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HAPPY
Newsletter, January 2021 2021
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RCEP: Great deal or not a big deal?
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RCEP: GREAT DEAL OR NOT A BIG DEAL? 81 / 2019
2021
HAPPY
2021
RCEP: Great deal or not a big deal?
On November 15, after eight years of negotiations, 15 countries signed
a trade agreement forming the world’s largest trade bloc. Hailed by
the leaders of those states at the time as a landmark triumph for free
trade, news of the Regional Comprehensive Economic Partnership (RCEP)
agreement pushed Asian share markets up and left some commentators
declaring it a triumph of free trade. But not everyone is so enthusiastic,
and some experts have said it is far from the amazing deal it’s been
made it out to be. We take a look at what the RCEP is and what it means
for global trade and investment.
When all 10-member states of the Larger than the EU trade bloc and
Association of Southeast Asian Nations the latest US-Canada-Mexico trade
(ASEAN), China, Japan, South Korea, agreement, it will have a significant
Australia, and New Zealand signed up effect on regional, and global GDP. The
for the RCEP in November, they formed Brookings Institute estimates that the
a trade bloc accounting for 30% of deal will increase global GDP by USD
current global GDP and one third of the 500 billion in the next 10 years, while
world’s population. other experts predict that the RCEP has
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RCEP: GREAT DEAL OR NOT A BIG DEAL? 1 / 2021
the potential to add more than USD relations among some of these countries,
100 billion to the national incomes of and other RCEP members, have been
member states. strained over the years, but the RCEP has
brought them together for trade.
Under the agreement, tariffs and quotas
will be eliminated for 90% of regional “You can both co-operate with someone
trade in goods over the next 20 years, and just loathe them, even as a human
with some removed immediately. It also being. RCEP has done an impressive job
includes provisions for trade and business of separating itself from other things,”
in other areas, such as intellectual said Elms.
property, telecoms, financial services,
e-commerce, and professional services. She added: “… the quality of RCEP
actually exceeds expectations. It will
Perhaps most importantly for deliver significant economic benefits to
businesses, it creates new rules of many firms.”
origin regulations for products. While
many of the RCEP member states have And it is not just in the long-term that
free trade agreements between each local economies will benefit, apparently,
other, these do not always help some with the deal expected to help post-
companies using international supply Covid economic recovery.
chains. Even under an existing free
trade agreement, some firms may find Its members said in a joint statement
their products are subject to tariffs after the agreement was signed that
because they contain components it would “play an important role in
made in another part of the world. building the region’s resilience through
an inclusive and sustainable post-
For instance, under RCEP rules, a pandemic economic recovery process.”
Japanese-designed car using parts from
South Korea and then assembled in But while the details of the deal look
China could be sold in any other RCEP impressive, at least at first glance,
member state without third-country and country leaders have sung its
tariffs kicking in because all countries praises, many experts believe its real
and components involved in the significance lies not so much in what
production of the car fall within the rule is includes, but what, and who, it does
of origin regulation. This is expected to not, notably the US.
incentivise companies to focus supply
chains within the region. Under then-President Barack Obama,
the US had driven plans for the
Deborah Elms, from the Asian Trade Trans-Pacific Partnership (TPP) trade
Centre, explained the advantage. agreement which would have brought
Speaking to Reuters, she said: “The together the world’s largest economy
existing FTAs can be very complicated with a number of Asian-Pacific
to use compared to RCEP.” economies, although notably not China.
The RCEP has also created some other The TPP was signed by 12 states in
history – it is the first time China, Japan 2016, but Obama’s successor, Donald
and South Korea have been in a single Trump, pulled out of the deal and some
free trade agreement. Diplomatic of the remaining TPP members went
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RCEP: GREAT DEAL OR NOT A BIG DEAL? 1 / 2021
on to set up the Comprehensive and partners, especially China, have been
Progressive Agreement for Trans-Pacific fraught during his term.
Partnership (CPTPP), which includes
seven RCEP members. But at the end of January, Joe Biden will
be sworn in as the next president and
it is widely thought that trade relations
between the US and China, will be more
stable, at the very least.
He is not, though, expected to suddenly
reverse the last four years of American
trade policy and make a bid to re-join
the TPP’s successor.
“I’m not sure that there will be much
focus on trade generally, including
efforts to re-join the TPP successor
On 15 November 2020 Vietnam played virtual host to the ratification grouping, for the first year or so
of the Regional Comprehensive Economic Partnership.
because there will be such a focus
on COVID relief,” Charles Freeman,
senior vice president for Asia at the
Some experts say the fact that the US is US Chamber of Commerce said in
in neither of two of Asia’s largest trade November, according to Reuters.
deals is to the country’s disadvantage.
What the RCEP will do to US trade
As James Chen, Director of Trading influence in the Asia Pacific region
& Investing Content at Investopedia, remains unclear at the moment, but
wrote: “The exit of the United States what Biden does next will be key.
from the CPTPP represented a pull
back for a country that once was a “Whether [the RCEP] means a shift in
global champion of free trade. The the regional dynamic in favour of China
inclusion of China in RCEP and the depends on the US response,” William
absence of the United States suggests Reinsch, a trade expert at the Center for
that the Asia Pacific region is moving Strategic and International Studies, said.
ahead on its own. The deals may be
less comprehensive, but they are still “If the US continues to ignore or bully
getting done. the countries there, the influence
pendulum will swing toward China. If
“The most important takeaway, however, Biden has a credible plan to restore the
is that the United States may be losing US presence and influence in the region,
its global leadership on trade to nations then the pendulum could swing back
within the Asia Pacific region.” our way,” he told Reuters.
During his time in office, Trump has With the US possibly the biggest loser
used tariffs, sanctions, and trading bans from being outside the RCEP, the TPP’s
to enforce what he frequently espoused successor, its biggest winner is likely,
as an ‘America First’ trade policy. many believe, China.
Relations with some major trading
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RCEP: GREAT DEAL OR NOT A BIG DEAL? 1 / 2021
The RCEP will only enhance the region and point to its limitations
country’s already prominent status in compared to other, more comprehensive
the region and was seen from its outset trade deals, including the CPTPP.
by many experts as a means for China,
as the world’s second largest economy Although it has fewer member states
and key trading partner for most other signed up, the CPTPP goes further in
Asian countries, to exert its power to its tariff cuts than the RCEP and also
shape regional trade policy. covers areas on the environment and
labour while RCEP does not.
“Beijing will likely claim victory upon
the signing. It has been a promoter Australia’s former Prime Minister Malcolm
of RCEP since day one,” Wendy Turnbull, who signed his country up to the
Cutler, vice president at the Asia TPP, said: “There’ll be some hoopla about
Society Policy Institute wrote on the the signing and the entry into force of
organisation’s website. RCEP. I mean RCEP is a really low ambition
trade deal. We shouldn’t kid ourselves.”
“The US retreated from the regional
stage and pursued a trade policy based Writing in Forbes, global business
on unilateralism, Chinese leaders used expert Harry Broadman said that while
that vacuum to portray Beijing as the the agreement sent a positive signal
reliable partner of choice for economic during a grim period for the world
growth, trade, and investment,” she said. economy, RCEP was far from what some
supporters had claimed.
At the same time, it will also help the
resilience of China’s domestic industries, “RCEP has been billed as creating the
allowing Beijing to reduce its dependence newest and largest free-trade area in
on markets outside the region. history. This claim is over-stretching the
truth,” he said.
Xu Liping, director of the Centre for
Southeast Asian Studies at the Chinese Broadman pointed out that the deal
Academy of Social Sciences in Beijing, told merely integrates existing free-trade
the South China Morning Post: “The RCEP agreements between many of the
signifies that there is a change in the countries involved and that there
export market in the global supply chain. were significant obstacles to getting
member nations to fulfil commitments
“Considering US-China trade tensions, to reduce tariffs.
and the uncertainties over trade with
the EU, the RCEP gives China a new He explained: “First, these
and committed market for trade which commitments for tariff reduction are to
could ultimately change the global trade be phased in over 20 years. One must
structure that has always seen Western ask: how relevant, then, will RCEP be
countries as final trade destinations.” to altering trade flows and economic
performance in the near term or even
But while China may be the big the medium run?
beneficiary of the RCEP agreement,
some trade experts have questioned “Second, the largest player involved
the extent to which it will truly improve in RCEP – China – hardly has a sterling
existing trade arrangements in the track record for fully executing on its
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RCEP: GREAT DEAL OR NOT A BIG DEAL? 1 / 2021
commitments under trade agreements “So much for China abiding by the spirit,
it signs. One need only consider that, to let alone the letter, of RCEP! One is
date, China has not implemented some tempted to ask: Is this the RCEP way?”
of the core reforms it legally obligated asked Broadman.
itself to do under the terms of its
accession agreement to be admitted as However, for all its potential shortfalls,
a member of the WTO in 2001. the new agreement has, some observers
suggest, highlighted an important
“Third, perhaps most important, RCEP trend.
does not include much in the way of
structural provisions, such as those In a note to investors soon after the deal
requiring China’s liberalization of was signed, economists at HSBC said,
its state dominated enterprise and that the RCEP “signals that Asia keeps
banking sectors, the operations of pushing ahead with trade liberalization
which are laden with explicit and even as other regions have become
implicit subsidies.” more sceptical.
He added that while the creation of “It may reinforce a trend that’s been
region-wide rules of origin may help already underway for decades: that the
create stronger cross-border supply global centre of economic gravity keeps
chains, it could have the negative effect pushing relentlessly to the East.”
of providing “stronger incentives for the
‘decoupling’ of globally efficient supply
chains – especially those integrating
Asia with North America and Europe –
than already is the case as a result of
blunt government-administered policy
mandates, which are being driven more
by politics than economics”.
Indeed, some nations’ commitment to
the ideology behind the RCEP appears
to already be in question. China and
Australia are involved in an increasingly
fractious trade spat and just days after
signing the RCEP, Beijing imposed new
import tariffs of between 107% and
212% on Australian wines.
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2021 – WHAT’S IN STORE FOR THE GLOBAL ECONOMY? 81 / 2019
2021
HAPPY
2021
Global economic outlook for 2021
2020 was a year like no other. 23 November confirming that there
would be a transition of power, from
The Dow Jones Industrial Average (DJIA) President Trump to President-Elect
hit a pre-Covid-19 high of 29,551.42 Biden, that sent the DJIA through the
on 12 February 2020. Within days the 30,000 barrier on 24 November, hitting
longest running bull market in history an all-time high of 30,045.84.
– 11 years – came to an end as the
Covid-19 pandemic caused massive For now, rising Covid-19 case numbers
disruption throughout the world. in the US and Europe as well as the
inherent logistical difficulties of
In March we saw the fastest fall in distributing a vaccine make it difficult
global stock markets in financial history to imagine that a return to normal is
with the DJIA recording its largest possible or even likely in the near term.
ever single-day points drop on 16 Yet, as the pandemic lingers, the global
March. April witnessed the start of the economy continues to prove itself to be
recovery and there was talk of a new remarkably resilient. Of course, some
bull market. In early November news of countries have done better than others
a safe, and effective vaccine saw the – China is the perfect example as we
DJIA break through its pre-Covid-19 highlighted in our December issue –
high but it was the announcement on but in general the world economy
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2021 – WHAT’S IN STORE FOR THE GLOBAL ECONOMY? 1 / 2021
remains on track to recover most of consumer and business sentiment. A
the ground lost during the pandemic return to normality – catching a flight,
in 2021. The International Monetary meeting friends for dinner – should
Fund (IMF) is predicting the global be accompanied by an increase in
economy will grow by 5.2% in the next household spending which should in
12 months. turn propel growth.
