1st May 2020

Due to the lock down, the Advisory Panel met for the first time not in person but over video link, to discuss a changed and turbulent world.

Energy and the fossil fuel economy, the future of global transport, the likely comprehensive change in the world’s perception and understanding of debt, the resilience and/or susceptibility of different emerging economies and their currencies, sources new and old of taxation to finance the enormous economic bill of government intervention, the likelihood of a return of inflation, the timing and shape of any recovery, the possibility of capital controls – all these and more featured in an especially wide-ranging discussion.

A major topic of conversation was the role of government in the global economy and corporate landscape, at present and in the future. The moves of the government have been extraordinary as well as widespread. The Panel felt that the reach of government into the economy was unlikely to retreat at any time soon, even after the ebb of the pandemic, and governments’ changed relationship with the banking system is especially noteworthy. This is an area where governments might find enormous attraction in keeping a finger in the pie (or should we say keeping a major influence on strategy and on lending committees). This is a step change compared to the investment landscape over the last four or more decades and requires a fundamental change in mentality.

On micro-economics, we discussed some of the current conundrums of investing – should a company’s very long term value be affected if it had to shut operations for a year? Which ones will survive and which fail? At least part of this was down to who makes that decision – the markets via emergency financings and rights issues, or government via considerations of national strategic importance. Rights issues and other capital raisings are the current rage and it is worth watching the winners and losers, but also especially the duration and scale of the capital needs of the market. The Panel will continue to monitor developments, which promise to be fascinating even if potentially discomforting.

Peter Hollis, Russell Napier, Angus Tulloch, Ally McKinnon, Glen Finegan and the Kennox investment team.

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