Fortnightly update, 16th October 2020
In today’s update, we examine the international currency market and consider ways of supporting an end to global hunger.
Currencies and exchange rates may bring back memories of waiting in line at the airport. However, in the world of investments, the international currency market looms largest, with an average daily volume of around $6.6trillion1. Goldman Sachs recently expressed fears that the dollar may tumble to 2018 lows, based on the likelihood of a vaccine and a Joe Biden government (instead of a potentially contested and delayed election result) as a result of the upcoming election2. This could ease pressure on what is often perceived to be a risk-free asset – US Treasury bonds.
Elsewhere in currency markets, a Russian minister made headlines by celebrating the ruble’s 20% fall against the dollar3. As Russia’s largest export, the slump in oil prices led to a slide in the currency at the end of the first quarter. This combined with the growing threat of EU and US sanctions, resulting in the ruble becoming one of the worst performing currencies this year.
The hunt for yield has been on for years, ever since central bank stimulus forced bond yields to historic lows. But in equity markets, companies in the UK and across the globe have been looking to reduce or even scrap dividend payments in order to ‘shore up’ balance sheets. Having reported on the historic dividend cuts in the UK from the likes of Shell and BP last month, nearly a third of Asia Pacific companies have scrapped or reduced dividends this year, including household names such as HSBC and Nissan4. The difference is that in regions such as Asia, where annuities are not common, many depend on dividends as a key income source, and are therefore more directly tied into the standard of living.
The 2020 Nobel Peace Prize winner was announced this month. The 101st recipient was the United Nations World Food Program (WFP), for their work combatting global hunger and creating increased food security in order to promote the conditions for peace5. The WFP not only works to deliver food assistance in emergencies and in the midst of humanitarian crises, but also to develop the resilience of communities to reduce incidence of chronic food insecurity through improvements in nutrition and food production6.
The work of the WFP also ties in with the broader United Nations Agenda and their Sustainable Development Goals (SDGs) for 2030. The second of these 17 far reaching goals is “Zero Hunger” with the first being “No Poverty”7. These two aims are inextricably linked, with food-related assistance being at the heart of the struggle to break the cycle of hunger and poverty.
The consideration of the SDGs, and the global trends they highlight, play a vital role in how Holden & Partners think about the future and the world around us. Environmental and social megatrends are influencing financial markets and we feel that understanding how these issues manifest themselves is more important than ever.
Themes concerning our food system, such as the innovation needed in agricultural practices and changes to how we consume, provide exciting investment opportunities. Environmental themes that we take note of when researching potential investments include changing land use, biodiversity, sustainable resources and the influence of climate change. All these factors have an impact on food production.
Food security and its influence on peace and prosperity are key environmental and social issues. Identifying such themes and backing companies that target areas of future growth in a rapidly changing world can enable investors to generate a credible financial return. In this case, it can be achieved by supporting the commitments of the international community to end hunger.
5 https://www.bbc.co.uk/news/world-54476569
6 https://www.wfp.org/overview
7 https://www.un.org/sustainabledevelopment/sustainable-development-goals/
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