The President-Elect has made repeated
calls since the election for another
US round of economic stimulus focussing
on unemployment assistance, student
In the short term the US economy is debt relief and a continuation of the
facing some big challenges. Although moratorium on evictions to the tune of
recent announcements around vaccine USD 2 trillion. Biden also has a series
efficacy and approval from drug of Green Energy projects that he wants
regulators are positive, very welcome to pursue although his primary focus
and should indicate the beginning of the will be on growth and recouping the
end of the crisis, it is clear that a fully- estimated 10 million jobs lost during
fledged inoculation programme remains the pandemic.
a distant prospect. Case numbers are
rising rapidly now and it isn’t too hard If nothing else, a Biden-led White
to envisage an overwhelmed healthcare House will instil confidence in the
sector leading to the possibility of business sector as it reverts to a more
further lockdown measures. predictable, multilateral approach to
international relations and policy giving
President Trump’s response to businesses the faith to invest more and
the election result – multiple legal hire workers.
challenges and claims of widespread
fraud – is more than likely to leave a Obvious worry points include an
trail of political animosity which could overcooked sense of optimism on the
delay or limit any future government back of recent vaccine news – investors
response to the pandemic, which in turn have positioned themselves, mentally if
could potentially hamper the economic not literally, for upside gains – making
recovery. markets vulnerable to bad news. It
also seems likely that Republicans will
Longer term though there are good control the Senate making any new
signs: a vaccine exists, continued fiscal fiscal stimulus package subject to
stimulus is in the pipeline and a more negotiation, clouded as they will be by
co-operative and co-ordinated approach the tribal nature of the post-election
to America’s international relationships hangover.
with its allies and trade partners could
all lead to an uptick in the second half Overall, projected growth of 3.8% in
of 2021. 2021 with the recovery to really get
going in the second half of the year.
Rolling out the vaccine on a grand scale
will take time, but as the roll-out gains
momentum it should provide a lift to
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2021 – WHAT’S IN STORE FOR THE GLOBAL ECONOMY? 1 / 2021
One requirement of the Facility is that
every disbursement must include an
EUROPE investment in digitalisation. The idea
is to not only help create jobs across
Over the northern winter we expect to the economies of Europe but also
see continued outbreaks of the virus modernise them in a balanced and
and renewed lockdowns until a vaccine sustainable manner, ensuring that they
becomes widely available. Having are well positioned should another
said that Europe is poised for a strong pandemic-like shock hit the bloc.
recovery – it suffered at the hands of
the pandemic meaning its economy is The one notable exception in Europe’s
set to rebound from a low base. Many recovery story is the UK, where the
economic commentators are predicting seemingly open-ended and uncertain
growth of 5.2% for the bloc as a whole. nature of Brexit will hinder the pace of
recovery. Another crucial factor in the
Positives include sustained EU funding UK’s economic recovery is the timing
throughout 2021, supportive monetary and the way in which government
and fiscal policies and the gradual support for jobs and businesses is
reopening of the global economy from unwound. UK GDP for 2020 is set for an
which Europe will benefit. For example, 11% contraction (yet to be confirmed)
Europe is well positioned to gain from – one of, if not, the largest contractions
China’s recovery as demand in China for among developed nations. However,
western goods increases. the distribution of a vaccine and a
favourable Brexit deal could lead to
Europe has literally viewed the one of the biggest rebounds in 2021,
pandemic as an opportunity to re-set its with some commentators predicting a
economies. The first wave of lockdowns bounce back of between 6% and 7%.
exposed a horrible truth – European
countries that were lagging behind
in digital infrastructure, connectivity
and the ability to adapt to new ways of ASIA
working suffered the economic effects
of the pandemic more intensely and for Optimism for Asia is based on four
longer. These same countries now also broad themes:
have less chance of enjoying a strong or
prolonged recovery. • The Asia region in general has
done a good job of controlling the
To combat this, the EU has set aside coronavirus
EUR 672 billion in what it is calling
the Recovery and Resilience Facility. • Widespread vaccinations are
The aim is to mitigate the economic expected across the region by the
and social impact of the coronavirus middle of the year
pandemic and to build European
economies that are more sustainable, • China has already recovered
more resilient, and better prepared for significantly and continues to be
the challenges and opportunities of the the growth engine for the global
green and digital transitions. economy
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2021 – WHAT’S IN STORE FOR THE GLOBAL ECONOMY? 1 / 2021
• The recent signing of the Regional July-August 2021. They will undoubtedly
Comprehensive Economic provide a boost to the Japanese
Partnership (RCEP) reduces economy although to a smaller
uncertainty in the region around degree than previously anticipated
non-tariff barriers, supply chains given the toned-down nature of the
and rules of origin while creating the event. Economic expansion of 2.5% is
world’s largest trading bloc expected.
China’s economy has returned to Australia has controlled the virus
pre-pandemic output levels. This is outbreak better than most other
a significant achievement given the countries, and with its relatively open
complete shutdown and consequent economy, is better poised to benefit
severe downturn its economy from the post-vaccine global recovery.
experienced in Q1 2020. As part of The emergence of travel bubbles
its recovery strategy the Chinese with its Pacific neighbours should
government is striving to rebalance the help kickstart the tourism industry
economy in favour of domestic demand which was hit hard by the lockdown.
rather than having to rely on exports An increase in household spending,
and capital investment in the future. supportive fiscal and monetary policy
Over the course of the next 12 months measures and the gradual reopening
it will begin to reduce the amount of of the global economy should fuel
stimulus available while championing Australia’s rebound: a 3.2% expansion is
domestic consumption. The China-US predicted for 2021.
trade war and relationship in general
should be less heated under President-
Elect Biden. Stability and predictability
will be Biden’s watchwords as he LATIN AMERICA
tries to unpick the current tariffs and
persuade China to improve access to its Latin American economies were some
markets. The consensus is 8% growth of the worst hit by Covid-19, and
for China’s economy in 2021. because of this we expect they will be
some of the slowest to recover. Most
Japan’s rebound from the pandemic is major Latin American economies are
likely to lag other developed countries forecast to return to their pre-pandemic
despite its less severe Covid-19 GDP levels in the second half of 2022
outbreak. This reflects Japan’s aging with Mexico drawing level in 2023
population and their cautious approach and Argentina beyond that. Overall
to spending as well as mobility post- economic performance for the region is
virus. The policy priorities of the new forecast at 4.1% for 2021.
prime minister, Yoshihide Suga, will
be a key focus early in the new year. The level of fiscal stimulus in Brazil
Suga has already expressed interest in was high for the region at 12% of
subsidising capital expenditure in an GDP, reaching 67 million people. It
effort to drive increases in productivity was essential to supporting stronger
across small and medium sized consumption during the Covid-19
businesses. And we should not overlook downturn but is set to expire at the
the Olympics, scheduled to take place in end of 2020. With domestic demand
www.1cornhill.com2021 – WHAT’S IN STORE FOR THE GLOBAL ECONOMY? 1 / 2021
still fragile, any unwinding of stimulus levels post-2023. In 2021 growth of 4.0%
measures is expected to provide a is forecast, subject to post-pandemic
headwind to economic growth. Elevated global economic recovery of course.
unemployment and ballooning public
debt will also add to those headwinds.
