MoneyWeek 29.07.2022_downmagaz.net

FOCUS P20 PROFILE P29 PLUS How to find J.Lo: the The bubble in soaraway American dream high-end whisky stocks on steroids COLLECTABLES P35 CcurarrceknecdyMAKEIT,KEEPIT,SPENDIT 29 JULY 2022 | ISSUE 1114 Will the euro crisis flare up again? Pages 3 and 14 BRITAIN’S BEST-SELLING FINANCIAL MAGAZINE MONEYWEEK.COM



29 July 2022 | Issue 1114 Britain’s best-selling financial magazine From the editor... MoneyWeek has restore competitiveness and fuel been around long confidence in stricken states’ enough to see ability to grow out of debt. several big trends Cue endless wrangling recur. Most of between the European them have been authorities and southern fascinating to cover. But one key governments, and a cascade theme of the past decade fills of market panic attacks me with dread, because it was focused on different countries like watching a slow-motion car until ten years ago this week crash: the euro crisis. It may now Mario Draghi promised to do be making a comeback, as Alex “whatever it takes” to keep explains on page 14. southern bond yields low. The launch of the euro ©Getty Images The prospect of the European coincided with the start of a Central Bank hoovering up global upswing, so the currency’s The launch of the colourful notes coincided with a global upswing enough bonds to keep the yields intrinsic flaws were overlooked. down kept the wolf from the Everyone was getting used to “The euro is a deflationary straitjacket for the door, and a similar mechanism, the conversion rates (an irksome south; a recipe for recession and rancour” the Transmission Protection 13.76 schillings to one euro in Austria). with a shared instinct for sound money. Instrument, was launched last week, again Because the eurozone encompassed most What we got instead, of course, was against a backdrop of turmoil in Italy. EU members it was trumpeted as a giant northern Europe plus the inflation-prone The wolf is still there, however. There leap forward for European integration. south’s less healthy balance sheets. The is still ample scope for market panics prospect of sharing a currency with people and political clashes between Brussels A sub-optimal currency area who can’t budget, and would probably and the member states, while the EU’s Many analysts, however, pointed out that need a bailout at some stage, unnerved construction of a fiscal union (with an there had never been a successful single many northern Europeans, but such incipient banking union and a Covid-19- currency without a single government, objections were steamrollered by the induced recovery facility allowing the EU and that the euro was far from what integrationist tide. When the financial tide to borrow collectively) is proceeding at economists call an optimal currency went out after the crisis, investors’ fears the speed of a hungover giant sloth. More area. The basic idea is that groups of over the sustainability of the southern broadly, the eurozone is still stuck with structurally similar economies, who often countries’ debt duly proved justified and a structure that acts as a deflationary tend to experience similar business cycles, bond yields soared. Since bond yields straitjacket for much of the south, a recipe are best suited to sharing a currency. A are implied long-term interest rates, that for recession and rancour. Until there is similar approach to money management exacerbated countries’ solvency problems. a European government or the euro is helps too, as it pre-empts fights about any In the absence of a central fiscal dismantled, the eternal crisis can only be joint budgets and potential debt issuance. authority to send money to poorer parts managed or fudged – never resolved. Benelux, Germany and Austria would of the currency area to temper the impact arguably be an optimal currency zone: of a downturn, only painful reforms and wealthy manufacturing-based economies a clampdown on prices and wages would Andrew Van Sickle [email protected] Bursting bubble of the week Good week for: Trading basketball trainers is no longer a slam dunk, Microsoft co-founder Bill Gates (pictured) is giving $20bn to his says The Wall Street Journal. Demand for limited- foundation to fund a 50% increase in its annual spending by 2026, edition shoes had soared in recent years, boosted says the Financial Times. The Bill & Melinda Gates Foundation, by easy money, the growth of online marketplaces which Gates set up in 2000 with his then-wife, currently spends and pandemic-induced supply shortages, and the $6bn per year on trying to fight disease and poverty. Gates has global resale market was estimated to be worth pledged to donate most of his $120bn fortune before he dies. $6bn last year. Now, as the economy slows, prices are slumping. A pair of Nike Dunk Low Retro White The head of a “failing” Ministry of Defence quango received a Black trainers sold for $290 on the StockX online £100,000 bonus last year, says The Times. Simon Bollom heads the marketplace in February, but are now going for less Defence Equipment and Support body, which has been accused of than $200, while a pair of Air Jordan 1 Retro High wasting billions on botched procurement deals. These include the OG “Patent Bred” valued at $300 in April now £5.5bn Ajax armoured vehicle programme that was launched 12 fetches around $230. years ago and has not produced a single deployable vehicle. However, “some hotly anticipated releases of Bad week for: limited-edition shoes still command top dollar”. Earlier this month, Nike released a limited edition A New York preacher known for his designer suits, luxury cars, of Air Force 1 trainers created by the late gold and diamonds was robbed of $1m of jewellery by gunmen Louis Vuitton during a sermon on Sunday, says CNN. Lamor Miller-Whitehead – designer Virgil who previously served five years in prison for fraud – pushed Abloh, initially back against subsequent criticism of his lavish lifestyle. “It’s my priced at prerogative to purchase what I want to purchase,“ he said. $2,750. All pairs quickly sold out Amazon is increasing the price of its Amazon Prime service – and are now which offers free next-day delivery and video-streaming – for selling on European users in response to higher costs, says the Financial StockX for more Times. The annual fee will rise by an inflation-busting 20% to £95 than $11,000. in the UK. Rates in Germany will go up by 30% and in France by 43%. The company raised fees in the US by 17% earlier this year. moneyweek.com Cover illustration: Adam Stower. Photos: Getty Images; Intuitive Instruments 29 July 2022 ©Alamy; Getty Images

4 Markets Beware of cheap emerging markets Alex Rankine Markets editor This year has seen a “brutal sell-off” in ©Alamy Commodity exporters such as Brazil were a bright spot until raw-material prices turned down emerging markets (EMs), say Marcus Wong and Melissa Cheok on Bloomberg. EM as China and India, which are “more consumption, technology and innovation.” dollar-denominated bonds posted the worst self-contained financially, with state-led The asset class increasingly contains world- first-half showing since at least 1994; local- banking sectors and bond markets... largely class businesses, too. “Emerging markets currency debt saw record losses and stocks closed to foreigners”. Only 16% of EM have gone from being the followers to global tumbled the most since 1998. debts are in foreign currencies. Local banks leaders in... advancing technology.” do most of the lending. “Instead of sudden Commodity exporters have been a crises that spill back across borders and to Emerging markets look cheap, but bright spot, says Netty Idayu Ismail, also Wall Street, many places face slower-burn tread carefully, says Mohamed El-Erian on Bloomberg. Soaring prices for energy, and home-grown dangers: inflationary in the Financial Times. A global recession foodstuffs and metals made “the currencies spirals or zombie banks.” Still, while EMs would weigh heavily on EMs, which tend and bonds of Brazil to Mexico and South as a whole are less vulnerable to a crisis, to be highly cyclical. EM bulls are also Africa… the best performers among there are a few exceptions (see below). making the bold assumption that “the developing-nation peers in the first five internal social and political fabric” of months of 2022”. Yet even that trade has EMs have changed in other ways, these countries “will be able to absorb turned as materials prices soften on fears of too, says Andrew Ness of the Templeton a significant hit from prices of food and an impending recession. The iShares MSCI Emerging Markets Investment Trust. The necessities”. There are some opportunities EM ETF has lost 19% so far this year. rise of Asia has brought diversification. in EMs, “but rather than general investing “We’ve seen a transformation away from by tracking indices”, the current climate “More pain for EM assets lies in commodity-driven economies to… growth calls for “a more selective approach” to store,” says Franziska Palmas of Capital drivers that are much broader, like domestic placing your EM bets. Economics. Firstly, because rising interest rates and bond yields in developed markets will tempt capital away from EM assets. “Second… a slowdown in global trade could weigh on EM corporate earnings growth. Gloom on Wall Street will also carry over to emerging markets, which are perceived as riskier than developed ones.” A more resilient asset class A strong US dollar has fuelled fears of an emerging-markets crisis. “The archetypal emerging-market crisis was in 1997-98”, says The Economist. Rising US interest rates broke Thailand’s currency peg with the dollar. The resulting panic “floored South Korea and Indonesia” before wreaking further havoc in Brazil and Russia. Yet a repeat in 2022 is unlikely. Today the EM index is dominated by Asian giants such Who will follow Sri Lanka into a debt crisis? Sri Lanka will not be the last Zimbabwe is among the countries that could prove vulnerable ©Alamy after the financial crisis, says country to plunge into a debt The Economist. “In 2019 public crisis. The island nation institutions like the World “insurance companies, debt stood at 54% of GDP defaulted in May this year as Bank”, a growing share is held pension funds, hedge funds” across the emerging world.” soaring global food prices and by private investors. “The and investment banks. The Budget deficits then soared a tourism slowdown caused amount of bonds issued by countries with the shakiest amid the pandemic, but now by Covid-19 collided with years African states on international debt positions include the bill is coming due. A global of profligate state spending. markets has tripled in the last Mozambique, Zimbabwe, slowdown and tighter Inflation is running at 54.6% ten years.” These instruments Malawi and Zambia. “financial conditions will be and essentials such as food have been bought by Governments borrowed freely more than some governments and medicine have run short. can bear”. Which countries could Debt relief is on the follow? The situation is international agenda, but the especially acute in Africa, say trouble is that lending is less Danny Bradlow and Magalie transparent than it used to be Masamba on The because of China’s emergence Conversation: “22 countries as the world’s biggest bilateral are either in debt distress or at creditor. Work by Sebastian high risk of debt distress”, Horn and Christoph Trebesch according to data from the of the Kiel Institute and International Monetary Fund Carmen Reinhart of Harvard (IMF). While most African debt University suggests that is owed to governments in rich “almost half of China’s lending countries or “multilateral abroad is unreported”. 29 July 2022 moneyweek.com

Markets 5 Why isn’t gold Cracks appearing in China doing better? “For a market deemed on the verge of ‘uninvestable’ a few ©Getty Images The Middle Kingdom is losing its appeal to investors Gold is being overshadowed by months ago”, China looks “king dollar”, says Ranjeetha “pretty perky”, says Craig property market “now threatens soon enjoy a renaissance. The Pakiam on Bloomberg. The Mellow in Barron’s. The CSI to spill over” into “a local MSCI China index trades on greenback’s strength this year is 300 index lost 23% between banking crisis”, as shown by an undeniably cheap cyclically weighing on the yellow metal, 1 January and a low in April, recent scandals at “provincial adjusted price-to-earnings which is priced in dollars. Prices but has since rallied 11%. banks”. The sector is “heavily (CAPE) ratio of 11.9. have fallen to a 16-month low of indebted” and “weighed $1,700 an ounce. You would Without abandoning “zero- down with bad loans”. That Yet money managers now think that “market turmoil, Covid”, officials have signalled compounds fears over local- prefer to gain exposure to China inflation and war” would boost a shift to a more “dynamic” government debt worth an via nearby regional markets or gold, says Hardika Singh in The approach that makes greater use estimated 44% of GDP lurking Western firms with operations Wall Street Journal. Yet higher of targeted testing and largely in the opaque financial system. in the country rather than by US interest rates and a strong eschews draconian lockdowns buying local stocks directly, dollar are major headwinds. of the type seen in Shanghai this Cheap for a reason says Sofia Horta e Costa on spring. Stimulus is incoming, Bloomberg. “Even if you have a “People associate high with the central bank easing The Nasdaq Golden Dragon positive macro view on China, inflation with a strong gold lending conditions and another China index, which tracks [it’s] hard... to sell Chinese market [but] what really matters infrastructure splurge on the US-listed Chinese firms, lost stocks,” says Jamie Dannhauser is how central banks [deal with] way. Crucially for investors, 67% between February 2021 of investment firm Ruffer. inflation,” says Bart Melek of TD “regulatory assaults on internet and June 2022, says David Securities. Investors think that companies have eased” – Brenchley in The Times. Is this Some European pension central banks will hike interest witness Alibaba’s 40% share- a buying opportunity? Chinese funds reportedly “no longer rates aggressively, which has price gain since mid-March. shares have become “regarded want China in their portfolios sent yields on government as a pariah asset the same way because of rising geopolitical bonds surging. Gold and bonds “Stringent Covid lockdowns” energy was in 2020”, says and governance risks”. As compete as “safe-havens”. saw China’s economy contract Mike Coop of Morningstar Ruffer’s Matt Smith puts it, Unlike gold, bonds also pay by 2.6% between April and Investment Management. “the supertanker of Western interest, making them more June, say Li Wei, Ding Shuang Like energy shares, they could capital is starting to turn away attractive than gold as yields and Hunter Chan of Standard from China”. rise. Still, while gold is down Chartered. Yet more recent data about 4% this year, it has been “points to a continued economic doing far better than most recovery”, with industrial bonds or world stockmarkets production up 3.9% in the year of late. to June, while the retail sector expanded by an annual 3.1%. What would it take to spark a rally? An “indication that the US “We expect China’s economy Federal Reserve is nearing the to improve further in the run-up end of its rate hikes”, Peter to the 20th Party Congress [this Spina of GoldSeek.com told autumn] on increased stimulus Myra Saefong in Barron’s – and less disruptive Covid- either because debt markets control policies.” can’t cope or because the economy is being tipped into a The economy is not in the recession. That would see the clear yet, says Ian Williams dollar “cool” and lead to lower in The Spectator. A sagging bond yields. “It may be safe to bet that the metal will prove once again just how precious it is to investors – under the right conditions.” Viewpoint n British mid-caps beat US large-caps “Between 2000 and 2015, [US] 1,000 S&P 500 vs FTSE 250 America’s benchmark blue-chip consumption of steel fell 15%, aluminium 800 S&P 500 may have grabbed the 32% and copper 40%. Energy Total returns since 30 June 1997 (%) financial headlines over the past consumption, which has always been decade, but on a total-return directly correlated with GDP, fell 2% S&P 500 basis (including dividends) the between 2008 and 2017, while GDP FTSE 250 humble FTSE 250 has expanded by 15%. How has this performed better over the past happened? Capitalism, the profit function 600 Source: The Times and The Sunday Times / Morningstar Direct 25 years. The UK mid-cap index and innovation... The incentive to has returned 813% since the dematerialise is about to get a lot 400 middle of 1997, compared with stronger. The war in Ukraine has pushed 611% for the S&P 500. “Smaller up the price of... oil by 30%... this year, 200 companies find it easier to grow fertiliser prices have almost doubled and their businesses than large unionised workers are pushing for pay 0 firms. They’re also more nimble increases... To respond to these 2000 2005 2010 2015 2020 and able to change their strategy inflationary forces and maintain healthy more quickly,” says David profit margins, [firms will have to] digitise Brenchley in The Sunday Times. faster... If the impact of... geopolitical The FTSE 250 has tumbled 17% uncertainty is less oil, less trade and more this year, but that may represent expensive labour then we are only going a buying opportunity given the to arrive there faster... For tech investors, index’s record. The FTSE 250’s that means long-term future cash flows forward price-to-earnings (p/e) may soon become medium-term ones.” ratio has fallen from 19 in June last year to a bargain 12.8 times Arthur Sants, Investors’ Chronicle this April. moneyweek.com 29 July 2022

