Touch of Goldilocks at the end of May

After a strong April, May felt somewhat of a mixed bag for investors, particularly when stock markets suffered a correction in the middle of the month. However, as the month drew to a close, it was mostly only cryptocurrency holders, and those who had banked on a warm and sunny May in Northern Europe, who were still feeling the pain. For globally diversified investors, May drew to a more amicable close, which counterintuitively has been driven by expectations of lower, not higher, growth.

The 2021 sell-off periods so far have all been driven by concerns that economic growth may return with such a vengeance that supply bottlenecks would cause inflationary pressures – which in turn would drive up bond yields, or press central banks to withdraw the ‘punchbowl’ of ultra-low rates, before a sustained recovery has been established. We discussed previously how the competition of higher bond yields raises the hurdle for equity valuations, which means that in order for share prices to remain high and rise further, corporate earnings growth has to top rising bond yields.


Big changes for ‘Big Oil’

You can wait your whole life for something to change, but when it does, blink and you will miss it. That is how it seemed for the energy industry last week, after several huge stories piled the pressure on ‘Big Oil’.

First came an International Energy Agency (IEA) report imploring oil companies to stop all new fossil fuel projects from this year – suggesting this was the only way the world could meet its net-zero carbon target by 2050. Then, ExxonMobil shareholders backed a long-shot activist campaign to install two environmentalists on its board. In a similar vein, last Wednesday Chevron shareholders defied its board members to vote in favour of cutting the company’s carbon footprint. Finally, Royal Dutch Shell lost a landmark legal case in the Netherlands, after a court ruled it must cut emissions faster and harder than it had planned.


Brazil and South Africa – a tale of two BRIC countries

Those in the investment world are probably aware of the BRIC thesis brought forward by Goldman Sachs economist Jim O’Neill two decades ago. O’Neill suggested the high growth potential of emerging markets Brazil, Russia, India and China would ensure their weight in the world economy would rise substantially over the next ten years. But his prediction was about more than just backing the right horse. The belief was that, with the centre of global growth shifting, political institutions and the global order would have to shift too. Sure enough, by 2009, the largest four countries met regularly on a political level, and a year later, after intense lobbying, South Africa was invited to join the regular BRIC(S) summit.

Read the full commentary here