been found in 43 US states and around 90 countries. Also in focus was Democratic senator Joe Manchin’s statement that he would not back President Joe Biden’s ‘Build Back Better’ bill, thereby putting the legislation in jeopardy.

At the start of trading on Tuesday, UK and European stocks had managed to claw back some of the previous day’s losses, with the FTSE 100 and STOXX 600 opening 0.9% higher after the UK cabinet said it would wait for more data before imposing restrictions.

BoE first major central bank to lift rates

Last week, the Bank of England (BoE) became the first major central bank to increase interest rates since the pandemic hit. The monetary policy committee voted 8-1 to raise the base rate from 0.1% to 0.25%, surprising investors for the second time in six weeks. Investors and economists had expected the Bank to leave interest rates unchanged because of the uncertainty created by the Omicron variant.

Governor Andrew Bailey said the Bank needed to tackle the strong inflationary pressures building up in the economy. The annual rate of inflation hit 5.1% in November, the highest level in a decade. Bailey told the BBC it could reach around 6% in the next two to three months. He said the Bank had thought “long and hard” about the impact of Omicron on economic activity before making its decision. “But it is not at all clear if the impact [on the economy] could cause inflation to come down, or even go up,” he added.

Fed and ECB reduce asset purchases

The US Federal Reserve announced last Wednesday that it would taper its support for the economy more quickly than planned. Stimulus will be reduced by $30bn a month from January and is expected to end by March. Fed chair Jerome Powell said economic activity is on track to expand at a robust pace this year, and the US is making “rapid progress” towards maximum employment. Officials forecast that benchmark interest rates would need to rise from current near-zero levels to 0.9% by the end of 2022 amid higher inflation and declining unemployment.

The European Central Bank (ECB) also announced it would reduce bond buying under its pandemic emergency purchase programme, which is due to end in March. However, bond buying under the asset purchase programme will be increased and will continue for “as long as necessary to reinforce the accommodative impact of its policy rates”, the ECB said.

Black Friday boosts UK retail sales

Last week also saw the latest retail sales figures from both the UK and the US. In the UK, retail sales volumes rose by 1.4% in November from the previous month, faster than analysts had expected and 7.2% above their February 2020 level.

Growth was driven by non-food sales, including clothes, toys, computers and jewellery, with retailers reporting strong trading around Black Friday and in the lead-up to Christmas, the Office for National Statistics said. Clothing stores sales volumes were above their pre-pandemic levels for the first time.

In the US, retail sales were below expectations, rising by 0.3% in November following a revised 1.8% gain the previous month. The suggestion is Americans started their holiday shopping earlier than usual to avoid empty shelves amid the ongoing supply chain disruption. After adjusting for inflation, retail sales fell by 0.5% in November from the previous month.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Alex Kitteringham


Team No Comments

Weekly Market Commentary | UK booster campaign accelerated following Pfizer efficacy report

Please see below, the weekly market commentary from Brooks Macdonald, providing an update on monetary policy and the ongoing risk of the Omicron variant – received yesterday afternoon – 13/12/2021.

  • Equities rallied strongly last week as Omicron fears eased
  • This week sees the Federal Reserve, European Central Bank and Bank of England announce their latest monetary policy
  • Existing vaccines are shown to provide good protection against Omicron, accelerating the importance of booster jabs

Equities rallied strongly last week as Omicron fears eased

Last week saw an uptick in optimism around the Omicron variant with equities benefitting from a broad rally early in the week that favoured cyclical and tech sectors. The rally lost steam by the end of the week, but this is more of a reflection of the sharp gains on Monday/Tuesday rather than a sudden bout of fear.