6 Shares An Anglo-French satellite merger VW boss runs out of road The auto titan’s tenure at the German car giant came to a premature end Shares in the French satellite after he fell foul of the group’s powerful owners. Matthew Partridge reports company Eutelsat fell by 17% after it confirmed merger Until the end of last week Herbert Diess looked Raymunt and Christoph Rauwald on Bloomberg. talks with OneWeb, a British “every inch the modern, global auto titan” , say However, his “key project failures” gradually rival part-owned by the UK John Arlidge and Jon Yeomans in The Sunday persuaded the family that “he had to go”. These government, says The Times. However, the CEO of Volkswagen failures include delays to the “scheduled rollout Guardian. The idea is that was evidently “too brash, too bold and in too of important new models, including the electric Eutelsat will merge much of a hurry for many of the company’s Porsche Macan SUV” as well as struggles “to with OneWeb, which key stakeholders”. VW announced that he muster broader support” to implement a €89bn provides broadband had been forced out three years before the end electric-vehicle (EV) and software strategy. Still, coverage from space, to of his contract by a unanimous vote of the even his harshest critics acknowledge Diess’ create a business “50/50 carmaker’s supervisory board. The move “strategic vision” and his “achievement in owned by shareholders in has upset many institutional transforming VW’s culture both companies”. shareholders, with for the [EV] age”, say analysts calling it William Boston and The British government “another illustration Georgi Kantchev in currently owns almost a fifth of dysfunction The Wall Street of OneWeb, while French and at VW”. Journal. His Chinese state-owned entities emphasis hold stakes of 20% and 5% Diess’s departure on moving respectively in Eutelsat. The was at least partly away from governments of the UK and the result of “a series fossil fuels France would each have of public blunders”, “has seen seats on the board, while says Joe Miller VW’s Sunil Bharti Mittal, whose in the Financial brands, Bharti telecoms business is Times. These include including the largest shareholder in saying he was “not aware” of Herbert Diess Porsche, OneWeb, will become detention camps in China’s Xinjiang committed a series of blunders Audi, Seat... co-chair of the new firm with region and using the insensitive an 18% shareholding. phrase “EBIT macht frei” at a and Bentley develop core electric models with company event. He also gained “notoriety” for a plan to shift fully to EVs this decade”. This deal, sold as a “merger his “skirmishes” with VW’s “powerful works The change at the top “probably won’t of equals”, represents an council, which controls several seats on the derail Volkswagen’s electric vehicle ambitions”, apparent vindication for the company’s supervisory board”. Unions were especially since Porsche – under VW’s new CEO government, especially particularly “angered” by his suggestion that the Oliver Blume – “has rolled out the successful former advisor Dominic group had 30,000 excess staff and his complaints Taycan model and expects green vehicles to Cummings, who persuaded that Tesla employees managed to produce an be as profitable as combustion engine cars it to step in and rescue electric car in just a third of the time it took VW. in two years”. A “fresh start” may even help OneWeb from bankruptcy Blume persuade the wider company to raise with a $500m injection two Clashes with the workers investment in EVs “while improving lacklustre years ago, says Tom Howard profitability”. But Blume’s appointment could in The Times. Diess’s gaffes and “frequent clashes with muddy Volkswagen-Porsche’s already complex powerful worker representatives” may have governance: he will still be in charge of Porsche The bailout, which came played a role in his departure, but they were even though Volkswagen plans to list the luxury after technology investor survivable as long as he had “unwavering SoftBank, the main backer, support” from the billionaire Porsche and Piech declined to put in more family, the majority owners of VW, says Monica money, was controversial at ©Getty Images the time. But with the new ©Getty Images firm estimated to be worth brand. If this set-up produces a “greater muddle”, $6bn, the UK government’s investors “may start to miss... Diess’s gaffes”. 10% stake will be worth $600m, giving it a total profit Martin Sorrell’s S4 slips up of $100m. Still, SoftBank will lower than the previous Sorrell’s dreams of also do well out of the deal as Last week saw some bad news consensus of between £154m overtaking WPP, which he left it “still retains a substantial for investors in S4 Capital, and £165m. S4 claimed that in 2018, are in tatters, says Nils stake in OneWeb”. Martin Sorrell’s (pictured) revenues were still “robust” and Pratley in The Guardian. His ”rapidly expanding advertising blamed the reduced profits on projected bonus has been wiped This may look “like a good start-up”, says Patricia Nilsson in soaring staff costs, especially in out. He also faces awkward deal for OneWeb” and its the Financial Times. The shares the creative department “where questions about how to finance backers, who seem to have halved after the company cut its the content for the digital S4’s “roll-up strategy” (it has done well, says Liam Proud on full-year guidance on earnings marketing that S4 has pitched bought 29 agencies since its Breaking views. Still, it’s not before interest, taxes, itself as an expert in gets made”. inception in 2018). surprising that Eutelsat depreciation and amortisation shareholders aren’t to £120m, which was much S4 has suffered a “disastrous Since he has ruled out particularly pleased. period”, says Jamie Nimmo in issuing any new shares below Their company is being The Sunday Times. The share 425p, “deal-making is effectively transformed “from price has plunged from £8.70 presumably off the table”. a cash cow into a venture- last September, valuing it at Past arrangements with style bet on the future of £5bn, to a mere £1.24. digital-native founders space communications”. Confidence in S4 has also been “who have hitched themselves badly hit by the fact that PwC to S4’s wagon” in return for The new company will “twice delayed its audit of the shares “may become more need to invest large sums as annual results”, before expensive to satisfy”. Overall, OneWeb “is still miles away confirming “serious failures” in it seems he has “a crisis on from completing its second- S4’s accounting. his hands”. generation satellite network”. Even if this is successfully 29 July 2022 done, the new company will then face competition from Elon Musk-owned SpaceX’s Starlink and Amazon’s Project Kuiper. moneyweek.com

Shares 7 MoneyWeek’s comprehensive guide to this week’s share tips Three to buy Pets at Home or its ability to navigate weak shares now sit at around 100p. SDI consumer confidence. 321p Charging infrastructure has not The Telegraph kept up with the 400,000 EVs Shares Pet food and accessories retailer Pod Point already on the road, which is SDI group is a collection of Pets at Home has outperformed why Pod Point “merits scrutiny firms that manufacture and the FTSE 250 index by 13 The Sunday Times as a possible investment”. It is design equipment used in sectors percentage points since February This electric-vehicle (EV) a young company that has yet ranging from healthcare to 2020. The group operates charging business has had a to generate profits. But it is a precision optics. The shares are 457 shops across the UK and “disastrous time” since it listed leading player in the growing trading on a price/earnings (p/e) offers grooming services and at 225p last November; the market of at-home charging multiple of below 20 for the veterinary appointments. It has points. French energy giant first time in two years, so this a strong online presence, a new EDF has a majority stake in it looks like a buying opportunity. distribution facility opening and it could be the subject of a SDI is highly profitable, with next year and a “sound” takeover deal if bigger industry gross margins of around 65% financial position. What’s rivals choose to plug into the and returns on equity and more, the demand for pet- market. It’s a risky bet, but investment of 22% to 25%. related products and services is with the stock down and EV The board has proved adept at “relatively inelastic”. The stock’s popularity on the up, it’s worth a identifying acquisition targets current price does not reflect buy. 100p to fuel growth at “conservative” its long-term growth potential prices. 148p Two to sell trading just below their Royal Mail and lower sales owing to the five-year average but still “structural decline” in letter abrdn aren’t compellingly cheap. The Times volumes (down 6% in the three The group’s upcoming results A vote for strike action by months to June). Avoid the Investors’ Chronicle “could yield some surprises” but postal workers spells even stock. 297p The £500bn asset manager’s “it seems unlikely that further trouble for Royal share price has fallen by 40% any major boon will be Mail shareholders. Profits over the last year, and the revealed”. Shares have been for the 12 months to the end stock is also among the 20 most- downgraded by analysts and of March are likely to come shorted London-listed shares. Citi, Credit Suisse and RBC in at break-even for the core The outlook is inauspicious. Capital Markets have all business, far below guidance Analysts have grown issued sell recommendations. of over £300m given in May. “concerned about a seeming “Plausible catalysts for a quick The guidance, moreover, lack of strategic direction”. It share price recovery” seem excluded any impact from strike has struggled with outflows and unlikely. 154p action. The company has also is falling victim to passive funds been hampered by rising costs as investors shift away from active managers. The shares are ...and the rest acquisitions to advance growth. companies to keep ahead of by the “long-awaited demerger” Buy (550p). the game”. of its consumer healthcare arm, Investors’ Chronicle Haleon. Now the rebranded The Mail on Sunday Shares GSK has to prove it can use extra Drinks-maker AG cash to bolster its drug pipeline Barr, whose brands Shares in Cohort, a small, L&G Global Health & and drive growth; early signs include Irn-Bru, independent UK defence and Pharmaceuticals Index Trust of progress so far this year are has managed security-technology group, are offers exposure to the healthcare encouraging. Buy (1,783.4p). to avoid the currently selling for 529p, sector, a “defensive and relatively Streaming giant Netflix lost a London market’s which represents a buying stable” area of the market. million subscribers in the quarter “tidal wave of opportunity. The company Despite its steady growth and to the end of June as it grappled profit warnings, has addressed the problems “defensive” traits it trades at a with cost of living pressures, toasting three that caused poor performance at “relatively attractive” rating. rising competition, account profit upgrades its half year results and its order Buy (121p). sharing and the post-pandemic in the past 12 book is now “stronger than fall in demand. Most of these months”. Investors ever”. Cohort will also The Times headwinds won’t abate any time are overlooking benefit from the West’s need soon, so avoid the stock ($223). the solidity of its for “smart, innovative defence GlaxoSmithKline’s “punishing portfolio and the identity crisis” has been settled scope for strategic ©Alamy; Pets at Home A German view IPO watch Troubled times call for reliable sources of growth and income, Hong Kong-based financial services platform AMTD Digital has says Focus-Money. Enter America’s pharmaceuticals giant Eli become the New York Stock Exchange’s biggest initial public Lilly. It has been paying its investors a dividend for more than 100 offering (IPO) this month, says Bloomberg. The company offers years, while it also has a very promising pipeline. It has just insurance advice and broking along with marketing and asset received approval for a new diabetes treatment that helps people management services. AMTD sold 16 million shares at $7.80 monitor their blood-sugar level. Tirzepatide may also be approved each to raise $125m during the offering, implying a market as a weight-loss treatment: it is the first drug of its type to capitalisation of $1.44bn. The shares soared by 108% on listing, activate two hormones present in the intestine. These then marking the biggest first-day jump this year for an IPO worth produce insulin and temper hunger pangs. Five more drugs are to over $25m. It has been a quiet year for IPOs: 2022’s 145 flotations be launched in the next 18 months. Producing an antibody have raised just $18.7bn, compared with 648 firms mustering a treatment for Covid-19 has bolstered recent profits further. record $219bn at this stage last year. moneyweek.com 29 July 2022

