The potential rise of the populist movement in developed economies will create clear and lasting costs for investors. As well as the social and political consequences, there are also risks to investment returns.
The tide of populism will bring with it a profound shift in the political and economic environments, which will have far-reaching implications for investors, both potentially positive and negative.
The focus on fiscal, rather than monetary, actions resulting from the populist vote increases the likelihood of inflation, but also brings the threat of stagflation, an aggressive bond market correction and greater financial market volatility. Steepening yield curves, meanwhile, would provide many investors with much-needed relief as discount rates improve – as long as they can tolerate the downside pressure on bond prices.
However, if populism were to threaten the eurozone, investors could face heavy losses.
Inequality sits at the heart of populism. We have been through a period where the gains of the meagre economic growth achieved since the financial crisis have been unequally shared, with the elite getting the lion’s share. The benefits of globalisation have accrued to the top 1% of earners and emerging markets primarily, while the bottom 50% of earners have seen below-average income growth.
READ MORE in this month's Portfolio Institutional magazine.
Green bonds are likely to play a key role in how investors switch to clean energy, but is the asset class right for everyone?
Article written for Portfolio Institutional, published 6th January 2016
Green bonds look set to revolutionise not just the speed at which the world transitions to clean energy, but also how broader bond markets work. The rapid growth of the asset class, which is well supported for continued acceleration, underlines asset owners’ increasing interest in accounting for climate change risk in
According to the Climate Bond Initiative (CBI), there are now $694bn in outstanding climate-aligned bonds, an increase of $96bn (or 16%) since the same analysis was conducted the previous year. Within that total, $118bn are “labelled” green bonds – those that have been certified by the CBI to say the funds raised from their issue will be used to finance new and existing projects with environmental benefits. Green bonds saw record issuance during 2015 with $42bn issued, meaning this sub-section of bonds now account for 17% of the broader climate bond market, an increase from 11% the previous year. Read more here
Corporate tax is increasingly in the news, but are investors guilty of complacency over the risks it poses?
If you poke a bear with a stick too many times, eventually it will turn and bite you. In a world of rising government debt and social inequality, in which institutional investors are increasingly struggling to find sustainable returns, that bear is the tax man. And, as the mood begins to change, corporate tax risk is on the increase.
Companies including Apple, Facebook, Starbucks, Amazon and Vodafone have all come into the firing line in one way or another over their tax policies in recent years and the sums in question are not negligible. In August the EU ordered Apple to pay €13bn to the Irish authorities after it found the company was the beneficiary of illegal state aid.
Yet, despite the eye-watering sums and the scale of brands facing questions over their tax policies, Richard Murphy, director of Tax Research UK warns of a “deep complacency” about the dangers rising corporate tax risk could pose to institutional investors. READ MORE
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund