Investment Markets Are Heralding a Grim Anniversary
It’s a year to the day since Russia invaded Ukraine, and the aftershocks continue to be felt across global investment markets in terms of volatility, inflation and uncertainty. The war has also fuelled spending in the aerospace and defence industries explored in Morningstar’s in-depth research, with the West seeking to help Ukraine defend its territory — and boost defence budgets in the process. The knock-on effect? Increased valuations of many European listed stocks including BAE Systems, Thales and Dassault Aviation, Leonardo (LDO), Rheinmetal (RHM) and Saab. This grim anniversary also shows how sanctions on Russia, and restrictions on its exports of fossil fuels have driven oil and gas prices skywards, leading to record profits for major energy companies.
It's Back to the Allotment for Hungry Brits
Environment secretary Therese Coffey channelled her inner Marie Antoinette this week by suggesting the British public should “cherish” winter veggies like turnips as food shortages caused major supermarkets to ration sales of tomatoes, cucumbers, pepper and other fresh produce. Her comments were widely ridiculed on social media. As a morale-boosting phrase in the face of adversity, "cherish your turnips" doesn’t have quite the same ring as "keep calm and carry on" or even "dig for victory". It also spectacularly ignores the fact that turnips have not been a staple of the UK diet for decades, whatever the weather in Spain.
70% of Green Funds Could Fail New Regulatory Test
We knew some funds currently badging themselves as "green" or "sustainable" might not meet tougher definitions due from the regulator shortly. But jaws dropped this week when the chief executive of The Investment Association (IA) – the fund management industry’s trade body – told MPs that up to 70% of such offerings might fail to meet the new regulatory hurdle. The IA is calling for regulators to water down these definitions, to stop investors becoming cynical and giving up on sustainable investments. But perhaps this startling number shows why the FCA needs to introduce a clearer baseline to crackdown on what looks like widespread greenwashing.
The Treasury Has Banked an Unexpected Boost
Just three weeks ahead of the Budget the government has had an unexpected windfall with higher-than-expected income tax receipts, according to the Office for National Statistics. Self-assessment tax receipts are at the highest levels seen since records began in 1999, contributing to a budget surplus of £5.4bn – despite spending also increasing. Will this give the Chancellor Jeremy Hunt some wriggle room when he announces tax and spending plans in his March 15th Budget? Most economists aren’t expecting big giveaways (or significant tax cuts) but seasoned budget watchers say this could “tempt” Hunt to offer a better pay deal to public sector workers, or perhaps extend the price cap on energy bills for a little longer. Perhaps there will be a rabbit in the hat after all.
Halifax Has Bad News for Homeowners
Lloyds Banking Group is predicting house price falls this year of between 6.9% and 14.8%, followed by further falls in 2024. Lloyds, which is the UK’s largest lender through its Halifax brand, said rising interest rates and stretched affordability is likely to weaken demand, causing house prices to go into reverse, rather than just slow – with its most gloomy scenario forecasting a total drop of 40.1% from "start-to-trough" over the next three years. This wasn’t the end of the bad news. Lloyds has seen profits almost double in the last quarter of 2022 on the back higher interest rates, but warned progress might be slower in 2023 amid bad debts.
We’re Getting Sicker
There was renewed focus this week on the strange case of the UK’s shrinking workforce post-Covid-19. Until now, there was an assumption doing the rounds that over-50s might be responsible, but new data suggests a rise in long-term sickness rates among younger and older workers may be a more significant factor. What should the government do to address this and boost economic productivity? There are calls for a change to pension rules to help retirees returning to work to save more into their pensions, and — by complete contrast — calls to make pension rules less generous to stop more people retiring early in the first place. Other options include an overhaul of childcare rules to “free up” older workers, and a more obvious reassessment of the role of the NHS in preventing long-term illness. A re-think is clearly on the cards.
Wake Up and Smell The, Erm, Olive Oil Lattes?
The Italian coffee market has been a tough nut to crack for global chains, but Starbucks has hit on an unusual secret weapon: lattes, espressos and cold-brew coffees infused with olive oil. Apparently inspired by its chief executive’s recent holiday in Sicily, the coffee giant is hoping the “velvety and buttery flavour” of this new range will woo Italians away from the family run cafes that dominate on the continent, and where Nonna presumably doesn't put a slug of oil in the morning brew. Starbucks also hopes this will boost its expansion plans. It opened its first branch in Italy in 2018, but to date has just 20 outlets across the country. UK coffee lovers will be delighted (or dismayed) to know olive oil coffees will be available in Starbucks branches over here later this year.
Another Woodford Payout Looms
Thousands of investors in Woodford Investment Management’s closed funds could be in line for a further payout if its financial administrator, Link Fund Solutions (LFS), is sold. LFS is currently owned by Link Group, based in Australia, which is keen to offload its UK subsidiary to an Irish competitor. LFS has been criticised for closing the Woodford Equity Income fund and selling illiquid assets at fire sale prices. But it’s not just the recent past it wants to put in the rearview mirror. Prior to being bought by Link, LFS was the authorised corporate director to Arch Cru, the fund range that collapsed in 2009 with investors losing £250m. It was also connected to Connaught Income, an unregulated fund where investors lost around £110m. In both cases the regulator concluded investors were misled about the risks of these investments – although LFS wasn’t involved or liable for the advice given at the time.
BrewDog is Buddying, But is it Wiser?
BrewDog’s unique selling point – as marketers like to call it – has been its status as an independent craft brewer, but will this be diluted when the company partners with Budweiser owner AB InBev? BrewDog, which has grown rapidly in the UK is now looking to sell its Punk IPA, Hazy Jane and Elvis Juice beers across China using Budweiser China’s distribution network. It’s been a tricky few years for BrewDog, with employees publicly complaining about working conditions and a sales promotion involving a “solid gold beer can” that went badly wrong. Could it recoup its losses and rebuild its reputation with a successful expansion into the biggest overseas market?
Super Yacht Owners Aren’t Super Smart
The top one percent of earners aren’t necessarily the smartest guys in the room. Research this week from Sweden suggests the reverse might be true, and that the very highest earners might have smaller IQs than many of their lower-earning peers. The Swedish study did indicate some correlation between earnings and intelligence – at least as measured by a standard IQ test - but they found no evidence that extreme wealth and genius are linked. In fact, the data suggested once salaries exceed $64,400 there was not any discernible increase in brain power or cognitive ability for each further jump up the pay scale.
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