8 Politics & economics Game over for “Super Mario” Italy’s dysfunctional political system has seen off another prime minister. Jasper Spires reports Mario Draghi’s resignation has plunged Draghi: heading for the exit in September ©Alamy Italy “back into the political chaos for which it became famous… and from which a country in tatters.” Italy is mired in America”. It now leads the polls on more he momentarily rescued it”, says The a “polycrisis” of declining consumer than 20% and could become “the first Observer. Draghi was forced out as prime spending, lower business investment and far-right party to lead a major eurozone minister last week after the right-wing rising prices (inflation is at 8.6%). GDP is economy”, most likely in coalition with the League and Forza Italia parties followed forecast to grow by just 0.9% next year. League and Forza Italia (the party of former the left-wing Five Star Movement in And one should not forget the fact that he prime minister Silvio Berlusconi). withdrawing their support and breaking up devised the most punitive, discriminatory his precarious coalition. He will now stay and segregational mass vaccination policies That would raise “grave doubts” about on as caretaker until elections are held on in the West”, extending vaccine passports whether Italy can pass the reforms required 25 September. “The ensuing uncertainty to most public spaces and restricting many to access the EU’s recovery fund, says has serious implications not only for Italians people from working. No wonder a recent The Economist. The League was resisting but for Europe and the EU.” poll shows that 50% of people aren’t happy deregulation and tax reforms. Other parts with how the government has performed. of Draghi’s plan – including justice reform Unquestionably, it’s a bad time for and changes to competition laws – “will Draghi to go, says Tony Barber in the Bringing on the Brothers now die with his government”. Financial Times. Since being appointed in February 2021, he has guided Italy through The big winner from elections is likely to However, what a Meloni-led government the pandemic, devised a reform programme be the far-right Brothers of Italy party, led will do in power is unclear, says Maria to unlock €200bn for Italy from the EU’s by Giorgia Meloni, says David Broder in Tadeo on Bloomberg. She is popular now post-pandemic recovery fund, and set out The New York Times. In 2018, her party “because opposing policy is easier than plans for Europe to decouple from Russian secured just 4% of the vote, but in the last making tough choices”. Once parties get energy and to support Ukraine. few years it has been a beneficiary of the into government, public support dissipates. “breakdown of the barriers between the Italy has “an extraordinary ability to Many Italians are asking why they are traditional centre-right and the insurgent build and burn politicians… for Meloni, discarding “a statesman of rare quality” far-right across Western Europe and becoming the next premier… may prove a when the country needs “wise, efficient poisoned chalice”. and principled leadership”. His departure is not down to the voters, but to professional politicians who prefer the “wheeling and dealing that is the hallmark of Italian politics” and creates such a rapid turnover of administrations. At 17 months, Draghi has lasted longer than average for the 69 governments since World War II. Draghi’s “defenestration” has left the Italian and international establishment “reeling in horror”, says Thomas Fazi on UnHerd. When he became the latest in a string of unelected, technocrat prime ministers, there was broad consensus that “a Draghi government would be a blessing for the country, a final opportunity to redeem its sins”. Yet reality has not met expectations. “Draghi leaves behind US-China tensions come to a simmer over Taiwan Nancy Pelosi: should she ©Getty Images US House speaker Nancy Taiwan is an important part of “greatly” and bring potentially stay or should she go? Pelosi’s planned visit to Taiwan the global economy – disastrous consequences for would make her the most senior dominating the crucial every country in the region. 29 July 2022 US politician to visit the country semiconductor market, for in 25 years, but her trip is example – and it cannot be A “dramatic response” from causing anxiety. allowed to fall to China. A visit China cannot be ruled out, says by Pelosi now would signal that War on the Rocks. But US president Joe Biden has “Taiwan’s quest to remain free something more than symbolic said the Pentagon is not in is supported by top US leaders”. visits are now needed, which favour of the visit. China, which Backing down in the face of are “no longer up to the task of claims the democratically Chinese protests would send a deterring an increasingly governed island as part of its message of weakness. Better to assertive and capable China”. territory, has warned of stand firm now than sit and wait If anything, such visits risk “forceful measures” if it goes for Beijing’s next move. “precipitating a crisis without ahead. The concern in Taipei, meaningfully raising Taiwan’s says the Financial Times, is that That would not be wise, says ability to cope with the fallout”. it is trapped between two bad the South China Morning Post. Better would be concrete outcomes – of being punished The one-China principle is the action, including ensuring that by China if the trip goes ahead, political foundation of China-US arms sales and large-scale and of China being emboldened relations, and Biden reaffirmed training assistance for Taiwan’s if Pelosi cancels the trip. US commitment to it just four military are a part of upcoming months ago. A visit now would legislation. Taiwan needs “more Pelosi should go, says Henry raise tensions, provoke China than just friendship right now”. Olsen in The Washington Post. moneyweek.com



10 Politics & economics Who will be the next PM? Betting on The debate has generated much heat and little light. Matthew Partridge reports politics A debate between the two means that a more With £3.8m matched on remaining contenders restrained attitude to tax Betfair on the market on for the Tory leadership, cuts is the only way “to who will be the next PM foreign secretary Liz maintain international and £3.5m matched on Truss and former confidence in our public that for the next chancellor Rishi Sunak, finances and prevent a Conservative leader, ended in a “bloody sterling collapse”. Still, punters appear stalemate” on Monday, Truss’s policy may be the convinced that Liz Truss say George Parker and more popular one with a will be succeeding Boris Jasmine Cameron- party membership that Johnson – she is the clear Chileshe in the Financial has experienced “more favourite to beat Rishi Times. The contest to tax, regulation, big Sunak. Indeed, she is succeed Boris Johnson as government, intrusive now on 1.21 (82.6%) in Britain’s prime minister and woke bureaucracy both the next reached “new levels of and stonking prices for Conservative leader and acrimony” in the debate. daily necessities than the next PM markets; her Sunak said Truss’s plans they can remember since opponent is at 6 (17.2%) for immediate tax cuts the 1970s”. Tory party to become the next would plunge millions Truss v Sunak: a “bloody stalemate” so far members “have to be leader. Punters have also dismissed the idea that into misery, crash the economy and lead to a big offered something different. She is doing so, a bit. Johnson might try to spike in interest rates. Truss countered that her tax Mr Sunak is really just saying: ‘Trust me.’” withdraw his resignation cuts would boost growth and that it was Sunak’s – you can get 1.02 (98%) “negativist, declinist” tax rises that would put Levelling what? on him not being prime Britain into recession. Indeed, their apparent “appetite for tax cuts”, minister by the time of rather than “hair-shirted fiscal responsibility”, the next Conservative “Trust me” is such that Sunak has already been forced into a party conference. Truss’s belief is that immediate tax cuts will ease “screeching U-turn”, says Patrick O’Flynn in The the pressure on incomes and aid the supply side Spectator. Just days after branding Truss’s approach Perhaps the most of the economy, says The Times. But this “doesn’t “not Conservative”, he is now “trying to grab some interesting market is that mean tax cuts automatically pay for themselves by of her tax-cutting brownie points by promising on Truss’s vote share. unleashing extra investment and consumption”. to scrap VAT on domestic energy in the autumn”, According to Ladbrokes, They must be “paid for by spending cuts or despite attacking just that idea barely a few months 55%-60% is the favourite alternative sources of revenue”. With “little spare earlier. Truss has effectively exploited the debate at 9/4 (30.7%), with 60%- capacity” in the economy, and inflation already to position herself as both a Johnson loyalist and 65% at 10/3 (23.1%), 50%- overshooting the target rate of 2% by more than 7 a “candidate of change”, constrasting that with 55% at 4/1 (20%), 45%- percentage points, the Bank of England would then Sunak’s disloyalty and promise of more of the same. be forced to “inevitably respond with faster and Meanwhile, all this talk about tax means Caption here more substantial increases in interest rates”. that “levelling up”, a key pledge of the Johnson Sunak might be right that, in an “overheated government, has been all but forgotten, says The 50% at 5/1 (16.6%), 65%- economy with more job vacancies than there are Economist. That matters as it may well alienate 70% at 6/1 (14.2%), over unemployed”, the stimulus created by tax cuts those voters in the “red wall” seats that the 70% at 11/1 (8.3%), 40%- “might be too much of a good thing”, says Charles Conservatives captured from Labour at the last 45% at 16/1 (5.8%) and Moore in The Daily Telegraph. And the fact that election. That could bode ill when whoever ends up under 40% at 33/1 (2.9%). a quarter of government debt is linked to inflation leading the party next goes to the country. With £4,994 matched on Smarkets, 55%-60% is Food supply deal in jeopardy after Russia strikes 3.85 (25.9%), 60%-65% is 4.7 (21.2%), 45%-50% is Putin’s stranglehold is loosened area, rather than at the ships tonnes of wheat and other grains 5.8 (17.2%), 65%-70% is ©Getty Images themselves, but the deal was stuck in silos, taking a dangerous 8.2 (12.1%), 40%-45% is “Barely had the ink dried” on last thrown into question by the toll on a global food supply 12.5 (8%), over 70% is 13 week’s deal, agreed with both attacks. Wheat future prices, already strained by coronavirus (7.7%) and under 40% is Russia and Ukraine via the UN which fell after the deal, ticked disruptions and poor harvests. 17 (5.9%). and Turkey, to allow grain back up again after the strikes. exports to resume from Even before the attacks there Despite the Russian attack, Truss’s position looks blockaded Ukrainian ports, was widespread scepticism the agreement is moving ahead, formidable at the when Russia hit the port of about how many ship owners says The Washington Post. moment. Still, there are a Odesa with two cruise missiles, would be prepared to risk sailing Ukraine has begun organising few weeks left to go, and says the Financial Times. The into Ukrainian ports or pay the vessels to join a “caravan” of I can’t see her getting strikes were purportedly aimed hefty risk premiums being ships to export grain from the more than 60%. So I’d at military targets in the port demanded by insurers. three ports covered by the advise you to bet on her agreement. The deal includes getting either 40%-45%, If the deal fails, that could security assurances for both 45%-50%, 50%-55% or have serious consequences for Ukraine and Russia, which have 55%-60% of the vote for the rest of the world, says The agreed not to undertake attacks combined odds of 73.1%. Economist. Before the war, on merchant or civilian vessels To properly split a £10 Ukraine was one of the world’s or port facilities. But “everyone bet, put £4.20 on 55%- most important exporters of is clear-eyed about the risks”. 60%, £2.74 on 50%-55%, wheat. The Russian capture and “We are in a state of war,” a £2.27 on 45%-50% and blockade of Ukraine’s southern Ukrainian minister said. The deal £0.79 on 40%-45%. ports has have left 22 million “doesn’t change that fact”. moneyweek.com 29 July 2022



12 News London warned that the company was Breakingviews. “But with volumes falling navigating a “truly unprecedented and full-year profitability expected at the Price hikes: Consumer- cost landscape”. He expects profit bottom of his guidance range, there’s no goods giant Unilever margins to remain lower for the room for more inflationary surprises.” upped its prices by 11% rest of the year; cost inflation is Price hikes came at the expense of lower in the three months predicted to peak in the second trading volumes across Unilever’s three to June from the year half. Unilever has had to contend main divisions, with home care the hardest before as it sought to with steep rises in commodities hit. Underlying revenue rose by a yearly pass cost increases on to such as palm and crude oil, 12% for the quarter as the price of products consumers, says Judith natural gas and kerosene distillates. jumped 17%, but sales volumes slipped by Evans in the Financial 4%. Unilever’s operating margin is likely Times. The company is also Underlying sales grew 9% in the to drop to 16% this year, the bottom of investing in advertising to foster second quarter from a year earlier, ahead of Jope’s predicted range, and investors will loyalty and keep consumers from being analysts’ expectations of 7%. be wanting to know when it will move back tempted by cheaper alternatives. But towards his 20% pre-pandemic goal. finance chief Graeme Pitkethly (pictured) CEO Alan Jope can “breathe a sigh of relief”, says Dasha Afanasieva on Mountain View Advertising revenue slows: “Google’s massive advertising business had some heavy lifting to do with its second-quarter results”, says Dan Gallagher in The Wall Street Journal. “It managed – barely.” Advertising revenue at Google parent Alphabet grew 12% year on year in the second quarter to $56.3bn, compared with overall revenue of $69.7bn – a 13% increase from a year earlier – as advertisers reined in spending during the pandemic against a backdrop of global uncertainty. Advertising revenue on its video-streaming platform, YouTube, grew by a record-low rate of “just” 5% year on year. Fortunately, Alphabet’s traditional search business is five times bigger than YouTube, and its 14% growth to $40.7bn was enough “to carry the day”. Still, the tech giant warned it would cut back on hiring. “When even Google battens down the hatches, a decent storm is likely on the way.” Microsoft reported a similar story. It posted fiscal fourth- quarter sales of $51.9bn, a 12% increase year on year and its slowest rate of growth in two years due to supply-chain disruptions, the same drop-off in advertising revenue growth and the end of the Covid-driven boom in computing and video-gaming. Microsoft, too, is freezing hiring. Bentonville nearly a tenth of all retail sales in the US and it is the biggest private Inflation nibbles away at Walmart: Arkansas- employer in the country, says John based retail giant Walmart expects its second- Foley on Breakingviews. So its quarter profits to suffer price markdowns, profit downgrade is a “widespread prompting a 10% drop in the shares, says Sarah problem”. The company has two Nassauer in The Wall Street Journal. Sales of problems – “the goods its customers no general merchandise and clothing in particular longer want, and the goods they actually have been hurt by the rising cost of living. do”. It now has $61bn worth of inventory Overall, it expects comparable-store sales for lying around, compared with $44bn its Walmart US division to rise 6% for the same at the beginning of 2020. Getting back quarter from the same period a year ago, but the to that figure “will be ugly and involve growth is owed to “less profitable” items such heavy markdowns”. That consumers are as food. Steady household spending has so far buying more food, which generates lower supported the domestic economy in spite of rising margins, rather than goods, also makes that consumer prices, but inflation is now running harder. The trend “could stick” as “regular close to its highest level in decades and the Federal Americans” change their spending habits. Reserve is expected to raise interest rates in response. The “supermarket colossus” makes up The way we live now... splurging on bottled water Aqua-snobbery is taking over “The pretentiousness has now products, concocting qualities and ©Getty Images; Unilver reached the height of Arctic profiles to distinguish a particular absurdity,” says The Times. Exotic bottle’s “flavour”, “terroir”, bottled water brands are flying off “vintage” and “delicate mineral the shelves with increasing rapidity. variations”. “Creamy, with a delicate “Spitsbergen will set you back a finish? Light and smooth or with mere £120… Patagonia, a little body and elegance?” It’s all there. pricier at £130… Breeze, purportedly distilled from the fog of the Canary A fifth of Britons only drink Islands – a mere snip at £12 a bottled water in a boast of “aqua- bottle.” Estimated consumption of snobbery”, encouraging the overpriced water in Britain will be overflow of landfills with bottle more than £2.3bn in 2026. Never wastage and emptying their bank mind the cost-of-living crisis. What accounts. “Is this a throwback to the makes it all the more unbearable is days when water was contaminated the marketing behind these … or is it scaremongering about the chlorine in British tap water?” 29 July 2022 moneyweek.com