This week sees the Federal Reserve, European Central Bank and Bank of England announce their latest monetary policy

This week could be pivotal for central bank policy, with eight of the G20 central banks reporting on their latest policy. Those eight contain the Federal Reserve (Fed), European Central Bank (ECB) and Bank of England, with all of those banks expected to be considering a change to their monetary policy. Starting with the Fed, with the Consumer Price Index number last Friday in line with (elevated) expectations, an acceleration of the Fed’s tapering programme looks likely. Should the speed of asset purchase tapering double, for example, this would lead the current process to conclude in March and leave some room for the Fed to consider the timing of their first rate hike. This week’s Fed meeting will also provide the latest ‘dot plot’ of interest rate expectations so there is a lotto focus on. The ECB was expected to unveil a shift in policy towards rates guidance rather than liquidity guidance, in essence a slight pivot towards tightening policy. Given Omicron, this may be delayed until the New Year but it is a close call. In the UK, the Bank of England is expected to raise interest rates by 0.15% to 0.25% but again this is dependent on how the bank interprets the latest Omicron risk which has certainly grabbed headlines this weekend.

Existing vaccines are shown to provide good protection against Omicron, accelerating the importance of booster jabs

On Friday, the UK released a report looking at the efficacy of three Pfizer vaccine doses (two initial, plus a booster) which showed a c.75% effectiveness against symptomatic disease. The data underlined the importance to governments of the booster campaign and plans were announced to offer all adults in England a booster by 31 December. Omicron’s growth rate appears to be significantly higher than delta and this is causing governments to release some quite daunting predicted case numbers.

With each day that goes by, financial markets are building confidence that Omicron will be less severe than delta but that it will spread rapidly, leading to some nervous moments. Short term restrictions are likely across the world as governments buy time for their booster rollout. Looking forward though, investors are more sanguine.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Alex Kitteringham


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What President Biden could do to dampen oil prices (but probably won’t)

Please find below, an article regarding the global energy market and the options for the Biden administration. Received from AJ Bell, yesterday morning – 05/11/2021.

It is a case of so far, so bad for US President Joe Biden’s plan to force the oil price lower by releasing 50 million barrels of oil from America’s Strategic Petroleum Reserve (SPR). Fifty million barrels a day may sound a lot. But in global terms it is half a day’s demand and America’s entire SPR would meet worldwide oil demand for barely a week.

The Biden plan’s failure to make a dent in oil prices seems less surprising in this context. By contrast, the OPEC+ cartel can move oil markets, as its 2020 production cut and then gradual subsequent increases in supply can testify. OPEC and Russia are still producing less than they were before the pandemic, even as the global economy and energy demand recover, and the latest OPEC+ meeting (2 December) will be the next test of the cartel’s influence.

“Fifty million barrels of oil may sound a lot but in global terms it is half a day’s demand and America’s entire Strategic Petroleum Reserve would meet worldwide oil demand for barely a week.”

COP26 made quite clear the political and public will to move away from hydrocarbon as our prime source of fuel. You can therefore hardly blame Saudi Arabia, Russia and other leading producers for looking to monetise their oil assets while they can still do so.

“Demand for energy could therefore outstrip supply, with the result that hydrocarbon prices could remain firm, or even keep rising – at least unless COVID-19 rears its head again and depresses economic activity and oil demand in the process.”

In addition, alternative, renewable sources are not yet ready to take up all of the slack from oil and gas. Demand for energy could therefore outstrip supply, with the result that hydrocarbon prices could remain firm, or even keep rising – at least unless COVID-19 rears its head again and depresses economic activity and oil demand in the process.

That leaves advisers and clients with a quandary about what to do with oil stocks – and whether they should put profit over principle should oil and gas prices stay stronger for longer – and what to think about the global economy. High energy prices are a tax on consumers and a source of margin pressure for many corporations. If oil and gas rocket, there remains the chance that the indebted global economy could wobble under the strain, virus or no virus, just as it did when oil reached $147 a barrel in 2007.

Deep water

“The combined capital investment budgets of the seven Western oil majors – BP, Chevron, ConocoPhilips, ENI, ExxonMobil, Shell and TotalEnergies – looks set to drop to its lowest mark since 2005, as a percentage of sales.”

Unlikely as it may seem, oil and gas companies are listening to the political and public call for a shift to a greener, less carbon-intensive world. The combined capital investment budgets of the seven Western oil majors – BP, Chevron, ConocoPhilips, ENI, ExxonMobil, Shell and TotalEnergies – looks set to drop to its lowest mark since 2005, as a percentage of sales. In many cases, those budgets include renewable projects, too, so spending on oil production and exploration is by implication lower still.

