Another unprecedented and unpredicted year where the global theme has once again been consumed with the Corona virus and the related socio economic fall-out, as a result of the continuation and rolling lockdowns in various countries around the world which, up until recently, prevented any on-site visits from taking place. However, following the decision of the UK Government in October to change the travel restrictions imposed, a window of opportunity opened up to allow a first visit to Charles Stanley since September 2019.
During the Pandemic period, we have been incredibly fortunate to benefit from the technological advancements allowing a seamless adoption of remote working, with the team at Charles Stanley and at Ewing Trust Company embracing this from day one. Despite the inevitable Covid fatigue setting in, multiple daily discussions around client’s portfolios have allowed us to not only be incredibly nimble when it comes to client portfolios, but to continue the oversight, research and compliance requirements that is now a necessity of investment business. We felt it important to enhance this with the regular on-site visit at the earliest opportunity to ensure that all aspects were fully compliant.
Economic growth in 2021 will be substantial when compared with the height of the crisis in 2020, although growth is now starting to slow. Service-sector businesses are expected to drive the economic rebound in the coming months, as the hard-hit tourism and leisure sectors start to recover. The UK has relaxed its travel restrictions significantly, requiring a less rigorous testing regime to enter the country. The US, Australia and other countries are now allowing fully vaccinated travellers to enter their borders. However, the fast expansion of economic growth returning is causing some short term supply chain issues, creating a shortage of supply of some goods, particularly computer chips, as highlighted by a number of the leading automobile and technology companies.
To support economies during the Pandemic, Central banks have continued to keep interest rates at historically low levels and most major economies expanded the quantitative easing programs to ensure market liquidity. As we emerge from the pandemic, tough decisions for governments and central bankers lie ahead, with policy decisions finely balanced, but many support measures are likely to remain in place for some time. Fed officials have suggested that the central bank may soon decide to taper its bond purchases and raise interest rates by late next year.
Turning to politics, it is refreshing that in the United States we do not see politics via Twitter causing markets to react on a daily basis and Biden has, to date, not implemented his aggressive tax increases, which has seen a calmer political environment in the United States.
Despite a few lagging issues, Brexit seems to have simmered down somewhat and one may see further political changes happening in the rest of the EU, particularly when some of the more mature statesmen look to focus on retirement. Germany is of particular interest as Angela Merkel has been a brilliant stateswomen to date.
An area of risk is China’s focus on aggressive regulatory reform, particularly in the tech and education sectors with a political rationale, being the eradication of the gap between the wealthy and general population. The difficulty with China is the extent to which the prescriptive policy implementation may be introduced and, as such, could cause short term corrections in this jurisdiction.
During the visit, a lot of time was taken discussing the forward strategy for portfolios, which remain invested in the strongest companies globally, particularly those with strong balance sheets and cash flows. We concluded that a Global equity investment process remains our preferred route and to embrace and afford some exposure to sustainable investments as the world moves to a greener energy focus.
We also discussed a growing trend of unrealistic returns being seen from ‘in vogue’ themes of companies that have never made profits and are being valued on potential, which may or may not be realized and we feel that the individual risks outweigh the benefits. Consequently, we continue to prefer to be invested for the long term in solid companies with long track records of growing sales and profits, particularly with markets at the current high levels. The same can be said of crypto currencies, which seem to dominate media spaces, but these are unregulated markets at present and cannot be considered for investment, whether we wished to or not.
In the medium term one may see continued volatility as a result of both Covid and geo-political oversight, and as a team we believe that we could see good opportunities of entering into some of our favoured areas during this period.
Turning to compliance, there is a strong push in the UK for ‘suitability’ of investments for individual clients and this has led to a need for an increase of ‘know your client’ information to be updated regularly, particularly the financial positions and this will be a theme through 2022. In South Africa, client data protection is the latest theme to be presented with the POPIA regulations currently being rolled out. We have checked with Charles Stanley that they are subject to a similar data protection standard to cover this and it was confirmed that the UK Government introduced the same policy, GDPR, some 3 years ago and we are satisfied with the level of compliance in this area.
To conclude, the visit to the UK and meetings at Charles Stanley were constructive and it was a pleasant change to proceed with ‘business as usual’ after the long COVID restrictions.