News 13 Russia is turning the screws with gas Moscow Gas supply restricted: Russia resumed pumping gas to Europe following repairs to the Nord Stream 1 pipeline last week. That allayed immediate fears of an indefinite shutdown, says The Times. However, the supply, when it resumed, was 30%-40% below normal volumes, “leaving President Putin with substantial leverage over Germany and some of its neighbours”. Germany has been forced to put together a €15bn rescue package for Uniper, Europe’s biggest buyer of Russian gas, in exchange for a 30% stake in the company. On Tuesday, European Union members agreed a watered down “solidarity package” designed to shield Germany and other economies from a shutdown this winter by voluntarily cutting gas usage by 15% between August and March. Some “refuseniks” abstained, however, while Russia said it would limit supplies to a fifth of capacity. While Britain is less reliant on Russian gas in theory, the price it pays is still closely correlated to European prices, says Jennifer McKeown of Capital Economics. Wholesale gas prices in Britain surged to their highest level since March, when Russia invaded Ukraine, to 375p a therm – four times as high as a year earlier. The upshot is that “inflation pressures will be relatively persistent in Europe”, interest rates higher and recessions more probable. Beijing Property bailed out: China will set up a fund to shore up at least a dozen property companies in the heavily indebted sector, says financial news outlet REDD. China Construction Bank and the People’s Bank of China will inject RMB80bn (£9.8bn) into the fund, which can be expanded up to RMB300bn. Its aim is to restart stalled development projects by buying developers’ bonds, issuing loans and buying shares. Property buyers had threatened to stop mortgage payments on uncompleted flats if construction stalled, say William Langley and Sun Yu in the Financial Times. Real estate accounts for almost a third of total output in the world’s second-biggest economy, but it has suffered a liquidity crisis since developer Evergrande defaulted on its debts last year. The firm’s CEO, Xia Haijun (pictured), and finance chief have resigned after a probe found the firm had diverted funds from its subsidiary, putting at risk a restructuring plan for $19bn of offshore bonds, says Yawen Chen on Breakingviews. That its liabilities alone amount to $300bn suggests that Beijing will have to come up with a much more substantial lifeline. Atlanta Hong Kong McProfits are fizzing: Americans “aren’t yet cutting back on life’s Alibaba upgrades listing: Mainland Chinese investors will be simpler pleasures”, as quarterly earnings results from Coca-Cola able to buy and sell e-commerce giant Alibaba’s stock after the and McDonald’s have shown, says Aaron Back in The Wall Street company applied for a primary listing on the Hong Kong Stock Journal. Atlanta-based Coca Cola’s organic sales rose by 16% in Exchange (HKSE), says Cissy Zhou on Nikkei Asia. The upgrade the second quarter from the year before, thanks to price increases to its current secondary listing will allow it to join the Hong Kong’s and higher sales volumes. The company raised its outlook for full- Stock Connect scheme with the Shanghai and Shenzhen exchanges, year sales. Fast food giant McDonald’s reported global comparable through which mainland investors can trade Hong Kong-listed sales for the same three-month period rising 9.7% from 2021, shares. Alibaba first listed on the New York Stock Exchange in driven by price increases. Consumers “tend to delay purchases of 2014, when its $25bn initial public offering (IPO) was the biggest big-ticket items” when recessions hit but trading down in beverages ever. Since then the share price has almost halved thanks to only comes when people are really feeling the pinch, meaning Coca- competition and a regulatory crackdown in China. In November Cola has some way to go before it feels the heat from the rising cost 2019 it added a secondary listing in Hong Kong. Secondary of living. That is a testament to its brand value. McDonald’s has listings require less time, are cheaper, and are exempted from seen lower-income consumers trade down to value items and fewer certain rules. Alibaba’s chairman Daniel Zhang (pictured) said the combo meals, but “high single-digit” price increases have sustained upgrade was about “fostering a wider and more the top line. The two companies’ results “highlight the resilience diversified investor base”. Yet US regulators of packaged food makers, especially in the United States”, despite have increased their scrutiny of Chinese consumers’ shift towards eating at home. Coca-Cola CEO James companies, threatening to delist those Quincey has confirmed the soft-drinks maker will increase that hide their audit records. If Alibaba prices yet further in markets where costs are increasing overall does end up leaving New York, expect to pass them on to consumers. other Chinese companies to follow. moneyweek.com 29 July 2022

14 Briefing Will the euro crisis flare up again? With Italy’s borrowing costs rising quickly, and inflation climbing, the European Central Bank has unveiled a new tool to help indebted states. Is it 2012 all over again? Alex Rankine reports What’s happened? On 21 July the European Central Bank (ECB) raised its key interest rate by 0.5% to 0%. It was the ECB’s first hike in over a decade and ended the era of negative interest rates. ECB president Christine Lagarde also introduced the bank’s new “transmission protection instrument” (TPI), a plan to prevent governments in the euro area’s periphery from being submerged by rising borrowing costs. The ECB says that it will buy the bonds of countries it believes are suffering “unwarranted, disorderly market dynamics”. As Marcus Ashworth on Bloomberg puts it, “TPI” might as well stand for “To Protect Italy”. What’s the problem? ©Getty Images Italy’s borrowing costs are rising. This time last year Rome could borrow for ten years at 0.6% and for five years at a sub-zero rate, Christine Lagarde lacks her predecessor’s ability to charm bond traders but the figures have leapt to 3.4% and 2.6% gas as Germany. Even its world-class decide whether a country deserves to see respectively. The collapse of Mario Draghi’s manufacturing and luxury goods will its borrowing costs spike or not). The government (see page 8) and the prospect of not be much help as the global trade cycle Commission will also help gauge if a state is a more spendthrift one coming to power has turns. Draghi’s successor is likely to be a running sound fiscal policy. That will raise sparked the latest ructions. With a debt-to- less careful manager of the public purse. If the stakes in any budget battle between GDP ratio of 150%, Italy can ill afford its that happens then the ECB may judge that a Brussels and Rome: “An assessment that borrowing costs to surge. What’s more, the future rise in bond yields is “warranted” by a troubled country has breached the fiscal spread between German and Italian ten- reckless spending and decline to intervene. rules [could now make] it ineligible for year government bond yields, a key gauge of monetary support,” says The Economist. stress in the eurozone, has risen from 1.4% So is this a new eurozone crisis? Will the new government cause trouble? in January to 2.4% this week – a sign that Not yet. While Italian bond spreads have ECB interest-rate rises are hitting the bloc’s risen, they remain short of the 5% level “Italy’s next government is unlikely to bring weakest states the hardest. they reached at the height of the sovereign the country’s future in the eurozone into debt crisis a decade ago. As John Authers doubt,” says Jack Allen-Reynolds of Capital Did Lagarde’s intervention work? notes on Bloomberg, while that crisis Economics. Euroscepticism has lost ground Markets were underwhelmed. Ten years revolved around the solvency of a whole of late. A future government would also ago this week, Mario Draghi, Lagarde’s set of countries (Portugal, Italy, Ireland, have a big incentive to stick with Draghi’s predecessor, famously vowed that “the ECB Greece and Spain), this time it’s squarely reform plans to keep receiving instalments is ready to do whatever it takes to preserve about Italy. The others have got their of the €200bn Italy is due from the EU’s the euro”. Those words made clear that the public finances in order, for now at least. “Next Generation” Covid recovery fund. ECB would backstop eurozone sovereign The Greek experience also suggests that debt and marked when push comes So there’s nothing to worry about? the end of the acute “Portugal, Greece and Spain to shove, politicians phase of the crisis. have got their public finances and populations Talk of “Italeave” and eurozone break-up Lagarde hoped to are reticent about appears overdone for now, but markets emulate Draghi, but crashing out of are having to price in the risks of drama in order – for now” to come. Even if it doesn’t risk Italy’s euro bond traders found the TPI plan vague. The the euro: it would turbocharge imported membership, a new government in Rome message was “we do what we want, when inflation and see the value of bank savings won’t be happy with dutifully following the we want”, Paul Donovan of UBS Global collapse (they would be re-denominated in a reform plans laid down by Draghi. “Looser Wealth Management told Katie Martin new, weaker currency). Still, high inflation fiscal policy” is likely, says Allen-Reynolds. in The Financial Times. And the scheme is exposing the eurozone’s fault lines anew. “Parties’ demands for extra funds for their might well tempt traders to test the ECB’s favoured policies was one of the reasons intervention levels. While Lagarde lacks Would the ECB bail out Italy? that the [Draghi] coalition fell apart”. The Draghi’s ability to charm bond traders, the In practice, the ECB has often shown trouble is that could jeopardise the country’s real problem is that a decade ago inflation itself willing to fudge rules when eurozone access to the EU pandemic recovery funds. was barely above zero, says Martin. “Now survival is at stake. Lagarde has given The plan’s provision for jointly-issued EU it is 8.6%.” So there seems little scope for herself plenty of wiggle room. As Willem bonds is a crucial first step towards the further potential monetary easing. Buiter notes on Project Syndicate, the type of fiscal burden sharing that could flagship Draghi-era crisis tool – Outright ultimately fix the eurozone’s structural What’s the worst-case scenario? Monetary Transactions (OMTs) – was problems. Trouble in Rome could make Soaring bond yields can become a self- never actually used because of its “robust it harder to persuade austere northern fulfilling prophecy, bringing on the very eligibility requirements”. The new TPI Europeans to agree to a repeat. As Luigi insolvency that nervous traders have framework loosens those conditions, Scazzieri of the Centre for European begun to fear. The backdrop for Italy’s with the ECB giving itself wide scope Reform, a think-tank, told the Financial public finances is not propitious: the to determine if widening bond spreads Times, “the whole idea of joint borrowing country is almost as dependent on Russian are “warranted” (essentially, it will by the EU is at stake here”. 29 July 2022 moneyweek.com



16 City view Big Tech’s push into medicine The technology giants have long wanted a slice of the medical action. They are making a big mistake Matthew Lynn free products we get from the internet. It is City columnist a different matter to collect and manipulate our health records. There is a reason why There have been rumours for years. There Your watch is keeping track of you – ©Getty Images doctor-patient relationships have always have been presentations, speculations, and and not just for the good of your health involved a degree of confidentiality. The tech occasionally even a minor product launch. giants can promise to respect that. But they But right now it is finally happening. The be valuable. The problem, however, is that have been so cavalier with the use of data in technology giants are making their long- this will take the tech giants into dangerous the past, and so reckless about finding ways awaited push into healthcare. political territory. “The deal will expand of making money from it, that no one is Amazon’s ability to collect the most intimate likely to believe them. As so often, Amazon led the way, paying and personal information about individuals, $3.9bn for One Medical in the US, a in order to track, target, manipulate and It’s not like slinging books primary healthcare organisation that exploit people in ever more intrusive ways,” covers almost 800,000 people across 25 warns the Open Markets Institute, an The political scrutiny will be intense. Even states. For Amazon, it is a huge step up in organisation that campaigns for stricter in a relatively free-market system such as the its attack on the medical market. It bought antitrust regulation. US, the government is a major player and in online pharmacy PillPack for $750m in 2018 just about every other developed country in and since then has started selling through There is truth in that. It is one thing the world it is the dominant force. It’s one its own pharmacy as well. But this is the to monetise our record of browsing for thing to disrupt the market in books, music, first time it has taken control of a major new phones or holidays, and then use that clothes or food retailing. They are already healthcare provider. information to feed us advertisements or very competitive markets. It is something recommendations for different products. else to open up hospital services, GP Apple has similar ambitions. Last week, That happens all the time, and we more or surgeries, or even pharmacies to new ideas. the company set out its strategy for making less accept it as the price we pay for all the healthcare its next major expansion, with On top of all that, doctors everywhere devices, apps and services based around its have formed themselves into the fiercest existing products. There is speculation that it trade unions ever seen. None of them will may make a similar acquisition to Amazon. give up any of their privileges easily, and Google has also targeted the industry, as has they invariably have the public on their side. Meta. Healthcare is shaping up to be a major Governments are not going to sit back and battleground for some of the world’s biggest see how the dust settles – they will stop the and richest companies. process before it has even started. Eyes on the prize The reality is that, if the tech giants become major players, they will invite It’s not hard to understand the attractions. intense regulatory scrutiny and provoke a In most countries, healthcare provision is political backlash. Most of the major tech inefficient and expensive, with outcomes companies are already skating on very that could be vastly improved. The sector thin ice, with lots and lots of governments, could certainly use new technology and new regulators and activists demanding that ideas, in management and delivery as well they be broken up, that they pay more taxes, as drugs and treatments. And it is a huge and that their power be curbed. Healthcare industry, accounting for 10% of GDP in could easily be the tipping point: the most countries, and even more in the US. moment when all that talk finally turns into With populations ageing, it is only going action. It is not worth it – and if the likes of to grow. Even a tiny slice of the market will Apple and Amazon don’t get that they will have big problems in the years ahead. City talk l When Marks & Spencer have found the double-act bonus. Members ‘a perfect bank’”, ©Getty Images formation hard to sustain.” can’t force him to says Jamie unveiled its new top trio of hand back the Nimmo in The executives in March, chairman l Mark Hartigan, the CEO of cash, but they can Sunday Times. Archie Norman said the three send a signal by The result was would be “flying in formation”. insurer LV, has finally loosened voting against the Starling Bank, That plan didn’t last long, says his “limpet-like” hold on his 2021 pay report. which last week Nils Pratley in The Guardian. job, says Ruth Sunderland in “They should take the turned profitable for “Wingman Eoin Tonge, aka the the Daily Mail. Hartigan, who opportunity to vent their the first time: it earned finance director and chief got a £511,000 bonus for 2021 spleen.” And chairman Simon £32.1m, having lost £31.5m the strategy officer, has pressed “despite the costly failure of his Moore, who “has done himself year before. “We’ve proved the eject button.” Tonge is off egotistical plan to sell off the no favours by larding praise on that this model really works,” to AB Foods – which owns business to private equity” will Hartigan”, should advise the says Boden. Still, “as with all Primark and various food step down once a replacement CEO to donate his 2021 bonus bank statements, the devil was businesses – for is found. Perhaps the prospect to charity and tell him to say in the fine print”. Starling’s understandable reasons. “ABF, of “utter humiliation” at the sorry. “The very least that he income included a grant worth £13.3bn, is a relative annual general meeting – owes the members he served handed out by Banking jumbo jet compared with where members want a so poorly is an apology.” Competition Remedies as part M&S’s £2.8bn.” Now M&S’s no-confidence vote – “focused of a programme to reduce future will depend more than the minds of his board l After Anne Boden (pictured) NatWest’s grip on the small- ever on how well co-chief colleagues”. Still, Hartigan business banking market. executives Stuart Machin and stays on his existing contract quit as chief operating officer “The sum? £32.9m. Enough to Katie Bickerstaffe work until a successor takes over, of Allied Irish Banks in 2013, lift it to a profit.” together. “Other companies and may even accrue another she said her aim was “to create 29 July 2022 moneyweek.com

