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Five insights in five minutes

Five in Five: markets, China energy, Europe VC, gender, China equities
01 October 2021

    Market ructions

    Much flapping and wailing in the past week. What should our level-headed readers think about what’s happening in markets? On equites, rich valuations – particularly of US technology indices where forward earnings multiples are north of 30 times – mean spasms can occur. The S&P 500 and other developed markets were less volatile and mostly down. To be sure, emerging shares aren’t enjoying a stronger greenback. The trade-weighted dollar, however, is not even back to where it was a year ago, and remains ten per cent beneath its pandemic highs. The ‘fear gauge’ Vix index is exactly in line with its 12-month average. No, the main story in town is the leap in government bond yields. Ten-year treasuries, for example, added 20 basis points in four sessions. The jump in German bund yields was equally impressive. It’s too early to say if global investors have changed their minds on the persistence of inflation or what tapering means for asset prices. For perspective though, yields were at today’s levels just before you went on summer holidays without a care in the world.

    Ways to play: all asset classes

    Market ructions  

    China energy shortage

    Beijing’s cap on coal production; exports making a comeback as the global economy recovers; and the supply of renewable energy fluctuating to the low side. All these issues have led to a ‘perfect storm’ in China’s current energy shortage. Indeed, mainland coal prices are now almost three times higher than they were at the turn of the year and power plants running on coal are producing electricity at an operational loss. This is a problem in a country where two-thirds of power generation still relies on coal. But from a broader perspective, nobody expects a smooth transition from fossil to green energy – there are bound to be challenges in the beginning. Also, every climate-conscious investor should be grateful for China’s strong resolve to move away from coal, as it now accounts for half of coal plant carbon emissions globally (see chart). Not to mention the vast opportunities for investors in China’s renewables sector.

    Ways to play: China green assets

    China energy shortage  

    Start-up Europe

    Venture capital investments are on track for new records. So far this year, aggregate value of venture capital deals has reached $580 billion globally. That represents an increase of 55 per cent when compared with 2020. The fact that innovative start-ups continue to attract investors doesn’t come as a surprise. But what might, is that the old continent is currently the fastest growing region. With more than 6,700 deals registered and an aggregated deal value of $85 billion, Europe has already broken its previous one-year record by almost 80 per cent. It also beats the US and Asia, whose deal volumes ‘only’ jumped by 65 and 35 per cent, respectively, as can be seen in the chart below. Since the beginning of the year, more than 70 unicorns were born in Europe, 20 of which in the UK alone (or one every other week!). This makes Britain the first country in the region to host a herd of 100 legendary creatures, only trailing the US and China. Who says Europe is devoid of magical investment opportunities?

    Ways to play: Private equity, venture capital, European equities, UK equities

    Start-up Europe-1  

    Gender diversity

    A year and a half into the pandemic, new data from McKinsey shed light on diversity figures in America to date. Despite women making advances in representation last year, there is still a gap when climbing up even the first steps of the ladder. For every 100 men promoted to first-level manager, only 86 women are tapped. And as shown in the chart below, fewer women at this level leads to an even slower pipeline to more senior levels – even more so for women of colour. The importance and demand for highlighting female talent is clear. Our 2021 Sustainable Financing & Investing Survey revealed that globally, more than half of issuers agree or strongly agree that their investors want them to work harder on issues such as gender and ethnic equality, with 60 per cent of large investors monitoring improvements regarding companies’ social and human rights performance. And with 2019 research from Morgan Stanley showing that global companies with better gender diversity have outperformed their less-diverse peers by more than three per cent per year, it’s a good sign that three-quarters of issuers feel responsibility to promote gender equality in their workforce. 

    Ways to play: ESG strategies
    Gender diversity  

    China equities

    Gosh – is it October already? For our China equity owning readers, however, it already feels like a long year. So here is a note to raise the spirits. Did you know that for the past decade the final quarter of every year has been the strongest for Chinese stocks? And that average returns have been positive for the CSI 300 and MSCI China in all three months? For the latter index, October is the pick, rising a mean 3.6 per cent since 2011, as per the chart. Indeed, China equities have finished October in the black a staggering 80 per cent of the time over the period – almost twice as often as the previous month. So we shouldn’t have been surprised at the 4.5 per cent fall in mainland shares in September. If you’ve read this far, you now must be wondering what sectors tend to outperform in October. The answer is financial and consumer discretionary, which rise more than five per cent on average. Given they make up half the MSCI benchmark, that should not come as a shock either.

    Ways to play: China equities, Asia equities

    China equities’  


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