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War between the US and Iran came perilously close this week. The immediate threat of conflict has receded for now. But simmering tensions that risk spilling over into outright hostility have dominated the news on the corporate front as well as geopolitics and markets.
Bellicose talk sent more than just goldbugs scuttling for the shiny stuff. Prices for the classic haven asset climbed to their highest level since 2013. Commodity traders’ holdings are at a two-year high, which could leave the precious metal exposed when nerves calm. Fear not, says Lex. Stickier central bank holdings, at two-decade highs, should stop a mass exodus. Absence of a correlation with other asset classes — notably equities, more than a decade into the bull run — also plays a part.
It’s not just war-shy investors who are playing safe. A steady shift to passive over active investment has gathered pace, to the chagrin of the money men and women. Assets managed by global index funds have risen fourfold over the past decade and now exceed $10tn. Active fund manager Franklin Resources, parent of Franklin Templeton, illustrates the trend: its market value has halved over five years.
But Franklin Templeton is not just a casualty of investment trends, says Lex. It was slow to defend its corner, only launching its first suite of passive ETFs in 2017. Star manager Michael Hasenstab sought to gain an edge with contrarian bets. His fund lags behind 95 per cent of its peers.
One man with a taste for a fight is throwing in the towel nonetheless. Willie Walsh is retiring from IAG, the airline colossus he crafted out of British Airways and Iberia. During a 15-year tenure, Mr Walsh angered almost everyone apart from shareholders. Pilots’ pensions and frequent flyers’ free Financial Times copies were both targets of aggressive cost cutting. Shareholders, the beneficiaries of his “consolidate or die” strategy, trebled their money under his helm. Cognisant of more responsible capitalism, Lex counsels his successor Luis Gallego to take a more conciliatory approach.
Big bust-ups are still the order of the day elsewhere, however. British royal watchers might have expected the UK’s first family to take a break after Prince Andrew’s public pummelling last year. Instead, Prince Harry and Meghan Markle have ramped it up a level. Their plans to split from “the firm” set up a potential clash with the Queen as they plot a path to financial independence.
Lex is staying out of it, but will follow with interest any move by the Duke and Duchess of Sussex to cash in by hawking baubles to the remaining cash-rich consumers. The flurry of post-Christmas trading updates from retailers this week confirms the sector’s status as one of the bloodiest battlegrounds. While UK retailers suffered their worst annual performance on record last year, US retailers look to have benefited from rising sales in the run-up to the holiday, But don’t pop the champagne just yet: returns for the festive season could reach $95bn this festive season.
Over in Germany, Lex says Metro AG is right to get out while it can. The European grocer is selling its lossmaking hypermarket chain Real but holding on to its wholesaling business.
Smartphones are another sector subject to the ravages of fickle consumers. Technology warriors gathered at the annual Consumer Electronics Show in Las Vegas where fifth-generation wireless has overtaken blockchain as the transformative technology of choice. Lex says it will be Apple’s future 5G phone that is the litmus test for consumers’ ultrafast broadband appetite, and the sector’s future prospects. If customers bite, it will give succour to suppliers suffering from a smartphone sales slump, supporting handset prices of $1,000-plus. Samsung has other plans to diversify earnings away from semiconductors: exoskeletons for supercharged workouts, folding phones and fancy fake pets.
For those folk already weary of all the talk of fighting, Lex has a potential salve. Cannabis is becoming more readily available, or at least medical marijuana stocks are. European savers will be able to invest in the Medical Cannabis and Wellness exchange traded fund through Canadian funds group Purpose Investments. Alas, Lex thinks investors should be leery. Cannabis investments have had their highs and lows. Look elsewhere for their sense of calm.
Cat Rutter Pooley
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