Investment strategy 17 The market miseries Guru watch Fund managers feel as pessimistic Cliff Asness, now as they did in 2008 and early co-founder, 2020. So is it time to fill your boots? AQR Capital Management John Stepek ©Shutterstock Executive editor ©Getty ImagesDespite doing better in relative Sentiment is a useful thing for investors to keep an terms in recent eye on. The logic behind this is that markets are times, the valuation driven by expectations. As a result, if sentiment gap between value and is at an extreme – either bullish or bearish – growth stocks (see below for then there’s a good chance that markets are at definition) is still vast a turning point. Why? Because if everyone is a compared to history, Cliff bull, there’s no one left to buy. And if everyone Asness, co-founder of AQR is bearish, well, things can only get better. With Capital Management, tells this in mind, the latest monthly survey of global Bloomberg. Indeed, it’s “still fund managers from Bank of America (BoA) is within hailing distance of the quite the eye-catcher. It reveals that global fund tech bubble peak... We still managers are pessimistic to an extent only seen have prices I didn’t think I’d at periods of extreme investor stress, such as the Fund managers are feeling down see again in my career.” Lehman Brothers collapse of late 2008 and the are causing much of the angst with their (by recent AQR, which specialises in peak of coronavirus chaos in spring 2020. standards) aggressive action against inflation. “quant” investing strategies, In particular, the proportion of fund managers So the odds of seeing a major bottom until there has had a very strong year, who think a recession is likely is now at a level is some sign of central banks at least relenting with its longest-running only previously seen in April seem low. Could that point come strategy gaining more than 2020 and March 2009 – both of “Saying ‘it’s different soon? A look at other indicators 35% in the five months which were significant turning this time’ is just in the BoA survey shows that the through May, reports points for markets. While there amount of cash being held (more Bloomberg. Yet despite this are reasons to be fearful today, asking for trouble” cash is more bearish) and desire massive gain (particularly given the backdrop of a most people would surely agree that things aren’t to take risk, are also near record lows. However, nasty fall in wider markets), as bad as they were during the financial crisis, or previous lows in these two indicators have come Asness believes the value at the outbreak of the pandemic. Does this level of not right at turning points, but several months rebound could last for some misery mean that it’s time to buy? beforehand (eg, risk aversion last reached this time longer. “The last time level in October 2008, directly after the Lehman There’s one big difference Brothers collapse). In other words, if the (fairly we saw this, the tech bubble, Saying “it’s different this time” in the investment short) history of this survey is anything to go by, it took about three, four world is just asking for trouble. But as readers there are signs a decent buying opportunity could years, to come in” to may well remember, there is quite an obvious come within the next six months. something approaching the difference between today and those two Of course, timing the market is not a sensible ©Alamy historic norm. “And then it kept going to where value occasions. In both March 2009 and April 2020, strategy. The key for long-term investors is to actually got... more central banks were stepping in with what can focus on buying what is undervalued today, not expensive than normal.” only be described as “shock and awe” levels of what might go up tomorrow. But if you have been quantitative easing (QE) to underpin investment hanging on to more cash than usual, now might The experience of recent markets. On this occasion, it’s central banks who be a good time to start putting some of it to work. years has taught Asness and AQR that specific strategies I wish I knew what growth and value that its earnings can’t justify can “trend” for “long were, but I’m too embarrassed to ask the price they are paying. A periods in both directions”, value investor has to consider longer “than even we would Investors in stocks can follow a Value investing is the whether a stock is cheap for a have guessed”. That might number of different approaches opposite. Value investors focus reason – perhaps the imply that investors should – often referred to as “styles” – on companies that appear to be underlying fundamentals of be willing to bet more when deciding which stocks to cheap today (or sometimes the business are faltering and aggressively on a strategy invest in. Of these, the two most stocks that should be cheap in the will lead to falling profits or when it’s working, even often used to classify investors very near future if the business even bankruptcy. though “that’s always are “growth” and “value”. recovers after a recession or a little scary”. crisis – this is sometimes known That said, growth versus Growth investors look for as “special situations” value provides an easy way to Overall, he notes, companies that are expected investing). While growth divide the market into stocks “I’m not married to value. If I to grow their earnings faster investors are typically mostly that are popular and high- ever thought shorting value than their sector or the wider concerned with earnings, value priced and those that are out was the right strategy, I market. They will often be investors often look for stocks of favour and trade on lower would do it.” But given the willing to buy shares on that trade at a discount to book valuations. Historically, the current gap in valuation valuations that appear quite value (assets minus liabilities) or value segment of most (or “spread”) between high compared with other offer high dividend yields. markets has tended to beat growth and value, “I think companies if they believe they growth over the long run we’re nowhere near gonna may be justified by future Some investors see this (which may be attributed to find that.” profits. This approach places distinction as artificial. A exuberant investors more emphasis on the firm’s successful growth investor still overvaluing potential 29 July 2022 potential, as opposed to its needs to be confident that a growth). However for most of current financial situation. company is not so overvalued the post-financial crisis era, growth has beaten value. moneyweek.com

18 Best of the financial columnists A wake-up “Years of complacency have landed Germany in a pickle,” says The Money talks call for Economist’s Charlemagne columnist. For decades, political leaders lulled Germany voters with “intoxicating talk of perpetual prosperity with minimal friction “I probably and zero emissions”. They woke to the sound of Russian tanks rolling into should have Charlemagne Ukraine, and now find that all the promises were built on cheap imported those big The Economist manpower and energy. The reckoning with past mistakes lacks urgency. Half of Germany’s nuclear power-generation capacity was shut down career virtually overnight in the wake of the Fukishima disaster, yet the Greens thoughts, in the coalition government are still insisting that closure of the remaining shouldn’t ones go ahead. And despite sitting on plentiful natural gas reserves of its I? It actually own, German production has collapsed, partly because extraction would came about rely on fracking, for which the public holds an “irrational fear” – not least by accident, thanks to a propaganda campaign led by the pro-Kremlin Russia Today but it’s ended programme. Yet the solution to Germany’s woes lies in its own hands. Gas producers say that, given a chance, they could double their output from up being the fracking in as little as 18 to 24 months. That could see Germany pumping biggest labour-of-love job gas well into the next century and trim imports by some $15bn a year. I’ve done.” Russia’s Some commentators argue that sanctions on Russia have been ineffective. Comedian Frank Skinner economy is That is far from the case, say Jeffrey Sonnenfeld and Steven Tian. The (pictured) on whether he imploding Kremlin’s numbers have become increasingly unreliable as the war has started out with a plan to gone on. A detailed look at alternative data sources reveals the truth – become successful, quoted Jeffrey Sonnenfeld that sanctions are having a “devastating” effect, and that the case for and Steven Tian the resilience of the Russian economy is based on myths. Russia cannot, in The Guardian Foreign Policy for example, simply redirect its gas exports and sell to Asia instead of Europe, as most of its exports are reliant on pipelines that flow into “I believe in the yogic Europe. Similarly, being forced to redirect its oil supplies to Asia has led to concept of dharma, falling prices, meaning Russia is in danger of losing its status as an energy superpower. “Russia needs world markets far more than the world needs meaning the world will Russian supplies.” Imports of other goods have collapsed by more than provide for you. If you 50% in recent months. Some sectors have been hit with inflation of 40%- relax, have the right 60%. Indexes of business activity are plunging. The Kremlin’s finances energy, and focus on what are under strain. Even the much vaunted strength of the rouble is down to you want, the money you “unprecedented and draconian” capital controls. More action is needed, need to live that life will but, “by any metric and on any level, the Russian economy is reeling”. come. People might think that’s airy fairy nonsense, A turning What Xi Jinping called a “strategic partnership for a better future” between point in China and Africa back in 2010 was often decried as colonialism by African but it does seem China’s rise leaders, says Lauren Johnston. In response Xi promised to “ improve the to happen.” structure of China-Africa trade” and seek to identify opportunities for Lauren Johnston exports from African countries. A “milestone was reached” in this project Explorer Ed Stafford, in Nikkei Asia when a Chinese ship recently became the first to berth at Nigeria’s first The Sunday Times deep-water port, which was financed by the China Development Bank. Nigerian Ports Authority managing director Mohammed Bello-Koko “Money don’t mean hailed the arrival of the ship from Shanghai as “historic”; it signified s*** to me… I always Nigeria’s readiness to “take trade facilitation a notch higher”and play its tell people – they think part in optimising trade across the African Continental Free Trade Area, money’s gonna make “a pact connecting 1.3 billion people across 55 countries that the World them happy, they’ve never Bank believes can transform Africa’s economies”. There are two globally had money before – significant investments ready to take advantage of the port: Dangote when you have a lot of Group’s petrochemical complex, an oil refinery with a capacity of 650,000 money, you can’t expect barrels, and the $2.5bn Dangote fertiliser plant. The deepening ties nobody to love you. How between Africa and China look set to change the world economy. am I gonna confess The NHS Millions “dropped out of the workforce” in the pandemic, so it’s no my love to you when you is now on surprise Britain’s labour force is now smaller than it was in 2019, says John its knees Burn-Murdoch. But in other countries many returned to the labour market have $500bn?” as quickly as they left it. Britain is the only developed country where the Former boxer Mike Tyson, John Burn-Murdoch number of working-age people who are neither employed nor looking for quoted on Yahoo Movies Financial Times work has risen nearly every quarter since 2019. The number was higher in the first quarter of 2022 than at any time since the pandemic started. The “The notion that tax cuts, reason? Chronic illness. Two in three of the half-million Britons aged 15-64 without any spending cuts ©Getty Images without a job cite long-term illness as the reason for remaining out of work. This is not happening anywhere else – in many European countries levels of or substitute source of economic inactivity due to long-term sickness did not change throughout revenue, will so stimulate the pandemic – and Britain’s rise in chronic illness predates Covid. “The most plausible remaining explanation is grim: we may be witnessing the the economy that the collapse of the NHS.” The 332,000 patients that have been waiting for over budget balance will a year for hospital treatment is a close match to the 309,000 people missing improve, enabling further from the labour force due to chronic illness. Other countries’ healthcare tax cuts to be made… is a systems proved resilient to Covid; the UK’s “is on its knees”. spurious kind of virtuous circle and emphatically not 29 July 2022 part of my thinking.” Nigel Lawson, chancellor under Margaret Thatcher, in The Sunday Times “While I was in Spain, I got a passion for reading the Financial Times. I found it quite exciting, reading about commodities and foreign exchange. I decided to throw myself into that industry… I went from being skint to making £250,000 a year, which was a lot of money in 1988.” Saxo Bank co-founder Lars Seier Christensen, quoted in The Mail on Sunday moneyweek.com

Best of the blogs 19 The apocalypse Dutch farmers: an unwilling sacrifice for the laptop class is upon us unherd.com end to extractive industries and ©Getty Images those that rely on them. Those The recent heatwave has who most directly make their funded, AI-governed lives”, to be that “endless progress on “intensified an already simmering living from such industries are staring out of their pod homes the industrial model has already apocalyptic mood”, says Mary caught in the crosshairs and over thousands of acres of robot- ended” and “getting out of the Harrington. Whether it’s panic want answers. Things may not tended agro-industry while bind we are in is going to be over health and safety issues, be able to go on as they are, but awaiting their drone delivery of grim”. While the technofuturists wild fires or the global food can industrial agriculture really insect protein. present their scenarios, green supply, the “vibe is everywhere”. survive decarbonisation? What movements are turning from Apocalypse has come to will we grow and who will own Beneath both the futile policy to millenarianism and mean “the cataclysmic end of the land? Who will work it? resistance and the grandiose the young are saying they don’t everything”, but the ancient plans is a “bubbling sense of want to have children. Others Greek understanding was that it Idealists dream of a small- madness” as we start to see how just take the opportunity to is an uncovering or a disclosure farm revolution – even as land interconnected the challenges take potshots at the Tories, or – not the end of the world so ownership is concentrated are and how “unimaginably alternatively claim it’s all a fuss much, as the end of a worldview. in ever fewer hands. Others unlike the present the future about nothing. “None of this place their hopes in technology needs to be if we stand a is madness; it’s revelation. It’s A cabal of wealthy suits – robotisation of farming, chance of surviving”. The going to be a bumpy ride.” gene-edited crops, and so on – apocalyptic revelation seems And it’s not just cranks and yet that would mean even more prophets who are coming to dependency on Big Finance and see that our current way of life biotech. The suspicion grows cannot continue. The Dutch that what is being presented as farmers’ protests over proposals a “project to save the world” to slash emissions that they is really a “project to save the say unfairly penalise them is laptop class at the expense of the latest manifestation of our everyone else”, who face having current predicament. A “cabal to make do with “meaningless, of wealthy suits” in government UBI [universal basic income]- and think tanks seeks to put an China spurns skyscrapers We need family- centred policy bloomberg.com/opinion thecritic.co.uk Modernisation and economic development created a mad rush to erect tall buildings in China over the The Tory leadership contest has course of the 20th century, says Adam Minter. The towering skyline in Shanghai’s business district focused on tax as an issue, but came to symbolise China’s rise. The rest of the country quickly followed suit and China now leads the more important is to tackle the world in terms of the number of skyscrapers. The rush to build urban environments that would signal “root causes” of the problems in China’s rise in the global hierarchy helped created a booming economy and construction industry, our society, says Rakib Ehsan. and the benefits were far-reaching. But although the towering business districts may look impressive That means supporting family from a distance, the result was lifeless streets in unaffordable locations, and dangerous, poor-quality life, as a new report from the buildings. Now, the country’s chief economic planning and housing agencies have announced Centre for Social Justice argues. restrictions on the construction of tall buildings. The new rules cover everything from park design to the banning of “weird” foreign architecture with the aim of “optimising” city life. Housing regulators Family, as the academic will seek to prioritise low-rise suburbs with good transport connections, narrow roads, small blocks, Tony Sewell has said, is the walking and cycling paths, and amenities conducive to city life. Cities will be built on a more human “bedrock of our society”, and scale, in order to attract residents, not investors. It could represent a “monumental shift” for China. there is “overwhelming” evidence that two-parent Turn on, tune wealth to be able to enjoy a you are the dubious pleasures families provide the best start in in, drop out good standard of life, spend of going on amusement park life for children. It is the more time with loved ones, rides alone and taking trips into arrangement that is “most tinyurl.com/4tdudwh4 take days out and holidays, and near-space, putting him on a strongly associated with stable enjoy most of the best culture par with a mid-ranking Soviet family life and positive youth With more and more people has to offer. The acquisition Union Air Force officer of 61 outcomes, such as school quitting their jobs or taking of wealth beyond this point is years ago. attainment, mental well-being, early retirement, it seems we “futile”. All Jeff Bezos has over cognitive development and non- are living in an age of “anti- If you enjoy what you are involvement with crime”. Yet the ambition”. As “one of that All you need doing then, of course, like Paul marriage rate is at its lowest happy band, let me suggest is love McCartney (pictured), you will level since records began. In why”, says Chris Dillow. With want to carry on into old age. 1971, the UK had 570,000 one- modest effort, it is possible to ©Getty Images But for the rest of us, there’s no parent families; 50 years on, in live well on an average income. point in keeping on working 2021, the figure had reached Beyond a certain point, “most just to acquire “trinkets”. “The three million, or 15.4% of middle-class 50-somethings” one great thing that wealth families in the UK. will have acquired enough buys is not so much goods and moneyweek.com services as freedom – the ability Polling shows there is to step out of the rat race.” majority support for family- centred policymaking, such as giving more financial support to families through tax breaks. “Britain is in need of repair, and family stability holds the key.” 29 July 2022

20 Investment focus How to find the market’s solid soaraway stocks The success of major indices is based on a handful of spectacular performers. Dr Mike Tubbs outlines the key characteristics of shares capable of rising tenfold or more – and suggests where to start looking All investors dream of finding stocks that rise tenfold or to a problem with the company itself. I invested in ©Intuitive Instruments even 20-fold. These “ten-baggers” and “20-baggers” Renishaw, which makes high-precision measuring typically produce their spectacular gains over a period and calibration equipment, at 344p in mid-2002. The of five to 15 years. The term ten-bagger was coined shares reached 3,440p (a ten-bagger) in May 2017 and by Peter Lynch, who managed the Magellan Fund 16-bagger status in January 2018. Again, had I invested from 1977 to 1990. Over this period his fund turned a in Renishaw at 258p in March 2009 at the time of the $1,000 investment into $28,000. financial crisis, it would have become a ten-bagger in just under six years, by February 2015. To achieve this excellent performance, he invested in many companies whose share prices grew by between An additional fillip from dividends ten and 30 times – or more – during that 13-year period. Multi-baggers needn’t produce their stellar gains Halma also illustrates the substantial income that can immediately. Lynch cites WalMart as an example of be derived from a more mature multi-bagger. Halma a company that went public in 1970 and went on to has a 43-year record of raising its dividend by 5% or appreciate 30-fold after 1980. more every year. However, since the share price has also risen, the yield for those buying today is only 0.9% WalMart shares rose tenfold from 1972 to 1982, at the recent price of 2,144p. But those who bought then climbed from $0.38 in June 1982 to $10.80 in Halma at 112p in 2002, as I did, received a 2022 March 1993, an increase of 28 times in less than 11 dividend of 18.88p per share. That translates to a yield years – or 284 times in 21 years. The shares hit $43.40 of 16.9% on their original investment. in December 1999 but only reached that level again in June 2008. The record high of $160 was in April of this Several US technology stocks have become multi- year, but the shares have been selling for $130 recently. baggers. One example is Alphabet (Google’s parent company), which rose tenfold between December 2008 This price history shows that a ten-bagger can go and January 2020, and then powered on to become a on to increase by another ten, 20 or even 30 times. 20-bagger by October 2021. Another is Salesforce, the There may also come a point when the shares market leader in software for customer-relationship flatline or fall for several years or merely yield steady, management. It had become a 20-bagger by January unspectacular growth. 2018 and a 30-bagger in January 2020. It is therefore all too easy for an investor to sell too A third US example is Intuitive Surgical, the early and miss out on a further tenfold growth spurt – leading robotic-surgery company, whose shares rose or to hang on too long and lose some of the initial 18-fold between March 2009 and September 2018. gains. It is important to check whether a company’s McDonald’s, meanwhile, is an excellent example of a initially successful business model for profitable US dividend-paying stock that became a 16-bagger in growth is still working. the 16 years to 2019. The annual dividend is now $5.52, implying a 43% yield on a 2003 investment. Amazon provides another cautionary tale for those inclined to sell out after a nasty slide. The shares rose The odds are better in Britain from $0.08 in June 1997 to $4.70 in December 1999 to make it a 58-bagger in under three years, but then A study by Schroders of the decade to the end of collapsed as the dotcom bubble burst, reaching $0.36 in December 2021 revealed, surprisingly, that UK stocks November 2001. had a higher chance than their US counterparts of becoming ten-baggers over the last decade. Taking only They then rose to $3.60 in mid-2007 (a ten-bagger stocks with a market value over £150m, there were 63 in under six years) but powered on to a high of $186 out of 915 UK stocks (6.9%) that became ten-baggers in July 2021, a 52-fold increase in those 14 years. compared with 257 out of 4,515 US stocks (5.7%). They are now around $115. Amazon’s business model UK examples included the retailer JD Sports, Ocado, was stronger than most dotcom companies and it analytics business YouGov, industrial equipment-hire both broadened its product range and entered cloud- firm Ashtead, Halma and Rentokil. computing via AWS (Amazon Web Services) to ensure continued profitable growth. The fact that only 6% or 7% of stocks become ten- baggers or better explains the observation that most of “Sell if there My best multi-baggers the growth in market indices such as the S&P500 or is a company- Nasdaq can be explained by the outperformance of a Two of my early ten-baggers were UK engineering small number of stocks. The Schroder study found that specific companies Halma and Renishaw. I invested in Halma, expanding profit margins and sales growth were the problem, but a safety specialist with products ranging from air largest drivers of shareholder returns – useful indicators pollution gauges to eye-health monitors, at 112p in for investors eyeing up potential multi-bagging stocks. not merely 2002. It became a ten-bagger in May 2017 and a because of 20-bagger three years later. Had I invested at the market The key attributes an economic nadir in March 2009 when Halma shares had dropped downturn” to 1,556p, they would have reached ten-bagger status by These high-flying companies tend to display some or March 2019 – just a decade rather than the 14-15 years all of the following characteristics. One is a so-called it took for me. “wide moat”: something that provides a sustainable competitive advantage to defend it against potential That highlights two more key points: the advantage rivals seeking to enter the market. of investing at a stockmarket low and the importance of sitting tight when there is an economic crisis as opposed moneyweek.com 29 July 2022

Shares in Intuitive Surgical, America’s top robotic-surgery group, rose 18-fold between 2009 and 2018 Without a moat, a growing, profitable market Alphabet boasts a very recognisable brand (Google) “Customers will attract other companies offering very with a dominant market share of online advertising. would find similar products or services, and this added competition Coca-Cola’s wide moat is based on both a cost it an will drive down margins and slow the growth of the advantage, which it achieves through sheer scale, and a expensive first entrant. highly recognisable brand stemming from a proprietary hassle to formulation of the soft drink. ditch Moats can be based on innovative and patented Salesforce new products that satisfy important customer needs; I remember years ago buying quarry floor tiles from for a rival” recognisable and trusted brands; or a cost advantage a UK family company whose cost advantage was a from favoured access to low-cost materials or from source of low-cost materials: they owned their own economies of scale. quarry with high-quality clay that made excellent crack- resistant floor tiles. Another possibility is switching costs: would customers incur a lot of cost and hassle in changing to a Salesforce’s moat is based on switching costs competitor? Finally, government regulatory approvals as well as innovative products. Salesforce started can also comprise a moat. We will look at examples of with customer-relationship management software these five types of moat. in 2000 and was the first company to deliver its software conveniently over the internet and charge a Renishaw, the precision-metrology company, is an subscription. excellent example of a company whose moat is based on innovative and patented new products. It has long Software as a service, or SaaS, was an innovation. invested twice the proportion of sales into research and Salesforce offers a wide array of different SaaS software development (R&D) typical of its sector (electronic and products, and customers would find it both costly electrical engineering). and onerous to change supplier. Indeed, there here is no point in doing so as Salesforce has a wide range of This R&D is focused on patentable inventions excellent offerings. used to come up with a stream of new and improved metrology products that are essential for its Government regulations on safety provide a moat for manufacturing customers in a wide range of industries. pharmaceutical and medical device companies since a new drug, for instance, has to go through three stages The power of top brands of clinical trials and an approval process before gaining marketing authorisation. This regulatory approval Diageo is a good example of the power of a company process, coupled with patents, provides wide moats for with highly recognisable brands such as Johnnie Walker novel drugs and medical devices. and Lagavulin whisky, Gordon’s gin, Captain Morgan rum, Guinness and many others. Customers will pay Continued on page 22 extra for top-notch labels. moneyweek.com 29 July 2022

22 Investment focus Continued from page 21 In addition to a wide moat, ten-baggers often boast innovative new products and a strong position in a growth market, with sufficient finance to enable the company to expand quickly. Renishaw is again a good example with its innovative, patented products yielding a healthy profit stream, enabling the firm to invest in R&D and expansion while maintaining a cash balance and paying dividends. What can go wrong ©Alamy These stellar stocks sometimes come unstuck. Several Boeing’s stock slumped by 78% in the year to March 2020 “Fever-Tree companies have reached ten-bagger status but then run has lost into problems that cause the share price to fall sharply reached 2,375p again in April 2018, before rising momentum or stop rising. This can sometimes be due to a major almost another four times to a high of 8,640p in amid fears problem with a product, as happened with Boeing. October 2021. of flattening The shares rose from a low of $33.40 in March 2009 demand for to achieve ten-bagger status in January 2018; they then Multi-baggers are fairly rare, as the Schroder’s study its pricey reached a high of $440.60 in February 2019, just before shows: among companies with a market capitalisation mixers” the second 737 Max crash in March 2019. Add in the of more than £150m, 7% of UK stocks and 6% of US Covid-19 pandemic and associated drop in air travel stocks fit the bill. That’s why Peter Lynch’s Magellan moneyweek.com and the shares fell 78% to $95 in March 2020. portfolio contained up to 1,400 stocks, so he could be confident of having a good number of multi-baggers. Questions about a company’s accounts – whether That’s far too many stocks for a private investor but you ultimately validated or not – can also be a large setback. do need a portfolio of a reasonable size to raise your Burford Capital, the world’s largest commercial chances of having a few really successful ones. litigation-funding specialist, became a ten-bagger in just over three years and a 20-bagger in six. But in August To boost your odds further, look for companies 2019 it became a target of the US short-seller Muddy with a wide moat, innovative technology or products, Waters, which queried Burford’s accounting practices – a strong position in a growth market, and sufficient in particular, the valuation of ongoing cases. Burford’s finance and cash flow to maintain high growth. Signs shares fell from 1,600p in July 2019 to 700p a month that these conditions are being met include strong sales later and 313p in March 2020. The company has growth and high and increasing margins. defended its accounting and its shares have recovered to 900p now, but remain still some way below their highs. It is sometimes possible to identify a multi-bagger because it is following a similar business model to Changes in a growth market can also undermine a previously successful one. For example, SDI is a investors’ expectations. Fever-Tree Drinks saw growing digital-imaging, sensors and controls specialist with sales of its novel mixer drinks propel the share price some similarities to Judges Scientific, the 37-bagger from 175p in December 2014 to 3,863p in September highlighted earlier. 2018 to make it a 22-bagger in under four years. But fears about flattening demand for its pricy mixers Both companies have made a number of bolt-on caused the share price to drop back to 2,149p in acquisitions. SDI’s shares rose from 9p in September December 2018 and 935p in March 2020. The shares 2015 to 215p in November 2021, making it a 24-bagger are now around 920p, having fallen this year on fears of in six years. SDI was my tip of the year in December cost increases eating into margins. 2020 at 104p; it had more than doubled to 217p by November 2021. Had I spotted it in March 2020 at Overall, key warning signs to look for in a potential 40p, the gain would have been more than five times. or actual ten-bagger include: weakness in the company’s moat (including the threat of disruptive technology); What to look for now weakness in sales growth and/or margins; accounting irregularities; problems with a major product; and a I am not going to give hostages to fortune by listing large or unrelated acquisition. In a worst-case scenario, potential multi-baggers. But you should select one must be alert for outright fraud. US energy firm companies that are already showing sales growth Enron was a high flier, rising from a single-digit share with good margins thanks to a sustainable business price in the late 1980s to a high of $91 in mid-2000, but model. Make sure you understand why the company then tumbled to less than $1 by November 2001 as it has a wide moat; check that it has a strong position in a became clear that management was cooking the books. growing market and generates sufficient cash to be able The company filed for bankruptcy in December 2001. to continue its high growth rate. Benefiting from bolt-on acquisitions Monitor its results, news and trading updates carefully for any signs that may indicate a change in Big or unrelated purchases can be warning signs its successful formula, such as slackening sales growth for a multi-bagger or a company that might become or shrinking margins. But do not be misled by a one. However, a number of multi-baggers have used company’s share price falling owing to a general bolt-on acquisitions to enhance their technology or retreat in share prices. market position or build a new and related division. The financial crisis of 2008-2009 provided an One example is Halma, the 20-bagger. Halma excellent buying opportunity for shares in potential acquires related companies that have global niches in multi-baggers. And if you hold one that has matured markets with long-term growth drivers. It has acquired to a steady growth stage but pays increasing dividends, more than 50 companies and disposed of several others consider hanging onto it for the double-digit yield it whose growth had slackened. gives on your original investment. Happy hunting. Another UK example is Judges Scientific, which has put together a portfolio of scientific and testing- instrument companies. The shares rose from 64p in February 2009 to 2,375p in March 2014 to make it a 37-bagger in five years. The shares then fell and only 29 July 2022