Growth of 3.4% predicted.
Mexico is widely expected to have the
AFRICA
slowest economic recovery among Many African nations have seized
emerging markets. Oil, tourism, the opportunity presented by the
remittances and trade, the pillars of the coronavirus crisis to fast-track reforms
Mexican economy, were already under and investment crucial for long term
fire in an economy that contracted development. Digitalisation and
for the first time in a decade in 2019. infrastructure top the list in terms of
More losses were forecast for 2020 mitigating the effects of the pandemic
before the Covid-19 outbreak which and cementing a sustainable recovery.
simply compounded the problem.
Worried about increasing national It’s no secret however, that over the
debt, the government’s fiscal response last few years South Africa’s economy
amounted to approximately 1% of GDP has been dogged by weak growth, high
and focused on the country’s poorest unemployment, mounting public debt
citizens, largely ignoring small to and persistent electricity shortages.
medium-sized businesses. The result Covid-19 compounded the issues as the
is an economy highly vulnerable to South African government implemented
setbacks. Only the prospect of a vaccine some of world’s harshest lockdown
being widely available in the near term restrictions in order to focus on saving
could increase confidence and result lives. Consequently Q2 2020 saw GDP
in a faster-than-expected recovery. drop 51% quarter-on-quarter. South
Expansion of 3.8% is forecast. Africa’s road to recovery from such
a savage contraction will be a long
Argentina has a long history of political one. With ballooning public debt, the
and economic instability. According government has limited fiscal space in
to the World Bank, Argentina has which to manoeuvre so, like many other
spent 33% of the time since 1950 in countries, the focus will be on economic
recession. Today the country continues reform and putting in place policies
to face severe economic constraints: that unlock a new growth path, one
persistently high inflation, a heavy that is more inclusive, sustainable, and
foreign-currency debt burden, and resilient. Special emphasis will need to
low foreign-exchange reserves which be placed on unlocking opportunities
has led to a scarcity of US dollars in presented by the digital economy.
the economy. In 2021 this will mean Recent announcements such as the
Argentina’s economic growth will reform of the electricity sector and
remain susceptible to large swings unbundling the anchor that is Eskom
keeping investment weak, and recovery into separate business units also give
slow. Argentina is expected to have the cause for hope. Growth in 2021 is
slowest recovery of all Latin American projected to be 3.3%.
economies returning to pre-pandemic
www.1cornhill.com2021 – WHAT’S IN STORE FOR THE GLOBAL ECONOMY? 1 / 2021
Kenya, East Africa’s biggest economy, In Nigeria, the economy is expected
is expected to grow by 5.0% in to bounce back in 2021 as domestic
2021. Although projections suggest demand recovers alongside the
a relatively quick rebound for the global economy. However, its path
economy, the length and severity of to recovery is a fragile one, clouded
any future pandemic outbreaks plus by the uncertainty surrounding oil
the pace of global recovery will weigh prices and production level caps. With
heavily on key indicators such as a meaningful rise in oil prices not
consumer spending and unemployment. expected until 2022, no great expansion
The Kenyan government published its in GDP is expected any time soon. Other
post-Covid Economic Recovery Strategy headwinds include social tensions and
at the beginning of December 2020. security challenges, rising inflation
The plan prioritises agriculture, water and elevated unemployment levels.
and sanitization, urban development Balancing out these headwind factors
and housing, transport, tourism, health, are the large size of Nigeria’s economy,
education, social protection, and gender low government debt levels relative to
and youth as anchor sectors that will GDP and a comparatively developed
help the country recover from the financial system with a deep domestic
effects of the pandemic. Underlying debt market. Assuming a vaccine
the plan are familiar themes: this becomes widely available later in the
is an opportunity for designing and year, Nigeria will tick over with growth
instituting stronger business models of 1.3%.
– ‘Lean, Mean and Mobile’ – and the
adoption of technology as a basic Sources:
Bloomberg, Deloitte, Morgan Stanley, Fitch, World Bank, IMF, Focus Economics,
business requirement. Kenya’s economy S&P Global, Haver Analytics
was strong prior to the pandemic so
it is well positioned to make a robust
recovery. Its healthcare infrastructure,
testing and contact-tracing systems
are the benchmark for other African
nations. The major challenge facing
the government in 2021 is balancing
the withdrawal of government support
versus a backdrop of ever-decreasing
fiscal space and growing national debt.
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www.1cornhill.comASSET MANAGERS TO JOIN THE WAR ON CLIMATE CHANGE 81 / 2019
2021
HAPPY
2021
Asset managers to join
the war on climate change
Dozens of the world’s largest asset emissions reductions within the
managers have pledged to only invest in sectors and companies in which the
companies with net zero emissions by asset managers invest”.
2050 as investors increasingly demand
corporations play a part in tackling the
global climate crisis. “The transition to net zero will be the
biggest transformation in economic history
In a statement a group of 30 companies, and we want to send a clear signal that
which includes the likes of Fidelity there is simply no more time to waste.”
