July 29, 2020
July 29, 2020
- Gold’s recent record high of $1981.34 is profiting to conservative and diversified portfolios, though a long-term outlook is critical.
- Tech stocks continue to benefit from coronavirus jitters, with the tech-heavy Nasdaq up 16% for the year as the S&P 500 dips to -38%.
One Big Takeaway
S.P. Hinduja is adopting a new Environmental, Social, and Governance (ESG) investing policy to inform and enhance our traditional financial analysis with clients like you. This update is very much in line with market trends over the last several years, as growing concerns about climate change, rising inequality and corporate governance— and, on the growth side, the transformative potential of new and emerging technologies — shape long-term outlooks.
This market evolution is accelerated by COVID-19, which has laid bare the social inequalities and environmental challenges that can create risky and unstable business environments, both literally and figuratively. In the first quarter of 2020, as the pandemic took hold, the vast majority of sustainable indices for Morningstar and MSCI outperformed their broad-market counterparts.
Though ESG is not a fixed set of assets or assumptions, it is a response to a growing body of academic and industry research that supports the relationship between incorporating ESG and superior risk management and performance, particularly long-term value creation. In the last year, ESG gained traction from institutional investors as well as the next generation of wealth; the millennial generation is set to inherit more than $30 trillion over the next 20 years, and increasingly they want to invest in opportunities that are aligned with their social and environmental values and concerns.
ESG is also a continuum. As a starting point, ESG investments screen out companies considered actively harmful to society or the planet by the bank’s policy and by the world writ large, creating a values-aligned portfolio that manages risk and long-term returns expectations. Investors who adopt an ESG screen can go a step beyond divestment and integrate more material ESG information, improving both risk management and the likelihood of outperformance. Impact investing represents a more mature and specific end of the continuum. Impact investors allocate their portfolio to opportunities that generate competitive risk-adjusted returns while achieving positive and measurable social and environmental objectives.
Chart of the Week
The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) projects that, depending on the mean average temperature rise, up to 17% of financial value is at risk from climate change. This reality has helped drive the meteoric growth of sustainable investing over the last decade, as has rising income inequality. Thus far, Europe has led the way on regulatory changes that incentivize the transition to a green economy and a more just one; as COVID-19 continues to highlight inequalities and governments propose and pass recovery packages, this growth is likely to continue.
Can Indian Exports Outpace Lagging Imports?
After a $3.2 billion trade deficit in May, India’s trade balance for June improves to a $790 million surplus. The 13% month-over-month increase in exports is still about 20% below February’s pre-COVID levels. Demand for oil, India’s primary import, is only at one-quarter to one-third of what it was before the pandemic. As a result, imports are at 50% of what they were pre-lockdown, with June imports dropping slightly after a 24% increase in May. The question now is the timeline for demand increases and how long exports will outpace it.
U.S. homebuyers drive recovery
The U.S.’s weak economic outlook, including Friday’s worrying drop in GDP, shows the pandemic recovery coming to a screeching halt. Real yields, which often act as a predictor for what’s to come, are now at record lows. Yield curve control, in which the Federal Reserve targets a longer-term rate and buys enough long-term bonds to keep the rate from rising above that target, will likely push them lower if the Fed opts to do so next month. Meanwhile, inflation-adjusted yields have been trending downward since June. The major driver for this drop: the inability for companies to pass costs onto the consumer because demand has slowed.
Data to Watch
- The COVID-19 caseload in U.S. states and in countries where the virus remains active will continue to be a reliable indicator of recovery.
- Data on the U.S. housing market continues to show the sector weathering the recession far better than the rest of the economy.
- The U.S. Congress is debating whether to extend increased unemployment benefits; if an extension is not passed, the risk economic aftershocks is high.