Opinion 23 The benefits of a bond bear market Falling prices and rising yields are bad for bondholders but good for pension savers, says Max King Is the rise in bond yields and corresponding fall in University staff have gone on strike over their pensions ©Alamy prices bad news or good news? It depends on your perspective. In the past year yields on ten-year gilts “‘Modern A sensible critic might argue that there are so many have risen from 0.5% to a mid-June peak above 2.5%, monetary uncertain assumptions as to make the conclusions though they have since slipped back below 2%. Yields theory’ has highly unreliable, but the trustees have to follow on 30-year gilts have risen from less than 1% to over been buried the “professional” advice of the actuaries and the 2.5%, resulting in a capital loss of 20%. Given that by the rise employers have to implement the recommendations, these yields remain below those of the comparable US subject to any pushback they can exert. Treasuries, against the historic norm, it is likely that in bond they will continue to rise and that the multi-century yields” The employees had seen a remorseless squeeze lows of a year or two ago were an anomaly. on their entitlements and a sustained rise in their contributions. The rise in employers’ contributions This is clearly bad news for holders of gilts, but was passed onto them in lower pay increases. The most private individuals sold out long ago. Maybe result was understandable fury and a series of trade some pension funds have kept hold of some, though union-supported walkouts across the country. they would be wise to keep that quiet. Insurance companies, heavily restricted by “solvency” rules, are A further squeeze on benefits was implemented at major holders of gilts, but mostly short-dated ones the start of April but, soon after, USS announced that with little capital risk and a modest yield premium its 31 March valuation had shown that the deficit had over cash deposits. fallen to just £1.6bn, making the scheme 98% funded. Moreover, this was primarily due to an increase in The big holders, according to the Financial Times, assets rather than to a higher discount rate, the result are now “overseas” investors – central banks on behalf of higher gilt yields, reducing liabilities. of their governments deploying their foreign-exchange reserves – and the Bank of England, which has bought Since gilt yields rose further in the second quarter back £875bn of gilts, 45% of the total in issue. This and, notwithstanding the recent decline, are likely to means that the UK government’s debt-to-GDP ratio, keep climbing, the position of USS and other defined- nearly 95% gross, is only 52% net, though that would benefit schemes is set to keep improving. In the short rise if they have to sell some or all of those gilts to rein term, weak markets, notably equities, will have in excess liquidity. Excess liquidity would be the result reduced assets but these losses will soon be recovered of a surge in bank lending – severely curtailed since the as markets resume their long-term move upwards. financial crisis – but that looks unlikely. Staff should now be able to look forward to a The other big loser from higher gilt yields is the reinstatement of benefits and/or lower contributions government – and hence the taxpayer, who, as existing while the financial squeeze on higher education gilts mature and are refinanced, will have to pay a will diminish. The losers are the actuaries, whose higher interest rate. Debt-service costs, excluding reputation is tarnished, and the trustees who loyally those on gilts owned by the Bank of England, are now followed them. As one bemused finance director £40bn per annum, 1.7% of national income and 4.3% said: “The pensions system is supposed to reduce the of public spending. This is set to rise inexorably. volatility of everyone’s exposure to the vagaries of markets, but it’s done precisely the opposite.” Expect fewer government vanity projects One other loser from the rise in bond yields is On the other hand, ultra-low borrowing costs have “modern monetary theory”, which posits that encouraged the government to spend vast amounts government spending should not be constrained by of money on vanity projects, such as HS2. Reining in rising debt as central banks can just create money to state extravagance would be positive for taxpayers finance it. This theory has now been buried. Finally, and the economy. Other potential winners are risk- the rally in bond markets helps limit the scale of averse pensioners, who are seeing annuity rates rise. necessary interest-rate rises and underpins equity The lump sum in their pension pots will buy a higher markets but, in the longer term, a return to yields lifetime income than a year ago. Annuity rates have moderately higher than much lower inflation would risen by around 23% from their low in early 2021. mark a return to sanity. The other big winners are members and 29 July 2022 providers of fully-funded defined-benefit pension schemes. Notable among these is the Universities Superannuation Scheme (USS), a £90bn fund covering over 400,000 people employed in higher education. In recent years, the fund has been reporting mounting deficits, reaching £14.1bn at the March 2020 valuation. Assets were calculated by the actuaries to be only 83% of commitments, though calculations depend on a number of assumptions, including longevity, future contributions, investment returns, future pension entitlements and, crucially, discount rates. The latter, the rate at which future liabilities are discounted to the current day, are based on gilt yields. moneyweek.com

24 Income A retail bond with a 6.5% yield This new issue from LendInvest could be attractive to income seekers willing to take some risk David Stevenson Most retail bond investors simply wait for the income to roll in ©Alamy For investors content with Investment columnist the underlying credit risk, the for the launch is expected to and adjusted earnings before next question is whether you London’s retail bond market close at 4pm on 3 August 2022. interest, tax, depreciation and want to invest in a corporate was launched a few years LendInvest is also offering amortisation (Ebitda) was up bond now. In market terms, the ago to help private investors buy holders of its outstanding bonds 90% to £20.3m. timing looks terrible. Inflation corporate bonds. It seemed a the opportunity to exchange is around 10%, so a yield below good idea at the time – private them for this new issue. The bond is being issued by that is eroding capital. Rates investors in the US and Italy LendInvest Secured Income II, are going up, which will have a regularly buy individual fixed- Property-backed loans a special purpose vehicle that knock-on impact on corporate income securities, such as tax- is a subsidiary of LendInvest. bond values. In terms of direct efficient municipal bonds. Yet The first step with a bond The subsidiary has its own competition, UK government it has never really taken off and like this is to understand the ring-fenced balance sheet that five-year bonds now yield in recent years new issuance has security. LendInvest is an consists of a basket of property- 1.67% so you are getting 5% slowed to a trickle, mostly from Aim-listed company set up 14 backed loans with an average uplift from a riskier lender. The smaller charities. years ago. It makes bridging, loan-to-value of around 65% S&P UK Investment Grade development and buy-to-let to 70%. There’s a partial 20% Corporate Bond index yields However, a few commercial loans. Its unique selling point guarantee by LendInvest, which 3.9%, so you’re getting an extra issuers have stuck with the is that it uses its own platform means that if the property 2.5% on that. retail bond market, among to complete loans quickly for market collapses, the loans go them alternative lender borrowers and securitise them into default and don’t produce However, many investors LendInvest. It issued two five- for institutional investors. Latest enough cash to repay the bonds, look at retail bonds as products year bonds: one in 2017, paying annual results showed assets LendInvest will make up the to hold to maturity and let the 5.25%, and another in 2018, under management grew 36% shortfall in interest or principal income roll in, so the impact of paying 5.375%. Both were to £2.1bn from the year before, to a maximum of 20%. markets on bond values don’t oversubscribed. The company matter so much. The two key has now announced a third points are whether you are five-year bond, this time with a happy with the credit risk and substantially increased yield of whether the yield on offer for 6.5%. Even in an era of sharply the full five years is enough rising interest rates, this may to reward you for taking that appeal to some investors. risk. That hinges on whether you think inflation will remain The new bond will mature elevated for the five years and on 8 August 2027. It has a face whether rates will surge and value of £100 – in common then stay there for many years. with most retail bonds – and will pay an interest rate of 6.5% This product is not like per annum (£6.50 per bond), a savings account – your with interest paid twice yearly capital is at risk here. But for on 8 February and 8 August. reference, the best rate you can The minimum investment at get on a five-year fixed-rate launch is £1,000, but will trade savings account is 3.3%. So the in smaller denominations after LendInvest’s bond gives you a launch on the London stock 3% uplift for taking extra risk. exchange’s order book for For some income-orientated retail bonds. The offer period investors, that will look much more attractive. Activist watch Short positions... Jupiter slashes Starling valuation Activist investor Elliott Management n Jupiter UK Mid Cap has slashed the value of its n There is always debate over whether has built a 9% stake in Pinterest, the stake in Starling Bank by around 16%, opening investment trusts or open-ended funds image-sharing social-media company up “an extraordinary gap between how it and are best, says The Times. Data from that boomed during the pandemic but Jupiter’s Chrysalis investment trust value their Bestinvest compares 45 pairs of funds is now struggling with a drop in users, shared top holding”, says Citywire. Chrysalis, and trusts ran by the same managers. says the Wall Street Journal. Pinterest which makes late-stage investments in unlisted This shows 29 (64%) of the trusts reported a full-year profit for the first growth companies, has been under fire for delivered better returns than their sister time in February, but slipped back to a paying a £112m performance fee to Jupiter last open-ended funds over the past five loss in the next quarter as users spent year before suffering several setbacks, including years. While funds and trusts overseen more time offline. Co-founder Ben a huge writedown in its stake in buy-now-pay- by the same managers are usually run Silbermann stepped down as CEO in later provider Klarna. The “relative resilience” of the same way, managers can have more June and has been replaced by Bill Starling has shielded it from even bigger losses, scope to improve performance with Ready, who previously headed the but the writedown at UK Mid Cap – which is run trusts. Most obviously, the use of commerce division at Alphabet. by Richard Watts, Chrysalis’s co-manager – gearing (borrowed money) can boost Eliott’s investment looks like a sign of “could pave the way for Chrysalis to cut the returns when prices are rising. However, confidence in Ready’s ability to boost value of its own Starling stake during the next investors should also keep an eye on profits through higher ad revenue quarterly valuation”. Starling accounts for 25.1% fees. Nearly two-thirds of the 29 better- from international markets, greater of Chrysalis’s portfolio. Jupiter UK Mid Cap is performing trusts had lower charges use of e-commerce, and expanding subject to a 10% regulatory cap on unlisted than their sister funds. Conversely, in its user base to include more male investments; Starling now amounts to 7.9% of cases where funds beat trusts, 62% of users, says CNBC. its portfolio and total unlisted exposure to 8.5%. the cheaper funds performed better. 29 July 2022 moneyweek.com

Trading 25 Dunelm will keep growing How my tips have fared The furniture retailer is well placed to take more market share from rivals In the past fortnight my open Matthew Partridge long tips have put in a strong Shares editor performance, with two out of the three tips rising. Covid-19 has shaken up the Telecoms firm Airtel Africa world of retail, creating climbed from 146p to 171p, both winners and losers. For while equipment-rental the first 18 months it looked as company Ashtead rose from if the home furnishing retailer 3,785p to 4,142p. Fast-food Dunelm (LSE: DNLM) was one chain Domino’s Pizza Group of the winners. Even though its fell very slightly, from 276p shops were closed, it managed to 275p. to shift quickly to online sales. It also benefited from people The pending tips in both using the money they saved on Hays Recruitment and travel and going out to improve The pandemic encouraged everyone to improve their homes©Dunelm sportswear retailer their homes. JD Sports rose above the Between the end of March been a small decline in the past and even rose in 2021. The levels at which you should and October 2020, Dunelm’s three months, sales are holding company has also deployed its go long on them, at 125p and share price nearly tripled. Even up better than many people capital in an efficient manner, 140p respectively. However, as late as last September it was expected and are likely to come with a return on capital pet-supplies retailer Pets at still substantially above the in above expectations. employed of roughly 30%. Home and online-fashion level it was in February 2020. Despite investing in growth, it retailer Asos still remain However, over the past year Investing effectively has consistently increased its below the price at which you its share price has fallen by Management is confident dividend (with the exception of should start going long. more than 40% and is now that investment in digital 2020 when it was suspended, languishing well below the pre- platforms, as well as improving like many other firms). Overall, my long tips are pandemic level, even though the quality of physical stores Despite this strong record, making combined profits of sales are much and expanding Dunelm is valued at just 11.8 £3,092. Unfortunately, my higher. “Dunelm’s growth the range times forecast 2023 earnings. short tips didn’t do so well Of course, of products The dividend yield is a last week, with four of my six there are has not come at the available, compelling 5.6%. Encouraging open tips rising. rational expense of margins” will help the fundamentals is one thing, but reasons for company many people may still be wary Remote-medicine firm investors to be concerned. With continue to win market share about buying into a share that Teladoc advanced from inflation outstripping increases from rivals. Over the past year has fallen so much. However, $39.59 to $41.89, Chinese in pay, households may choose 85% of Dunelm’s sales growth there are some signs that real-estate firm KE Holdings to cut back on buying new has come from increasing Dunelm’s share price may have climbed from $15.10 to furniture, or at least defer market share, which is why it bottomed as it is now trading $15.53, and digital-currency purchases until the economic has consistently grown sales by above its 50-day moving exchange Coinbase also situation improves. double digits over the past two, average. As a result, I’d suggest rose from $54 to $67. DWAC, Dunelm’s management five and ten years. that you immediately go long at the holding company for admits this could be a problem Crucially, this growth the current price of 878p at £3 former US president Donald in the short run. Still, there are has not come at the expense per 1p. In this case, I’d suggest Trump’s social media some reasons for optimism. of profitability. Operating that you put the stop loss at venture, also increased, First, the latest earnings figures margins been consistently 578p, which would give you a from $29.45 to $31. suggest that, while there has around 10%-15% since 2016 total downside of £900. On the plus side, cinema Trading techniques… too hot to handle chain AMC fell from $14.95 The temperature has finally cooled down after of Wellington, both in New Zealand, looked at to $14.92 while online- shattering records last week, but what impact the impact of extreme heat (as defined by the marketing firm HubSpot also does extreme weather have on the market? US National Oceanic and Atmospheric declined from $295 to $292. Studies have shown that sunny weather is Administration) on share prices from 2008 to In total, my short tips are generally associated with stronger stock 2017. They found that the share prices of those making a combined profit of performance, perhaps because it makes people companies that had their headquarters in the £6,330, slightly down from feel more optimistic. For example, a 2015 study affected regions were significantly lower even £6,543 two weeks ago. by Gary Smith and Michael Zurhellen of 20 days after the beginning of the heatwave. Pomona College, California, compared the My short and long tips are average stock returns on the US market days The same study also found that the declines making a combined overall that were sunny (in New York) with those on were even bigger for particularly extreme or profit of £9,635. I suggest cloudy days between 1948 and 2013. They prolonged heatwaves, as well as those that that you close the positions found that the market did better on sunny days. coincided with a large amount of heat-related in Domino’s and AMC, while damage. Interestingly enough, the market cancelling the pending However, it appears the market is much less doesn’t seem to be as concerned about periods position in Asos. This leaves happy about high temperatures, which research of extreme cold, even if they are prolonged or ten open tips: long positions suggests can actually hit returns. A 2019 study destructive, as the same study found that such in Airtel Africa, Ashtead, by Paul Griffin of the University of California, cold snaps had no statistically significant Dunelm, Hays Recruitment Davis; and David Lont of the University of Otago impact on share returns, either in a positive or a and JD Sports; and short and Martien Lubberink of the Victoria University negative direction. positions in Teladoc, HubSpot, KE Holdings, moneyweek.com DWAC and Coinbase. I also suggest that you raise the stop loss on Airtel Africa to 135p (from 125p), while cutting the level at which you cover all the shorts as follows: KE Holdings to $25 (from $30); HubSpot, to $320 (from $325); Teladoc to $55 (from $60); DWAC to $45 (from $50); and Coinbase to $80 (from $90). 29 July 2022