International, Schroders, and UBS Asset David Blood
Generation Investment Management
Management, said they would work
with their clients to cut emissions
across their investments with an aim The companies behind the initiative,
for all companies in their portfolios to which was announced in early
be decarbonised by 2050 or earlier. December to mark the fifth anniversary
of the Paris Climate Agreement, are to
The group, which calls itself the Net set interim 2030 targets to decarbonise
Zero Asset Managers Initiative, said their portfolios which will be reviewed
they were committed to “prioritising every five years. They have also pledged
the achievement of real economy to use their shareholder voting and
www.1cornhill.comASSET MANAGERS TO JOIN THE WAR ON CLIMATE CHANGE 1 / 2021
lobbying power to promote and support The announcement by the Net Zero
action on climate-saving proposals. Asset Managers Initiative also comes
as shareholders increasingly appear to
David Blood of Generation Investment be flexing their muscles on corporate
Management, another of the firms environmental issues.
behind the initiative, said: “The
transition to net zero will be the biggest In September, an initiative representing
transformation in economic history investors who together manage more
and we want to send a clear signal that than USD 47 trillion of assets demanded
there is simply no more time to waste.” that more than 160 of the world’s
largest greenhouse gas emitting firms
commit to setting net zero targets for
From the end of 2019 up until September 2050 or sooner.
2020 there has been a threefold increase in the
number of companies committing themselves The Climate Action 100+ initiative –
publicly to reach net zero emissions. which is backed by more than 500
UN statement citing research report entitled ‘Navigating the global investors – announced it was
nuances of net-zero targets’
Authors: Data-Driven EnviroLab and the NewClimate Institute, 2020 writing to 161 CEOs and chairs of the
board at “focus companies” it had
identified as collectively responsible
Blood, who co-founded Generation for up to 80 per cent of global industrial
Investment Management with former greenhouse gas emissions, urging them
US vice-president Al Gore, added: “The all to set out net zero-aligned business
opportunities to allocate capital to this plans as soon as possible.
transition over the coming years cannot
be underestimated. Without the asset The companies it was targeting included
management industry on board, the many of the world’s largest oil firms,
goals set out in the Paris Agreement as well as car producers, major mining
will be difficult to meet.” The initiative companies, energy firms, and chemical
is the latest high-profile commitment and industrial manufacturers.
to helping tackle climate change from
major firms in investment and finance. As major shareholders in many of
the world’s largest companies, the
In October, banking giant HSBC asset managers behind the Net Zero
announced it would target net zero Asset Managers Initiative potentially
carbon emissions across its entire hold great power. And they are now
customer base by 2050 at the latest, prepared to exert that power to ensure
as well as extending up to USD 1 trillion corporations focus on ways to reduce
in financing to help its clients make their environmental footprints.
the transition.
Stephanie Pfeifer, chief executive of
Other international banks, such the Institutional Investors Group on
as BNP Paribas, have made similar Climate Change and founding partner
commitments while earlier this of the initiative, told the Financial
year JPMorgan said it would expand Times, that the scale and significance
investment in clean energy and work of the asset managers joining the group
towards net zero emissions by 2050. was a “clear signal” that the “financial
firepower” of institutional investors will
www.1cornhill.comASSET MANAGERS TO JOIN THE WAR ON CLIMATE CHANGE 1 / 2021
be “committed to making real progress Pressure groups questioned whether the
towards a net zero and resilient future”. bank’s commitment was serious at all.
However, not everyone is happy. The Adam McGibbon, UK energy finance
wider investment community has come campaigner at Market Forces, told
in for criticism in recent years from Reuters the pledge was “zero ambition,
activist groups who say it is not doing not ‘Net Zero Ambition.’.... If you want
enough to actively support climate to know what HSBC’s stance on climate
action, such as withdrawing investments change really is, look at what they fund,
from carbon-intensive industries or not their fluffy marketing.”
backing cleaner companies.
Some campaigners are sceptical of the “2020 may be remembered as the year the
latest pledges from the Net Zero Asset world finally took decisive steps to address
Managers Initiative. climate change and shift toward a greener
future. This shift will have significant
They point out that the pledge allows consequences for markets and investors.”
companies to use the controversial Geraldine Sundstrom
Portfolio Manager, Asset Allocation at global asset managers Pimco
practice of carbon offsetting, which in
practical terms would do little to stop
the expansion of fossil fuel companies. Meanwhile, Pinson said: “The very bare
minimum would be to immediately
Lucie Pinson, the founder and director exclude all companies with coal
of activist group Reclaim Finance, expansion plans and require others
questioned whether the sated ambitions to adopt a coal exit strategy, as BNP
of the initiative would be met. Paribas and many more serious banks
have already done.”
She told The Guardian: “It seems
unlikely, given that there is no collective To what extent the pledges of the
commitment to exclude coal or to likes of HSBC, or the Net Zero Asset
halt the expansion of oil and gas, both Managers Initiative, do or do not make
seriously at odds with the stated goal of a significant impact on efforts to tackle
this coalition.” the climate crisis, there appears to be
a growing corporate trend towards
Indeed, continuing investments in fossil addressing the issue of companies’
fuel industries, especially coal, have carbon footprints and emissions.
drawn some of the strongest ire of
people like Pinson. When HSBC made According to the UN, using data
its announcement in October, it gave published by the Data-Driven EnviroLab
no indication it would tighten its policy and the NewClimate Institute, there
on lending to the coal industry, which was a three-fold increase in companies
remains crucial to many Asian economies. committing to reach net zero emissions
between the end of 2019 and September
The bank said at the time it would 2020. It said the number had grown to
continue to take into account “the 1,541 in 2020 from around 500 recorded
unique conditions for our clients across in 2019, as many prioritize climate action
developed and developing economies”. in their recovery from Covid-19.
www.1cornhill.comASSET MANAGERS TO JOIN THE WAR ON CLIMATE CHANGE 1 / 2021
But as the UN pointed out, it is not just Writing on the company’s website she
individual companies making such explained that climate change is likely
pledges. In the same period there was to become a central theme for countries
a nine-fold increase in regions making looking to exert their global power with
the same pledge, with an additional 101 major nations promoting green strategic
in 2020 from 11 recorded in 2019. And efforts such as hydrogen energy.
there was an eight-fold increase for
cities, with 823 more in 2020 from 100 “Whether it’s due to countries pursuing
recorded in 2019. geopolitical domination, or because
of good-hearted intentions, or just
Governments in key countries due to the need to preserve limited
and regions have also committed resources, the green wave has turned
to becoming carbon neutral, or into a tsunami…. ‘Following the money’,
significantly reducing emissions, by the in this case the digital and sustainable
middle of the century. themes at the heart of the ongoing
fiscal and secular trends, may open up
China has said it plans to achieve carbon opportunities for investors as some
neutrality by 2060, Japan has pledged assets may be revalued,” Sundstrom said.
to do the same a decade earlier, and
the European Union (EU) Parliament “In conclusion, going green may not
has voted to cut its CO2 emissions only be the responsible and sustainable
by 60% by 2030. In the US, President- thing to do – it may also be a compelling
elect Joe Biden is expected to ramp up investment,” she added.
the country’s efforts to tackle climate
change and reduce emissions, stating
that as President he will oversee the US
re-joining the Paris Climate Agreement.
