Author: Jonas Predikaka, Global Head of Private Banking, Carnegie Private Bank
July 29, 2021
According to the IMF, the end result for the global economic system in the wake of COVID-19 throughout 2020 was a GDP contraction of about 3.5 p.c. Vaccination has already begun worldwide, which will allow sooner normalisation than anticipated. The IMF is projecting global progress of 5.5 p.c in 2021, though this will depend upon the pace of the vaccination rollout. Swift and substantial financial and monetary coverage assist has been an necessary and largely profitable technique throughout the pandemic. This was a lesson learnt throughout the earlier monetary disaster. Several central banks and governments have additionally lately elevated and prolonged the stimulus and aid programmes.
Although GDP could strategy pre-pandemic ranges in 2021, the development is fragile. A harmful virus mutation or coverage error through which stimulus assist is withdrawn too early and causes a big wave of bankruptcies and job losses would as soon as once more injury the financial outlook. At current, the trends are pointing in the other way. At the identical time, surprisingly swift vaccination programmes mixed with continued and substantial financial stimulus and aid may generate sooner recovery than anticipated.
The dangers of overheating and rising inflation are additional away, particularly as a result of the labour markets are mushy, however lengthy charges have begun to rise. The central banks are struggling to push up inflation, are giving no indicators of austerity and should not forecasting fee hikes in 2021 or 2022. Additionally, inflation in Europe could be very subdued.
An upturn in long-term charges from record-low ranges will not essentially be an issue for the economic system or the inventory market, so long as it happens beneath managed situations. In normal, the Nordic economies have usually weathered the pandemic higher than others, partly as a result of much less drastic lockdowns and restrictions, and since our economies are extra dependent upon exports and trade than on the service sector and tourism.
Industrial provide chains haven’t damaged down, which was vital for maintaining exercise up. Strong public funds in the Nordic international locations have supplied good alternatives for fiscal coverage assist and financial stimulus. It can be a aid that there may be now, 4 years after Brexit, an settlement between the EU and the United Kingdom, as the UK is a vital buying and selling companion for the Nordic international locations.
The pandemic is accelerating present megatrends like digitalisation, automation and local weather and sustainability work. Remote working and digital communication have additionally taken big steps ahead, which might be subduing enterprise journey and has, by extension, additionally affected the construction of the actual property market. Global provide chains are being reviewed and if firms turn out to be extra inclined to insource manufacturing, despite greater prices at residence, this will additional drive automation. There is way to point that retail shops, inns, air journey and places of work will recuperate. The massive query is how far the pendulum will swing.
Sustainability and renewable vitality are the actually massive and accelerating trends. They are pushed not solely by extra pressing consciousness of the local weather state of affairs, but in addition technological progress and value benefits. This is very true for the EU, which is a vital marketplace for the Nordic international locations. The post-pandemic fiscal coverage measures are to a fantastic extent extra future-oriented than these taken after the monetary disaster, with investments in digitalisation and extra sustainable societies, which is constructive.
Transformation strain on established firms is rising, which can be creating fertile floor for brand spanking new enterprises in areas together with cleantech, gaming, know-how, fintech and new vitality. This is creating a necessity for progress financing and there’s a energetic IPO market on the Nordic inventory exchanges for small and high-growth firms that has few equals in the remainder of Europe. At the different finish, the EU, US and China are pressuring the main platform firms on issues – to taxation and market dominating positions. Ultimately, this may increasingly result in new laws or to the pressured break-up of huge, dominant firms.
Perhaps most shocking of all, it looks as if China is shifting the quickest. These processes take time, however elevated competitors typically promotes financial productiveness and growth. If new requirements and laws have been to come back, it may create completely new alternatives and thrilling adjustments like these taking place in the banking system with fintech and the digitalisation of healthcare.
The inexperienced megatrend
ESG is the greatest development going and it impacts all investments. The pandemic has had a critical affect on how we stay our lives and has given us new views, which additionally apply to company executives and decision-makers. More importantly, we’ve got realised that we are able to actually change course and alter our behaviour in a short time if we’ve got to. The understanding that firms will need to have sustainable enterprise fashions has grown throughout the pandemic. If you’ve gotten a enterprise mannequin that will not be at present sustainable, it will take profound change for the firm to stay related to its prospects in the future.