Global oil majors continue to shy away from new investment in oil and gas fields

Source: Company accounts for BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Shell and TotalEnergies, Marketscreener, consensus analysts’ forecasts

This can also be seen in the global rig count data provided by Baker Hughes (BHI:NYSE). On the previous occasions when oil traded above $80 a barrel, over 3,000 rigs were active. The current figure is barely half that.

Global oil rig activity is subdued relative to prior periods of $80-plus oil

Source: Baker Hughes, Refinitiv data

In the absence of a COVID-inspired setback, that again points to a possible supply/demand squeeze, especially as banks, insurers and many pension funds and managers continue to publicly declare their unwillingness to finance new oil and gas exploration projects.

Action points

“This is not to say President Biden has no options at all, as he seeks to manage the energy transition in the world’s largest economy and keep hard-pressed consumers on board as he and the Democratic Party prepare for the mid-term elections in 2022.”

This is not to say President Biden has no options at all, as he seeks to manage the energy transition in the world’s largest economy and keep hard-pressed consumers on board as he and the Democratic Party prepare for the mid-term elections in 2022.

  • The President could encourage oil and gas exploration with tax breaks or at least grant permission to pipelines that his administration has previously blocked, such as the $8 billion Keystone XL project. This does not seem likely, given his and his party’s commitment to the Paris Agreement and COP26.
  • President Biden could look to thaw relations with Venezuela and Iran, both of whom are currently locked out of global markets by US sanctions. Granted, it is hard to get a handle on potential Venezuelan output given the chaos that prevails there, but Caracas has produced two to three million barrels a day in the past. It is thought that Iran could double output fairly quickly from two to four million barrels a day if given the chance. Hey presto – an extra four to five million barrels a day in total. But geopolitics may rule out this option, as those sanctions are in place for a reason and the President will not want to look dovish on foreign policy ahead of those mid-term polls either.

If the President wants to curry favour, as he may well, who is to say he does not offer consumers some sort of subsidy or hand-out, so they can meet their fuel and heating bills? In a world where money printing and negative interest rates are accepted as normal, and austerity is political poison, anything is possible. But it might not be wise to expect oil consumption, or prices, to fall if such a vote-buying scheme is cooked up.

Please continue to check back for a range of blog content from us and from some of the world’s leading fund management houses.

Alex Kitteringham

6th December 2021.

Team No Comments

AJ Bell – Why emerging market debt to GDP ratios are lower

Please see below an article from AJ Bell received yesterday afternoon – 25/11/2021 – analysing the difference between developing and advanced economies when it comes to borrowing:

There is a big difference in the public finances of emerging market countries and those in the developed world.

For the most part emerging market countries have much lower levels of government debt to GDP (gross domestic product).

According to the IMF (International Monetary Fund) the average debt to GDP ratio in 2021 for emerging markets and developing economies is 63.4%, a little more than half the average for advanced economies at 121.6%.

There is some variation within this: Russia, for example, comes in at just 17.9% while India’s debt to GDP ratio is 90.6% and Brazil’s is also above 90%.

In 2021 the averages for the developed world and emerging markets were lower and the difference between the two was also smaller – the respective averages coming in at 69.7% and 48.1%.

The IMF is projecting for the gap to close somewhat, by 2026 it is forecasting an average of 118.6% for advanced economies against 68.1% for the developing world.

The divergence, in part, reflects the differing responses to two great crises of the past two decades as countries in the West have taken advantage of their ability to issue debt at low interest rates to help cushion the economic impact of the 2007/8 financial crisis and the Covid-19 pandemic.

The result being that, on this measure at least, emerging economies look to be at something of a structural advantage.

Please continue to check back for our latest blog posts and updates.

Alex Kitteringham


Team No Comments

Having our sustainable cake and eating it: global food chains

Please see the below article from Invesco, received yesterday – 17/11/2021.

The challenge of preventing climate change is a matter of life and death, and thus, gets likened to a war. In a war, there are often multiple battles being fought at the same time. The fight to transition our energy dependence away from fossil fuels and towards renewables energy is a key focus, but there are other battle lines being drawn out.