Experts say these trends will be very
significant for markets in the future.
“2020 may be remembered as the year
the world finally took decisive steps to
address climate change and shift toward
a greener future. This shift will have
significant consequences for markets
and investors,” said Geraldine Sundstrom,
Portfolio Manager, Asset Allocation at
global asset managers Pimco.
To find out more about Cornhill or our
products please speak to your Regional
Sales Manager or get in touch with us at
newsletter@1cornhill.com
www.1cornhill.comWorld markets update 1 / 2021
HAPPY
2021
WORLD MARKETS UPDATE
GLOBAL Sentiment also lifted when US
lawmakers agreed on a USD 900 billion
Global equities tracked higher economic aid package and there was
in December as markets were relief for investors across the Atlantic
buoyed by regulatory approval as the UK and the EU finally agreed
and roll-out of Covid vaccines and on a trade deal just days before the
a new US stimulus package. end of the Brexit transition period
during which trade had continued as
During the month, first the UK, then if Britain was still part of the bloc.
later the US and Europe, began roll-
outs of the Pfizer/BioNTech vaccine, Stocks in a number of major developed
while other countries also started markets hit record or multi-decade
vaccinations with the same, or other, highs as the year came to an end.
vaccines. This fuelled hopes of an Many managed to close 2020 in
end to the pandemic sooner rather positive territory, having recovered
than later and a quicker recovery from unprecedented falls in the
for economies around the world. early weeks of the pandemic.
www.1cornhill.comWorld markets update 1 / 2021
US Europe
S&P 500 3.8% Dow Jones 3.4% MSCI EMU 2.0% DAX 3.2%
MSCI USA 4.5% NASDAQ 5.7% FTSE 100 3.3% CAC 40 0.8%
US stocks hit new highs in December on
the back of vaccine optimism, abundant In Europe, stocks made gains in
liquidity, and as markets welcomed a December amid mixed sentiment as
deal on a USD 900 billion aid package worries over rising coronavirus cases
for the world’s largest economy. The were offset by optimism over Covid
strong performance in December – vaccines, Brexit relief and positive
there were more record highs set in the reaction to the US stimulus package.
very last trading session of the month Lockdowns across the continent and
– mirrored much of what had happened growing concerns over the possibility
during an astonishing year for local of a no-deal Brexit weighed on
benchmarks: the three major indices sentiment, despite optimism that
recorded more than 100 record closes in Covid vaccines could help bring a
2020, and all finished well into positive relatively swift end to the pandemic.
territory for the year. The Dow Jones But these worries eased at the end of
rose 7.2% in 2020, the S&P 500 gained the month as a Brexit deal was struck
16%, and the Nasdaq surged 44%. and EU states began vaccine roll-outs.
News of a massive new US stimulus
Despite the positive performance on package also helped push markets
equity markets, surging coronavirus higher as the year came to a close.
infections remain a worry. Vaccine
approvals and the beginning of their Meanwhile, experts have said they
roll-out were welcomed by investors expect the Eurozone economy to
who see vaccination as offering rebound next year. According to a
hope of a relatively quick return to Financial Times poll of economists,
something approaching normal in Eurozone GDP will rise by an average
2021. But President-Elect Joe Biden, of 4.3% next year as vaccines bring a
among others, warned that the return to some semblance of normality
coronavirus crisis would get worse in most countries and economies
before it gets better and that it will be recover. However, they warned that
a long time before the economy fully the effects of the pandemic will be
recovers. The pandemic’s effect on the felt for some time to come with more
economy was highlighted in readings than half of the 33 economists polled
released during the month with data predicting unemployment in the
showing retail sales contracted at 19-country bloc will rise above 10%
a much worse than expected 1.1% for the first time in more than four
in November. This was the worst years, while two thirds said Eurozone
reading for the indicator since April. GDP would not get back to pre-
Labour market data was also mixed. pandemic levels before mid-2022.
In the UK, local shares, as proxied by
the FTSE 100 index, finished higher
for the month. However, 2020 was the
www.1cornhill.comWorld markets update 1 / 2021
worst year for the benchmark index Asia
since 2008 as it lost over 14%, sharply MSCI Australia 6.1% Shanghai Composite 2.4%
lagging many other major market MSCI ASEAN 3.8% Nikkei 225 4.0%
benchmarks which managed to more KOSPI 12.2% SENSEX 8.2%
than make up the ground they lost at
the start of the pandemic. This was Japanese stocks closed out the month
down to a number of factors, including and year on a strong note, hitting multi-
the fact that the index lacks major decade highs just before the New Year.
tech firms with financials, energy, The gains came as investors banked on
utility, and defensive counters making global central banks next year continuing
up a large portion of its listings. measures to support pandemic-stricken
Brexit uncertainty also weighed on economies and welcomed a raft of
performance during the year. positive news in the month, including
vaccine roll-outs, a Brexit deal, and the
However, there was relief as British and US stimulus package. In economic news,
EU negotiators reached an agreement the government lowered its GDP growth
on a Brexit trade deal just days before forecast for the 2020 fiscal year to a 5%
the end of the transition period under contraction, down from an estimate of
which Britain was still able to trade 4.5%, as new restrictions in the wake of a
with the EU as if it were a member of second wave of coronavirus infections
the bloc. Markets saw the sealing of began to hurt businesses. However, it
the deal as having avoided a worst- upwardly revised its fiscal 2021 GDP
case ‘no-deal’ scenario, but experts growth forecast to 4%, from a previous
have described the agreement as ‘thin’ estimate for 3.4% growth. It said this was
and pointed out that while companies down to the expected effects of stimulus
will now have clarity on trading terms efforts.