Focus on sustainability is a vital factor of being a knowledge-driven financial institution and offering optimum advisory. To a fantastic extent, ESG is about communication, data and training that equip individuals to make the proper long-term selections. There is way to be carried out, and thru our sustainability experience we could be concerned and affect firms and buyers – and actually make a distinction. It is necessary to us that our purchasers have entry to the finest obtainable data so that they will make selections that are socially sustainable in the future. That is the place we may also help.
The pandemic is accelerating present megatrends like digitalisation, automation and local weather and sustainability work
As far as investments go, amongst each establishments and personal purchasers, the focus is more and more on the alternatives, somewhat than the dangers. The level is not what one ought to keep away from proudly owning, however somewhat which firms and sectors will revenue by a local weather transformation and thus have a vibrant future forward.
Carnegie has carried out an intensive challenge to find out the place Nordic firms stand forward of the new EU Taxonomy. The outcomes of the evaluation present that a number of firms that the market beforehand thought-about inexperienced didn’t carry out as effectively, whereas others that had been neglected instantly turned inexperienced darlings. This is because of the Taxonomy rewarding firms that are investing in the inexperienced transition, which means that these firms earn excessive scores with their future-oriented initiatives.
We have been working actively with ESG in our advisory. Carnegie Private Banking turned a signatory to the UN Principles for Responsible Investment (UNPRI) in 2020.
UNPRI is a well known framework that leads to higher transparency surrounding ESG efforts. Carnegie checks and evaluates all funds and fund managers that are included on the financial institution’s suggestion listing and are the foundation for discretionary administration, mixed with Carnegie’s personal merchandise.
We are working proactively in our wealth administration to establish long-term, structural progress trends, which we translate into thematic investments. Our ambition is to both establish themes in an early part or discover niches inside megatrends like healthcare, know-how and the setting. We intention to take a look at the whole worth chain somewhat than merely purchase the greatest firms that the market already associates with the development.
Is water the subsequent massive development?
In latest years, the themes we’ve got recognized have included 5G, cyber safety, robotisation and automation, synthetic intelligence, biotech and the prescription drugs of the future. In the ESG section, we see enticing funding alternatives in areas together with renewable vitality, sustainable meals and water provide.
We have noticed a definite development in the final 12 months the place the market has bumped up the worth of firms that give attention to ESG. In some circumstances, the flows have contributed to bubble valuations of firms that are clear winners in the environmental development – particularly in clear vitality. The considerably extra defensive water firms should not such apparent winners and have been somewhat neglected.
Investor give attention to sustainability is a structural development that will probably profit the water firms. Right now, everyone is speaking about the carbon footprint, however the water footprint might be the subsequent development, for each firms and shoppers.
Four billion individuals wrestle with water shortages each day. The provide of contemporary water is finite, erratically distributed amongst geographical areas and shrinking as a result of air pollution and local weather change. Demand is rising in tempo with inhabitants progress, urbanisation and rising prosperity – most quickly the place there are already water shortages. We are already seeing conflicts – to water.
In the western world, extra resource-efficient administration of contemporary water would get monetary savings. In Africa, it might save lives. Drastic cuts to consumption would even be very enticing from a sustainability perspective. Resolving the water scarcity drawback will require main investments in infrastructure and new know-how to safe entry to water for the world inhabitants.
The widening hole between provide and demand is the most necessary driver of water as an funding theme. The global demand for water is rising twice as quick as the global inhabitants and is predicted to double once more in the subsequent 15 years. The want for water can be being pushed by urbanisation and better consumption of products that require an excessive amount of water of their manufacturing. India, China and different rising international locations in Asia will account for a big share of the demand progress till 2050, in line with the OECD.
In quick, almost $500m a 12 months must be invested to provide all individuals entry to wash water by 2030, and urbanisation and rising prosperity will additional improve the want for water.