David Wheildon / August 2021
The genie is out of the bottle and it will be difficult to put back in! As we work our way through the new lockdown relaxation guidelines we must remember that nothing is off the agenda; it is highly likely that the country will not wear another lockdown – but it is not impossible.
The current Government thinking appears to be that the inevitable rise in Covid cases is acceptable, as the vaccine is (generally) breaking the link between infections and hospital admission, and for those admitted to hospital it is largely breaking the link between admissions and deaths. When allied to the thought that the NHS can “cope” once vaccination levels reach approximately two thirds of the population, we can understand the decision to water down the Covid restrictions.
Although it is early days, it does appear that just because we do not have to wear masks and keep our distance anymore not everybody is immediately returning to the old ways of mask free proximity to others. I do not often have great faith in the great British public’s ability to do the right thing but can only hope that the wider population does just that, in an effort to keep the infection numbers under control.
Last quarter I suggested that inflation would be allowed to run and that it would creep upwards over the coming months, with the positive effect of reducing the real value of debt and promoting the values of real assets, such as shares and property –and the latest figures bear this out. The markets are reacting to this increase in inflation as a spike and not a long-term phenomenon and as such seem reasonably content.
There have been wobbles of volatility and these will become more frequent if the spike in inflation turns into a long-term trend. For the time being markets seem able to absorb the news without too much trouble but be assured we are watching the position carefully.
The issues of ESG (positive Environmental, Social and corporate Governance) investing continue to come to the fore both in individual cases and across the investment sphere as a whole. It is clear that the issues associated with Climate Change will impact on us all over the coming years and the way we live our lives will have to alter in an effort to reduce the damage to the climate.
When allied to the power of social media and the importance of businesses maintaining their moral and social conscience whilst trying to not only do the right thing, but avoid a public backlash, there are further changes developing in the way businesses operate. These changes offer threats to those businesses that do not adapt and opportunities for those that do – a common thread of my reports, is that long term business models are akin to the dinosaurs, you must adapt or you will not survive.
One of the results of the global Covid pandemic, which was exacerbated by the container ship stuck in the Suez Canal and then blocked from moving on as compensation terms were finalised, is that businesses are reassessing their global supply chains. The idea of a global economy with raw materials and individual components travelling thousands of miles is being reconsidered by some firms as they attempt the deglobalisation of their businesses.
There are currently shortages of components in sectors such as house building and car manufacturing where there simply is almost no supply of items from bricks and cement to computer chips. These shortages together with a desire to be more self-reliant is encouraging businesses to look closer to home for their raw materials and suppliers.
With these changes to the way large businesses operate looming, we will be considering the impact this has on smaller businesses as they can adapt more easily and take advantage of changing trends quickly. A “small” business is still pretty large (circa £ 250M valuation), but in global terms these businesses are not giants and offer the opportunity to invest in nimbler firms with greater potential for growth. As individuals and businesses look closer to home and alter their lifestyles, there will be opportunities for investment that are exciting and will provide great opportunities for us as investors.
Change is always with us and should be looked upon as an investment opportunity; we will be monitoring your fund managers to ensure they are making the most of the opportunities presented to them over the coming months.
This article is the opinion of David Wheildon, Director of Rogate Capital.
This article is the opinion of David Wheildon