Global food chains need to become more sustainable if we want to avoid climate change. This theme has, so far, remained in the shadow of the energy transition. Herein lies the opportunity. In this blog, we’ll frame how global food supply chains can become more sustainable and highlight the companies we own that are enabling this.

 The dual problem – unsustainable practices compounded by a growing population

The food industry faces various sustainability issues. It relies heavily on cheap labour, tolerates an enormous amount of food waste and produces a lot of food with low nutritional value. But we’re going to focus specifically on the environmental concerns here, which are set to intensify as global food demand increases.

The world’s population is expected to reach 9.7 billion by 2050 – that’s nearly 2 billion more mouths to feed relative to today1. Bearing in mind that over 700 million people are currently undernourished2 and around 1.9 billion adults are overweight or obese3, this increase in population size means we’ll have to produce around 50% more calories than we do now to provide everyone with a nutritious diet.

Using today’s agricultural practices, we would need to find an area twice the size of India to do so, which would greatly amplify the food industry’s environmental impact.

Environmental concerns

Whilst on its journey from farm to fork, the food industry releases emissions across the value chain. It accounts for a quarter of global greenhouse emissions, which includes a material contribution to global Co2 emissions and approximately 50% of global methane emissions. Research from Poore and Nemecek showed that, on a global level, more than 50% of emissions generated by the food system was related to livestock – either through land use, animal feed, land conversions or methane production. Nearly 20% of emissions were generated by activities after the production phase, including processing, transport, packaging and retail.

The food industry needs to decarbonise, if global warming is to be held below 1.5°C. Industrial agriculture also poses significant risks to biodiversity and is a large contributor to the consumption of single-use plastic.

The solution – and how our funds are exposed

To reduce the impact of western food chains we need to either drastically change what food we consume or how we produce and distribute it. We believe that innovation can facilitate this change and our investment strategies own some of the companies that are innovating across the three components of the food chain: production, processing and distribution. Interestingly, many of the solutions are coming from enterprises outside of the food value chain.

 Food Production – adopting more sustainable techniques

All global food chains start with crop production. The amount of global acreage used for farming and the extensive use of agricultural chemicals are threatening natural carbon sinks and biodiversity. To become more sustainable, farmers need to change farming practises.

Agriculture relies on fertilisers to enhance yields. Without them, we would run the risk of insufficient food production. However, commodity fertiliser can wash off fields into rivers when it rains. This has negatively impacted natural fish populations.

Yara, a leading fertiliser company, produce premium, targeted fertilisers that do not leach into water systems, thus reducing the biodiversity risks linked to fertiliser application. It has also developed digital farming technology, which enables smart application of the optimal amount of fertiliser, creating a better effect with less waste.

As well as reducing the amount of fertiliser applied, farmers can also adopt new techniques to reduce their Co2 emissions. The popularity of ‘no-till’ methods, where farmers do not plough the land, is growing. These methods produce lower yields, and therefore less profit, but sequestrate much more Co2 out of the atmosphere. Yara has launched a program that helps farmers monetise any additional carbon sequestration achieved. This programme incentivises farmers to look at lower carbon practices and is fuelling the growth of ‘no-till’ acreage.

Another innovation is soilless vertical farming. This is when plants are fed nutrients through water systems with the plants’ roots suspended in air, water or non-soil mediums such as sand and gravel. Whilst in its infancy, vertical farming is gaining traction as it uses less land, less water, no pesticides, delivers more nutrients and can be carbon neutral when using renewable electricity. The reduction in acreage required for food production is also a positive for biodiversity. Signify, held across our large and smaller company portfolios, is a worldwide lighting manufacturer with a leading position in vertical farming lighting solutions.

 Food Processing – reformulating and repackaging food

Food processors need to offer more sustainable products. Plant-based alternatives to dairy and meat have a significantly lower environmental impact. Plant-based food product innovation will help shift consumption habits and lower the impact of global food chains, but food processors need to gain scale by growing capacity.

GEA is an equipment supplier to the food processing industry and has a strong position in plant-based food. They are a key enabler for food processors to innovate into plant-based food alternatives. This company should also help traditional food production become ‘greener’, as their product innovation allows customers to improve energy efficiency, reduce waste, including water, and leverage alternative packaging solutions.

