Q U A R T E R LY R O U N D U P
Unlocking growth Rachel Winter Associate Investment Director Rachel sums up the key takeaways for investors from a busy Spring in global markets.
hacked the latter, a group of cyber criminals demanded and received a ransom payment of $4.4m in Bitcoin.
Share prices hit some positive milestones last quarter. US equities reached new all-time highs, European equities returned to pre-pandemic levels and the FTSE 100 index climbed steadily. Meanwhile, the OECD upped its forecasts for global growth again in 2021 to 5.8%, citing better than expected progress in the rollout of COVID-19 vaccines. Here in the UK, the level of household wealth has climbed to a record level, on the back of rising house prices and stock markets.
These recent examples highlight why firms must consistently strive to ensure they have adequate cyber security in place – a report published by Gartner in May predicted that global spending will top $150 billion this year. It highlighted cloud security as the fastest growing area within this space, reflecting increased usage of the cloud as more and more people work remotely. Related investments have duly performed well, for example the L&G ISPY Cyber Security ETF.
Increasing inflation However, the associated rapid pick-up in demand has also led to a rise in inflation. Recent readings in the UK, US and Europe have all surpassed consensus expectations. Here, the number for May came in at 2.1%, exceeding the Bank of England’s target for the first time in two years. In the US, the equivalent reading was 5%, the highest since 2008. The key question for investors is whether we are seeing a temporary inflation spike, as economies rebound from very depressed levels, or the start of a more sustained rise in prices. UK and US government bond yields offered a possible clue – they have not risen during the quarter, implying that bond market inflation expectations remained broadly unchanged at the time of writing.
Staying safe Following three high-profile hacks that have all been attributed to Russian criminal gangs, cyber security remains in the spotlight. The targets were the IT infrastructure behind Ireland’s healthcare system, the world’s largest meat processor JBS, and the huge US Colonial Pipeline. Having successfully
Creaking crypto Meanwhile, although the regulator here (the FCA) does not oversee cryptocurrencies, which considerably reduces their attractiveness as investments, the volatility of this asset class over the last quarter is worth noting. Bitcoin, for example, dropped substantially from its March peak, and for some pretty clear reasons. Firstly, China banned cryptocurrency exchanges and initial coin offerings. Then “Technoking” Elon Musk announced that Tesla would no longer accept payment in Bitcoin, owing to environmental concerns about the mining process. He subsequently revised his position by saying that the firm will accept payment in the cryptocurrency, provided it has been mined using sustainable power. Further, global authorities have been discussing how best to tax this new asset class and make anyone profiting from it aware of their potential liability to capital gains tax. Finally, the US FBI revealed that it has recaptured most of the ransom that was paid to the hackers of the Colonial Pipeline, sowing doubt about the security of Bitcoin in the process.
Supporting sustainability Cryptocurrency mining concerns aside, investors’ growing enthusiasm for sustainability was demonstrated when shareholders in ExxonMobil voted against three board candidates put forward by the company. Instead, they expressed a preference for others nominated by activist hedge fund, Engine No. 1. The fund has been critical of Exxon’s lack of action on climate change and wants the new directors to steer the company down a greener path. The firm has lagged peers when it comes to reducing its dependency on fossil fuels and has been the worst performer of the “big five” oil majors (the others being Royal Dutch Shell, BP, Total and Chevron) over the last five years. Fossil fuels were also high on the agenda at the latest G7 summit in Cornwall, where leaders from the developed nations agreed to help developing countries to reduce their dependence on coal.
Dissecting data Looking ahead, we wait to see how far consumer behaviour will shift as social restrictions are lifted. Companies involved in online retail, digital payments and remote working technologies have all thrived during lockdown as people shopped online and worked from home. However, it is not yet clear to what extent these new habits will stick. Online retail sales, for example, accounted for just under 20% of the UK’s overall sales total for February 2020, ahead of the first lockdown. By February 2021 that proportion had risen to 36%, but in April it dropped back to 30% as consumers took advantage of physical stores reopening. Investors should keep a close eye on this sort of data as our freedoms are restored. ● Summer 2021 — 5