from 1 January 2021, many will have to
adapt to new barriers and bureaucratic A mixed month for Chinese shares
obligations and that agreements are ended with local benchmarks moving
yet to be made on the services industry, to multi-year highs as optimism Covid
which is far and away the biggest vaccines will help speed a return to
sector of the UK’s economy. The lack of normal in many countries and drive
information about access to European strong economic recoveries next
markets for UK financial services year helped underpin local markets.
companies is a particular worry. The But the month saw some pressure
UK’s Office for Budget Responsibility on equities as tensions between
has forecast that Brexit will cost Washington and Beijing flared again.
the UK 4% of GDP over 15 years. Major index providers removed scores
of Chinese companies from benchmarks
In economic news, a revised estimate following an executive order from US
of third-quarter GDP was released President Donald Trump. The firms
with the economy contracting had been identified as having ties to
8.6% y-o-y, improving on an earlier China’s military. There are concerns
estimate of 9.7%. The last quarter of among investors that more Chinese
the year is expected to see a further companies will be targeted by the
contraction due to new lockdowns. Trump administration as he prepares to
leave office. In other news, regulatory
www.1cornhill.comWorld markets update 1 / 2021
authorities have begun investigations the renewed spread of the virus. The
into e-commerce giant Alibaba central bank downgraded its 2021 GDP
and ordered Ant Group, the world’s forecast during the month, lowering it
largest financial technology company to 3.2% on the back of lower tourism
and Alibaba affiliate, to break up its numbers. It now expects 5.5 million
operations. Some analysts believe the foreign tourists next year, rather than
moves – which followed earlier criticism the 9 million projected previously. The
of Chinese regulators and banks by country saw nearly 40 million visitors
Alibaba owner Jack Ma – are a clear in 2019. Meanwhile, the Malaysian
signal from the government to other government launched a 10-year plan
large, domestic tech companies that to help its tourism sector, which has
Beijing is prepared to take action to curb lost an estimated USD 24 billion due
their growing power. Meanwhile, China’s to the coronavirus crisis. In 2019 the
official manufacturing purchasing country’s tourism sector accounted for
managers’ index (PMI) reading fell to 51.9 16% of Malaysian GDP. Under the plan,
in December from 52.1 in November. the government is looking to launch a
The reading for the non-manufacturing number of initiatives, one of which is
PMI, was also down, dropping to to focus on strengthening Malaysia’s
55.7 from 56.4. Although down, both competitiveness by branding the
figures indicate continued growth. country as an ecotourism destination.
Indian shares continued to track upwards Elsewhere, there were worries over
in December, building on their surge in vaccine roll-outs in some parts of the
the previous month. The local benchmark region. In Indonesia, the government
Sensex and Nifty indices moved to signed an agreement with drug
record highs during the period amid makers AstraZeneca and Novavax
continuing foreign inflows and positive for 100 million doses of vaccines, but
sentiment globally. Covid vaccine news experts have questioned whether the
and support from global central banks infrastructure is in place to properly
has helped keep local markets buoyant deliver them to the entire population.
since the start of November. The
central bank revised up its projections In other news, South Korea and Indonesia
for the economy following vaccine signed an economic partnership
progress with real GDP for the current agreement aimed at boosting
financial year forecast to contract 7.5% investment and trade between the
compared to an earlier 9.5% estimate. two countries. Under the deal, South
Korea, which is among Indonesia’s top
Pandemic worries weighed on markets ten trading partners and investors,
in the ASEAN region during December will eliminate more than 95% of its
as rising infection numbers sparked tariff lines. In return, Indonesia will
fears of further lockdowns. In Thailand, eliminate over 92% of its tariff lines
whose key tourism sector has been hit as well as provide preferential tariffs
hard during the Covid crisis, shares were to support Korean investment.
under pressure after a new outbreak
towards the end of December led to the Economic growth in the Philippines
government suggesting new restrictive should rebound over the next two years,
measures may be needed to combat the World Bank has said. A gradual
www.1cornhill.comWorld markets update 1 / 2021
easing of coronavirus restrictions is coronavirus infections and subsequent
expected to help businesses and the restrictions weighed on their progress
country’s economy should grow 5.9% in the latter part of December.
in 2021 – stronger than an earlier
forecast of 5.3% – and expand 6.0% Among readings for key economic
in 2022. The bank has forecast an indicators, in the NAB Business Survey
8.1% contraction for this 2020. for November there was a 7-point rise
for the business conditions index to
In Singapore, economic data was mixed 9, its highest level since March 2019.
as industrial output in November grew Meanwhile, the confidence index jumped
17.9% year-on-year, ahead of consensus 8 points to 12, its highest reading since
estimates. Biomedical and electronics April 2018. However, the employment
manufacturing helped drive the better index was unchanged at -5 suggesting
than expected reading, with electronics businesses cut jobs. The Westpac-
output up 34.9% year-on-year and Melbourne Institute’s Consumer
the biomedical sector registering a Sentiment index reading was up 4.1% in
40.6% rise. On a month-on-month and December to 112, the highest level in 10
seasonally adjusted basis, industrial years. This came against a backdrop of
production increased 7.2% in November, positive news on the domestic economy
again beating expectations. But there driven by consumer spending which
was a surprise 4.9% year-on-year has risen sharply in recent months.
drop in exports in the same month. It
was the second consecutive month of
declines and the largest fall for a year. Latin America
MSCI Latin America 11.9% MSCI Chile 12.5%
Korean equities, as proxied by the MSCI Brazil 25-50 13.4% MSCI Mexico 6.5%
benchmark KOSPI index, closed the MSCI Colombia 24.8% MSCI Argentina 9.9%
month at a record high to mark an
end to a stellar year for the market. Latin American equities climbed in
The index gained 30.8% in 2020 – its December against a backdrop of
best yearly performance in 11 years. widespread Covid vaccine optimism and
Gains during the month were driven by progress on the US stimulus package
local heavyweight counters, including which helped boost risk appetite, and
Samsung Electronics, as well as vaccine subsequently interest in local stocks.
optimism and hopes for economic Many analysts are expecting regional
recovery in 2021. This came despite shares in the coming months to regain
growing concern over a third wave of more of the ground they lost in 2020
coronavirus infections in the country. relative to stock markets elsewhere.