The food industry makes up 30% of the packaging market, and thus, is a large consumer of single-use plastic. UPM and Stora Enso, two global leaders within the pulp and paper sector, offer plastic-free packaging options for food processors. Using today’s technologies, 25% of plastic packaging could be switched to paper-based packaging. In addition, UPM and Stora are investing in biochemical capabilities where they aim to make wood-based bioplastic, a solution that reduces the demand for hydrocarbons. UPM has recently signed an agreement with Coca-Cola for bio-based PET bottles.

 Food Distribution – reshaping the length and shape of global food supply chains

A revolution in the food industry requires the involvement of supermarket chains. The food retail names we own, Ahold and Carrefour, has committed to offering healthier options, improving product transparency, eliminating waste and reducing emissions. Large scale food retailers have the power to force change at the food production and food processing stages, and they will also be instrumental in reducing the carbon intensity of food chain logistics.

The emissions from food transport can be overlooked but are significant. Reducing the miles travelled from farm to fork and the decarbonisation of road and sea freight will reduce the impact of global food supply chains. Yara is leading in the development of green ammonia, a type of ammonia created from hydrogen rather than natural gas.

In future, green ammonia could be used as fuel by the maritime industry to reduce sea freight emissions. Volvo and Daimler are developing their product range of electric trucks. Road freight emissions will fall as logistics companies electrify their truck fleets.


The energy transition, understandably, is a huge topic within the investment community. This needs to be a success if we are to combat climate change, but this is not the only challenge. As mentioned above, global food chains need to innovate for the world to mitigate climate change. Over time, the equity market will reward those companies that can facilitate these changes. However, today’s investors can already build exposure to this multi-decade theme.

What we’ve analysed here are the sustainability concerns linked to getting food from farm to fork. There are other companies trying to solve issues that relate to the next stage of the journey: once food has left the plate. The theme of reducing waste and the circular economy is another battle that needs to be fought in our war against climate change. And we’ll address this in a future blog.

Please check back in again soon for a range of blog content from us and from some of the world’s leading fund management houses.

Alex Kitteringham.


Team No Comments

Weekly Market Update

Please see below “Investment implications of recent Chinese policy interventions” received from JP Morgan this morning, which provides details relating to recent changes made by Chinese regulators.

Having outperformed other regional stock markets for much of the pandemic, Chinese stocks have fallen sharply over the past few months (Exhibit 1). Concerns around the Chinese economy slowing were blamed for the initial move, but more recent declines have been triggered by regulatory tightening focused in specific sectors. This piece sets out why we remain positive on the medium-term outlook for Chinese assets, although we recognise that it may take some time for the scope of regulatory tightening to become clearer before sentiment towards the stock market improves.

Exhibit 1: Chinese and developed market equity returns

Source: MDCI, Refinitiv Datastream, J.P. Morgan Asset Management. Past Performance is not reliable indicator of current and future results. Data as of 16 August 2021. 

How should investors interpret the latest regulatory changes? 

Recent moves from policymakers are best understood in the context of Beijing’s efforts to balance short-term growth against longer-run policy objectives. 

In the technology sector, Chinese regulators are taking steps to address inappropriate use of market power, limit regulatory arbitrage opportunities and increase market competition. Cybersecurity is another emerging focus, with companies’ treatment of user data receiving particular attention. There are clear parallels to regulatory actions witnessed in developed markets in recent years. Companies that have chosen to pursue overseas listings – often Chinese technology names trading on US exchanges – are also coming under additional scrutiny and may be particularly vulnerable to future rulings. While broadly we are seeing technology regulators take a more active stance, we do not believe it is in China’s strategic interests to punish its domestic champions, particularly in the context of the longstanding US-China rivalry. Instead we think regulators want to ensure that technology giants are competing with the next cohort of innovators in a fair and well-functioning market.

The education sector has also seen significant regulatory changes. The Chinese government will no longer approve the setup of new private tutoring companies, and existing companies which tutor the school curriculum will be required to transform into non-profit institutions. While private sector tuition remains discretionary in most western countries, after-school tutoring has become so pervasive in China that authorities now view it as a key social policy challenge. The latest measures are designed to alleviate both the mental burden of extra tuition on students and the financial burden for parents, with a view to stemming the decline in China’s birth rate over time. In this context, we do not expect that the severe actions taken in the education sector will become widespread across the private sector. 

