The British Parliament is gearing up for a decisive vote on the Brexit deal on 15 January. If the deal passes, the path will be cleared and markets will stabilise. If the deal fails, market turmoil will continue, with the end result still up in the air.
Although it was set out that last week would have to be the week in which the EU and the UK would agree on the transitionary deal to leave enough time to arrange a smooth transition, this did not happen. Over the last weeks it had already become clear that a deal to be reached in October had become quite unlikely. There is significant pressure for a deal to be reached and to be approved by UK parliament before the end of the year. One of the key difficulties is the issue of the border with Ireland. The good Friday agreement rules out a hard border between Ireland and Northern Ireland. As Northern Ireland is part of the UK, the Irish-North Irish border would be an external border between the UK and the EU.
While concerns about US protectionism have increased and investors are trimming back their growth expectations for emerging markets, China has not sat idle. Beijing is doing everything possible to limit any damage to the Chinese export sector, by not unnecessarily escalating the conflict with the US and where possible, by intensifying trade relations with Europe and other countries. At the same time - and this is particularly relevant for investors in emerging markets - Beijing has begun to take measures to fuel its domestic economy. In times of increasing risks to world trade growth, China always tries to strengthen domestic demand to offset external headwinds – and that is no different now.
While the whole world seems to be keen to invest in Vietnam, interest in Indonesia has cooled down considerably in recent years. Vietnam’s success story is based on privatizations, better protection of intellectual property and clear policy choices aimed at a rapid development of the export sector. In Indonesia, almost the opposite is happening: the government is becoming increasingly populistic to support the consumer, at the expense of business’s competitiveness. The big export companies stay away or leave for other Asian countries, and preferably Vietnam.
China is well known for its cultural wonders, such as the Great Wall of China, and also for the breakneck speed at which it has managed to modernise. Unfortunately, the country is also notorious for its grey skyline that is often clouded by pollution and fumes. Long-term smog exposure has slashed life expectancy in northern China by more than three years compared with the south, according to a new research at the University of Chicago.
Will 2018 be the third year in a row in which emerging equity markets outperform developed markets? Probably yes. Growth prospects are adequate and risks seem manageable. The main theme is an accelerating credit growth almost everywhere in the emerging world, so that both consumption and investments are on the rise after years of contraction. Risks are always there, but they now seem to be mainly country-specific and therefore not insurmountable for the emerging world as a whole.
I have noticed that many investors struggle with ESG data and how to apply it in their investment processes. In fact, a growing group believes that ESG issues are not material and have no added value. What's going on?
The 2013 Rana Plaza collapse in Bangladesh, which killed more than a thousand people and is considered the deadliest garment-factory incident in history, served as a warning to clothing producers about supply chain management issues. Similarly, the severe environmental impact of palm oil production has given many global food producers a wake-up call about supply chain management. These events remind us that environmental, social and governance (ESG) standards in emerging markets are in need of improvement, as a big part of the global supply chain is based there.
Responsible investment is booming, and integration of environmental, social and governance (ESG) criteria continue to gain momentum amongst investors. They have also triggered progress at index and research providers, who have developed sustainability indexes and research capabilities around ESG. At the same time, we see a trend emerging in which investors are focussing on negative screening or best in class and they’re solely looking at ESG ratings. In our view, an investment decision is not just looking at numbers and scores, it is about understanding what the risks and opportunities are of a particular investment.
Institutional investors have a fiduciary duty to act in the long-term interests of their clients. Environmental, social and governance (ESG) factors are relevant in this context, according to the Principles for Responsible Investment (PRI). Since the launch of the PRI in 2006, investors have devoted a significant amount of time integrating ESG factors into their investment decisions. For institutional investors formal ESG integration policies have become indispensable. Nevertheless, the mere existence of such a policy is not a reliable indicator of an investor’s real commitment to sustainability. Actual practices with respect to ESG incorporation vary greatly, ranging from negative screening to the full integration of ESG risks and opportunities.