The government cut its 2021 growth However, rising numbers of Covid
forecast, with GDP expected to expand cases continue to be a concern.
3.2% next year, down from a previous
estimate for 3.6% growth, amid a steep During the month, data releases
rise in infection numbers. The economy showed Brazil’s GDP expanded almost
is expected to contract 1.1% in 2020. 8% q-o-q in the third quarter of the
year. The news was widely welcomed,
Australian equities made a strong start although analysts cautioned that
to the month before a resurgence of growth is likely to weaken in the near
www.1cornhill.comWorld markets update 1 / 2021
future in response to rising inflation Agency said that of the 12 million
and a predicted end to state pandemic- people who had left the workforce in
related fiscal support. It is seen as April as the pandemic took hold, 9.9
unlikely that President Jair Bolsonaro million were now back in employment.
will look to keep the government’s
emergency financial support running In Argentina, the economy grew a
beyond the end of 2020. Inflation in seasonally adjusted 12.8% q-o-q in the
Brazil rose 0.89% m-o-m in November third quarter of the year, but shrank
– higher than expected – on the back 10.2% y-o-y, official data showed.
of increasing food prices. The central Despite the growth in the quarter, the
bank left its key policy rate, the Selic country’s economy remains below its
rate, unchanged at 2.00%, but bank pre-pandemic levels and authorities
officials said they were aware of “the have imposed price and capital controls
stronger inflationary pressure in the as they look to keep foreign currency
short term”. They believe that the reserves up and rein in inflation.
current price shocks are “temporary” This, though, has dented market
but intend to monitor them closely. sentiment despite the government
Meanwhile, Brazil’s economy added a having successfully restructured
net 414,556 formal jobs in November, billions of dollars in debt earlier this
according to the Economy Ministry. year. However, experts expect the
It was the fifth consecutive month of final numbers for the year to show
job gains with the retail and services that the economy expanded in the
sectors taking on new workers. fourth quarter, as businesses continue
to recover from earlier lockdowns.
In Chile, the country’s second pension
withdrawal bill this year has been
signed into law. The new legislation Africa
allows Chileans to withdraw up to MSCI FM Africa 4.8% FTSE/JSE 11.4%
10% of their pension balances as an MSCI South Africa 9.8% MSCI Egypt -1.6%
emergency measure to help them MSCI Kenya 5.1% MSCI Nigeria 4.2%
cope with the economic downturn
caused by the pandemic. The central In Egypt, latest data showed a slowdown
bank is using various mechanisms it in new business growth in November,
had previously employed in August although firms continued to report a
when the first pension withdrawal bill strong increase in sales overall. Export
came into effect to absorb outflows volumes were up in the month, but the
from the pension fund system. pace of growth softened from October
on the back of lockdowns elsewhere.
Elsewhere, in Mexico, retail sales fell Meanwhile, the central bank said Egypt’s
by 1.4% in October from September in tourism revenues stood at USD 9.9
what was their first monthly decline billion in the fiscal year 2019/2020, down
since April. Official figures showed sales USD 2.7 billion on the previous fiscal
also fell by 7.1% in October compared year. In other news, Vodafone ended
to the same month in 2019. It was also talks with the Saudi Telecom Company
reported that the unemployment rate (STC) on the USD 2.4 billion sale of a
stood at 4.5% in November, slightly less 55% shareholding in Vodafone Egypt.
than the 4.7% registered in the previous Vodafone Egypt is the country’s biggest
month. Mexico’s National Statistics mobile operator with a 40% share of
www.1cornhill.comWorld markets update 1 / 2021
the market and 44 million subscribers. Elsewhere, Kenya’s largest telecoms
STC and Vodafone had reached a provider and one of East Africa’s most
preliminary deal on the sale at the profitable companies, Safaricom, and
start of the year, but had since missed parent companies Vodafone Group
a series of deadlines to complete it. Plc and Vodacom Group Limited have
signed an agreement to borrow up
In Nigeria, the central bank is to make to USD 500 million from America’s
USD 656 million available for the free sovereign wealth fund, US International
conversion of some cars to run on gas. Development Finance Corporation,
Authorities in the country, which is as the company looks to expand
Africa’s largest oil exporter, plan to into Ethiopia’s telecoms market. The
have 1 million gas-powered cars by company is bidding for a telecoms
the end of 2021, and to convert 40% licence being auctioned in Ethiopia, a
of all cars in the state within 10 years country it sees as offering significant
as the government looks to end costly opportunities with a market of over
gasoline subsidies and head off public 100 million people and relatively low
anger over higher petrol prices. The uptake of mobile and broadband
coronavirus crisis has hurt oil prices, services. In economic news, Kenyan
which are crucial to state revenues, officials reported that tax collections
and President Buhari has said the for the July-November period were
situation has forced a new focus on down 16% compared with the same
gas as an alternative fuel. Nigeria has period a year ago, as the coronavirus
the world’s ninth-largest gas reserves. crisis continues to hurt the economy
with company earnings down and firms
In South Africa, the economy grew cutting jobs. Monthly tax receipts have
by 66.1% (annualized) in the third been falling since the beginning of this
quarter of the year. The figure, which financial year as the local economy has
was better than most economists struggled during the pandemic.
had predicted and the first positive
reading for the indicator after four
periods of contraction, followed a
51.7% contraction in the second
quarter due to lockdown measures.
But compared with the same quarter
last year, the economy actually shrank
6%. However, analysts have warned
that the economic recovery remains
fragile with continuing virus risks and
ongoing sluggish pace of reforms and
more power shortages. Troubled state
power utility Eskom implemented
further rounds of rolling blackouts
in the country during the month as
its ageing infrastructure struggles to
cope with demand. Some economists
have said they believe it may be as
long as 2025 before the South African To get in touch speak to your
economy returns to pre-Covid levels. Regional Sales Manager or email us
at newsletter@1cornhill.com
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