The tone of recent policy interventions has highlighted that Beijing is keen to ensure that corporate behaviour remains aligned with the administration’s long-term policy goals. That said, we do not believe this represents a fundamental shift in another key long-term objective: to open up Chinese markets to foreign capital. Substantial efforts to integrate both Chinese equities and bonds into international indices are ongoing. In our view, policymakers will be acutely aware that they do not want regulatory actions to undermine the attractiveness of Chinese assets to the global investment community. 

What do we expect next? 

The Politburo meeting at the start of August provided greater insight into the economic and regulatory policy direction for the rest of the year. 

Further reforms are still on the cards for some of the ‘new economy’ sectors where the Chinese authorities wish to achieve better social outcomes or improve the competitive environment. Regulatory uncertainty will remain elevated until the scope of reforms becomes clearer, particularly for politically or socially sensitive industries. It is important to recognise, however, that many of China’s new economy leaders will still have room to chart future growth; they have been working closely with the government for many years and will continue to do so. 

There will also be sectors that benefit from future policy changes. Examples include climate-focused technology to support greenhouse gas reductions, industries related to accelerating the rollout of electric vehicles, and sectors critical to achieving self-sufficiency within key parts of the technology supply chain. 

From an economic perspective, the Chinese government recognises the imbalances in the economic recovery, with small and medium-sized enterprises and low-income households having lagged to date. As a result, targeted fiscal stimulus is likely to be preferred to monetary policy in supporting growth for the rest of the year. Monetary policy has shifted to a more neutral stance following modest tightening in the first half of the year, although further easing is possible if growth momentum continues to fade. Broadly, Beijing appears to be fine-tuning growth back on to a more stable path, having gone through the “boom phase” of its recovery last year.

The impact of the spread of the Delta variant remains something of a wildcard. The Chinese government was highly effective at stemming the spread of previous variants, but cases have been on the rise again. Vaccine rollout is proceeding at pace, although real-world studies of the efficacy of different vaccines remain limited. This will be an issue to watch closely over the coming months. We don’t expect a repeat of the sharp slowdown witnessed in the Chinese economy last year, but given China’s desire to pursue a “zero-Covid” strategy, there is a risk that restrictions will be applied periodically. This could well have knock-on impacts in the global supply chain; recent shutdowns linked to Covid-19 in Ningbo-Zhoushan – the world’s third busiest port – are a prime example.

What are the investment implications?  The sharp declines over the past few months have served as a reminder that Chinese equities do come with a higher level of volatility than many other markets. Over the past 25 years, the annualised return from the Chinese stock market is over 5% in local currency terms, despite average intra-year declines of close to 30%. Calling the bottom of any market correction is an impossible task, although valuations have now fallen substantially, from over 18x 12-month forward earnings at the peak earlier in the year to below 14x today for MSCI China. While valuations may remain under pressure until the markings of the regulatory playing field become clearer, ultimately, we expect investor attention to gradually return to company-specific fundamentals. 

In our view, Chinese assets remain an essential part of both global equity and global bond allocations. Beijing has made a huge push to open its capital markets to international investors, and we expect this to remain a priority. Short-term volatility has not fundamentally changed the long-term investment opportunity in China, which is based on technological innovation and the rise of the domestic consumer. The key for investors is to access the Chinese markets in the right way: via a diversified portfolio of both onshore and offshore companies and with an active approach that can differentiate between the winners and losers of the government’s long-term policy goals. 

Please check in with us soon for further relevant content and market news.


23rd August 2021


Team No Comments

Brewin Dolphin Update: Markets in a Minute

Brewin Dolphin Update: Markets in a Minute

Brewin Dolphin emailed a market update on Tuesday evening (28/04/2020) as below:


As a Discretionary Fund Manager Brewin Dolphin offer a range of Managed Portfolio Services in the UK.  In keeping with our blogs over the last 6 weeks or so we seek to provide a wide range of input so that you can understand a variety of commentary and see consensus views.

Steve Speed


Team No Comments

Why markets have rebounded and what could happen next

Interesting input from Russ Mould of A J Bell written on Thursday and received on Saturday lunch time (25/04/2020). I am conscious of the dates of articles as some of what we receive is out of date by the time we receive it!

Why markets have rebounded and what could happen next

Short-term viral implications for investors to ponder

At the time of writing, Italy’s MIB-30 index is up by 15% from its 12 March low, a trend from which this column, looking at it solely from the narrow perspective of investments, can draw some modicum of encouragement.

It is impossible to be dispassionate about, or comfortable with, such matters, but the Milan market benchmark’s steady recovery reflects a peak in the number of new daily cases across Italy on 21 March at 6,155 and in the number of fatalities at 919 six days later.

At the time of writing the last reading for those numbers are 3,047 and 433 respectively and it is to be hoped that the trend remains down, for humanitarian reasons above all others.

As suggested here three weeks ago, this shows that equity markets are responding to changes in the curve of the coronavirus outbreak.

A slowdown in the number of cases was always going to be seen as good news, given how investors would interpret this as a sign that things were getting less bad, and that as a result the outbreak would eventually stop getting worse and once it stopped getting worse it would eventually start getting better.

This is where markets are now. The number of new cases is growing much more slowly, even if the aggregate number of those unlucky enough to catch the dreadful virus is still growing overall. This has been enough for equity markets to start pricing in what might happen if, as and when the government-imposed lockdowns are brought to an end and economic activity resumes.

As a result, several benchmarks are looking even sprightlier than that of Italy. The UK’s FTSE 100 is up 16% from its 23 March nadir of 4,994, while Germany’s DAX and America’s S&P 500 are back in bull-market territory, with gains of more than 20%.

The question now is whether these gains can be maintained or extended and in the short term a lot of that will depend upon the shape of the upturn. The latest Bank of America institutional investor sentiment survey suggests that U-shaped is the current favourite, over W, V, L, ‘bathtub’ or tick-shaped (or any other options that you could think of).


What is interesting to note is how a V-shaped recovery is only third choice, according to that Bank of America monthly survey. This suggests some degree of circumspection among the professional investment community and it is easy to see why, as Spain, New Zealand and the UK, to name but three, extend their lockdowns and other nations such as Italy ease them at a very steady pace.
When it comes to judging what sort of recovery might ensue, investors can ask themselves the following questions:
1 When will I first want to use public transport?
2 When will I first want to eat in a restaurant or drink in a bar or pub?
3 When will I first want to board an aeroplane or cruise ship?
4 When will I first want to attend a public event at a cinema, theatre or sports stadium?

The answers could be informative. In addition, you can then imagine that you have been furloughed or even lost your job and see if the answers change at all. The assumption that all of those unlucky enough to find themselves in that position walk straight back into full-time employment could be an optimistic one as unfortunately some firms are going to fail, no matter how much support they receive from the government, management, staff and customers alike.

These questions are very difficult, if not impossible, to answer. As such, investing money on the back of them could prove a fraught exercise, even if markets do seem to have one very powerful ally in the form of central banks, notably the US Federal Reserve. The value of the assets held on the American central bank’s balance sheet has swollen by $2.2tn, or 53%, since the end of February.

That tidal wave of liquidity looks to be carrying US stocks higher. Students of history will however remember that the first round of quantitative easing that began in autumn 2008 had a similar initial effect, only for the S&P 500 to buckle in face of weak macroeconomic data and corporate earnings reports and only bottom five months later.

This column will revisit the issue of central bank intervention in an analysis of long-term potential implications of the coronavirus outbreak for financial markets next week. Before then there is one further short-term indicator of note: whether the FTSE 100 can reach (which it did very briefly on 20 April, only to fall back) and stay above 5,816, the high reached after the three-day rally that followed the low on 23 March.

If so, that could break the traditional ‘bear’ market pattern of a series of lower highs and lower lows and give investors real grounds for hope, at least from a portfolio point of view.

A J Bell offer products in the pension SIPP, SSAS and investment areas. They have a Stockbroker within their business too. Russ Mould is quite often heard commenting on Radio 4.
Steve Speed