26 Personal finance Safeguard your estate Banks begin battle to entice savers The inheritance-tax threshold will remain frozen until 2026, but After years of misery, things are looking there are several ways to reduce your potential liability up for savers at last. Numerous banks and building societies have finally been increasing interest rates on savings Ruth Jackson-Kirby accounts following the repeated rises in Money columnist the Bank of England base rate. Last week we heard that National Savings & More and more people are having to Investments – the government-backed pay death duties. The Treasury raked savings provider – has increased rates on in £300m more in inheritance tax (IHT) several popular products. between April and June 2022 than in the same period in 2021. The interest rate on its Direct Saver and Income Bonds has risen from 0.5% to The average IHT bill has risen by 1.2%. NS&I’s Direct Isa rate has gone up 27% in a year thanks to a combination from 0.35% to 0.9%, and its Junior Isa rate has risen to 2.2%. “NS&I is the latest to join the fray, significantly increasing the of rising house prices and frozen IHT interest rates on a range of its products to thresholds. Estates that are liable for death ©Getty Images Shelter your family from HMRC boost their appeal,” Laura Suter, head of duties can now expect to pay an average of personal finance at AJ Bell, told the £266,000 to HMRC. Financial Times. The amount beyond which IHT is due However, don’t rush to deposit your has been frozen at £325,000 since 2009. savings with NS&I – there are better Inflation has risen “45% over this time and rates available. Several other instant- average house prices have increased 67%, access accounts beat the rate on its pushing many over the threshold,” notes Direct Saver account. Both the Family Building Society and Nationwide are Jessica Beard in The Telegraph. HMRC paying 1.5% and Yorkshire Building has doubled its IHT receipts in a decade. that year. You also have a small-gift Society offers 1.48%. The government also announced that allowance of £250. That is the limit for If you do start enjoying bigger returns anyone who hasn’t already benefited from both the £325,000 IHT threshold and the your annual exemption. on your savings, check that you aren’t £175,000 residence nil-rate band (an extra going to breach your Personal Savings allowance that can be passed on upon a Gifts outside of these allowances will be Allowance. If you earn more than £1,000 person’s death without any IHT being included in your estate for IHT purposes interest in a year, then you’ll pay income payable) will remain frozen until at least if you die within seven years. You can tax on the excess. That falls to £500 a year 2026. Only 4% of estates pay IHT, but as also make regular gifts out of your excess if you are a higher rate taxpayer. If you are approaching your allowance limit, shift inflation and house prices continue to rise, income. There is no limit on how much of some of your money into an Isa to protect more families are expected to be dragged your income you can give away, as long as it. However, if this is the case don’t turn to into the death-duty trap. it doesn’t affect your standard of living. NS&I (its Direct Isa remains well behind the market leaders). Don’t forget your pension Finally, be charitable. “Any money you give to charity during your lifetime or on You can get a better Isa rate from Still, there are several ways you can avoid death is free from inheritance tax,” says Newcastle Building Society at 1.5% or passing on part of your estate to the McCann. “If you leave more than 10% of Cynergy Bank and Shawbrook Bank at taxman. One option – if you aren’t close to your net estate to charity on your death, 1.4%. If you shop around, you can get a the lifetime allowance – is to invest more the rate of inheritance tax paid by your Junior Isa rate of up to 2.65% too, with the table-topper coming from the into your pension and consider carefully estate falls from 40% to 36%.” Monmouthshire Building Society. what you spend first when you retire. “Money left in your pension when you die is normally free of inheritance tax,” Pocket money... Help to Buy ends says Sean McCann, a chartered financial planner at NFU Mutual. “Those with Isas and other savings and investments l Victims lost £1.5m to l The price of second-hand 2013 and will end in March which are subject to inheritance tax should “Mum and Dad” WhatsApp cars has fallen from a 2023. If you want to secure consider spending those first before taking scams between February record high as soaring fuel a government loan to help and June this year, says costs have cut demand. you buy your first home money from their pension.” The Sunday Times. The Earlier this year second- you need to act fast. The Make sure any life-insurance policies ruse involves someone hand car prices overtook deadline is 31 October, and you have are written in trust. If they aren’t, sending you WhatsApp the cost of new cars for the you need to have reserved your family may lose up to 40% of their messages, purportedly first time as shortages bit, your home and applied for value to IHT. Putting them into trust is from a friend or family but dropped by 2.5% month Help to Buy by then. simple: most insurance companies have member, saying they’ve on month in June, says the trust forms available free of charge. lost their phone and have Office for National l The Financial Conduct got a new number. Once Statistics. The cost-of- Authority (FCA), the City Receiving an inheritance yourself in they gain your trust they living crisis and soaring fuel regulator, “has warned later life can turn your IHT planning on begin asking you for costs made many rethink insurers that the cost-of- its head. Avoid difficulties by redirecting money. plans to buy a car. living crisis could force the inheritance if you don’t need it. You One person told the l The government’s Help struggling customers to can make a deed of variation on a will paper how she foiled the to Buy scheme has helped cancel or cut back on within two years of the death to give an scam by texting “I know many onto the housing personal insurance”, says inheritance to someone else, usually a child this sounds silly, darling, ladder, but it has also been the Financial Times. The or grandchild. what’s your middle name?” criticised for boosting FCA has called on insurers after receiving messages housebuilders’ profits, to provide more support. It You should also make the most of supposedly from her pushing up property prices is concerned that those your gifts. You can gift up to £3,000 daughter asking her to and gobbling up taxpayers’ struggling to keep up their annually without it being included in pay an invoice. The reply? monthly payments could your estate. If your child or grandchild is “I forgot. X” That stopped cash, says The Guardian. be left ”without an getting married you can give them £5,000 her transferring any money. The scheme launched in adequate safety net”. 29 July 2022 moneyweek.com

Small business 27 Will the RLS come to the rescue? The Recovery Loan Scheme’s extension could help firms still getting back on their feet after Covid-19 David Prosser Price of invoice Business columnist finance falls The Recovery Loan Scheme Do your customers offer (RLS) was launched to working-capital finance? support businesses seeking to Growing numbers of large bounce back from the Covid-19 companies are putting such pandemic, but it struggled to arrangements in place for gain traction before finally suppliers, enabling smaller coming to an end on 30 June. businesses to secure finance Now, however, the government on more affordable terms. is relaunching the scheme amid growing concern about The schemes are a twist on the traditional forms of the difficulties many smaller invoice finance available to ©Getty Images small businesses, which businesses face raising capital. enable them to borrow The RLS went live on 1 April Companies are still grappling with the fallout from Covid-19 against the value of invoices 2021 as the emergency-loan yet to be paid, unlocking the schemes for businesses set up all-time low. In theory, the RLS Nevertheless, there will be cash tied up in their during the pandemic came to could prove to be a lifeline for businesses to which the RLS customers’ bills. The an end. It offered loans of up businesses in trouble. Banks appeals. The scheme may prove provider charges fees and to £10m per firm, with banks should be more open to lending cheaper than other types of interest to provide the encouraged to lend through to businesses that would business borrowing, and the arrangement. a government guarantee otherwise be rejected as too 70% guarantee will allow This type of invoice finance is useful but can promising that the taxpayer risky, as they have recourse to a lenders to look favourably at prove expensive because would cover a sizeable chunk government guarantee for 70% more applications. small businesses often of any debt remaining should a of each advance, though the Moreover, the RLS is don’t have strong credit borrower default. original 80% pledge provided ratings. Many large more peace of mind. flexible. Funding can be set up companies are now offering A second flop as traditional overdrafts or term invoice-finance schemes of Small business groups and loans, or businesses can open an their own to suppliers, with At the beginning of the year advisers question whether invoice or asset-finance facility. the debt arranged through the RLS was revamped, with take-up of the RLS will be any The loans are repayable over new rules to tailor it specifically higher throughout the two- their own superior credit three or six years, depending on ratings, giving suppliers to small and medium-sized year extension. Lenders may the type of borrowing. cheaper invoice finance. enterprises. The “The programme be unwilling One important caveat is The growing number of maximum loan could prove a lifeline to support that business owners will need big companies offering these available was cut businesses to check with lenders whether arrangements reflects the to £2m, and the that in many they are expected to provide pressure cash-strapped government also for firms in trouble” cases already a personal guarantee. It’s suppliers face as costs rise. It important to recognise that also underlines nervousness reduced the proportion of have substantial Covid-19 while the government operates about supply-chain each debt it guarantees from loans to repay. 80% to 70%. On top of that, the scheme as a backstop for lenders, disruption. The delays and shortages of the past year Neither version of the is expensive. Interest rates the legal liability for the loan have prompted many RLS proved to be a resounding are capped at 14.99%, which remains with the borrower. companies to seek closer success. Fewer than 19,000 is costly compared with the Banks are entitled to ask for working relationships with businesses applied for credit emergency-loan programmes personal guarantees from key suppliers in the hope over the 15 months following launched throughout the business owners and directors they will be prioritised in the its launch, with the average pandemic. on advances of over £250,000. event of further disruption. borrower taking out £202,000 Petty cash... pricey insurance premiums of credit. Nevertheless, ministers have decided to press ahead with a two-year expansion l Leading banks are failing to treat their small insurance premiums rise in the last year. While to the scheme, offered on the business customers fairly, a new report from the many have sought to switch insurer to secure a same terms as the revamped Financial Conduct Authority (FCA) warns. The better deal, new cover often comes with more RLS. This reflects anxiety regulator says that too many banks are not restrictive terms. about the difficulties facing providing support to small businesses trying to small businesses, as well as their arrange payment plans when struggling to repay l Small business owners who want their staff to struggle to secure traditional loans – often because staff have been poorly return to the workplace full-time following the credit in the current crisis. trained. Businesses that have suffered may be more flexible arrangements offered during the able to make a complaint to the Financial pandemic may struggle to recruit staff, the More than half a million Ombudsman Service. The scheme is open to Institute of Directors suggests. Around 60% of businesses could go bust as a small firms with an annual turnover below £6.5m businesses now plan to shift to hybrid working result of rising inflation, the and fewer than 50 employees. arrangements permanently, with staff very often Federation of Small Businesses l Small businesses struggling with rising costs pushing for more flexible arrangements. Many (FSB) warned in the spring. The are also being hit with swingeing insurance business owners are nervous about this trend – FSB also published separate premium increases,says the Federation of Small 40% believe employees working at home are research showing lending to Businesses (FSB). Three in five have seen their often more productive but 37% fear productivity its members had fallen to an is negatively affected. moneyweek.com 29 July 2022

28 Personal view If only you’d invested in… How billionaires will give Euromoney Institutional Inv. (LSE: ERM) your portfolio a boost Share price in pence A professional investor tells us where he’d put his money. This week: Samed Bouaynaya of the Global 1,500 Billionaires Fund picks three diverse global stocks 1,400 Billionaires are billionaires for a reason. China’s leading EV manufacturer Our global equity fund researched the Shenzen-based carmaker and battery 1,300 performance of companies overseen and group BYD Company (HK: 1211) has just guided by billionaire owners back to overtaken Tesla in global electric-vehicle 1,200 2004 and found that they outperformed (EV) sales. It also overtook South Korea’s their rivals. We now invest in 115 large- LG as the world’s second-biggest producer 1,100 cap global companies held by 100 of the of EV batteries. Some of its stellar share top billionaires (as ranked by Forbes and performance in the past year ( it is up by 1,000 Bloomberg). Each stock makes up 1% 40%) is due to avoiding the Covid-19 of the fund and the maximum exposure lockdowns that hampered its rivals. 900 to a single stock is capped at 1%. We Chemist Wang Chuanfu’s company rebalance the portfolio every January and is living up to its full name: “Build Your 800 this year applied a new environmental, Dreams”. He started manufacturing A S O N D J FM A MJJ social and governance (ESG) filter that rechargeable nickel cadmium batteries in 2021 2022 eliminated some Russian oligarchs and 1995 before moving into cars, buses, trucks underperforming Chinese billionaires. and bikes. In 2008 Warren Buffett bought Shares in Euromoney Institutional It has been a tough two years for global 10% of BYD, enjoying a 33-fold gain by Investor (LSE: ERM) jumped after it was stocks, particularly in emerging markets, July 2022. While speculation that his stake sold to a private-equity consortium for but historically these have been first to is now for sale has affected the share price, £1.6bn, says Bloomberg. The offer, from recover. Asia is becoming increasingly BYD is the leader in China’s rapid transition Luxembourg-based private-equity important to the global economy while to EVs and is gearing up for a potentially group Astorg Asset Management Sarl Indian billionaires are flourishing, although profitable push into foreign markets. and Britain’s Epiris, represented a 34% their companies are difficult to invest in premium to the undisturbed share price. from the UK. Profiting from natural stupidity The company sells subscriptions to Investing alongside Carl Icahn, who Euromoney, a financial magazine, and A portfolio of 400 beers owns 88% of Icahn Enterprises (NYSE: runs conferences, which are expected to Anheuser-Busch IEP), is not for the recover now that Covid-19 is retreating. InBev (Brussels: ABI) “Carl Icahn’s personal faint of heart, but The firm will be split between wealth has risen by 20% it has proved very commodity-pricing data segment owns more than since the pandemic” rewarding. One of Fastmarkets and the rest of the 400 beers, including the very first activist divisions. The shares are up 46% in year. Budweiser, Corona investors, Icahn has been shaking up large and Stella Artois. Lockdowns heavily Be glad you didn’t buy… affected business but in 2021 InBev’s North US corporations since the 1980s by buying American sales, which account for one- large stakes and urging management to Made.com (LSE: MADE) third of revenues, rebounded by 4%. Asia- make changes to benefit shareholders. Pacific saw growth of 21%. Total revenue Icahn Enterprises holds investments Share price in pence growth was up $6bn for the year and it is across sectors including energy, automotive, now summer in the northern hemisphere. food packaging, metals, real estate and 200 The suspension of the group’s licence home fashion, but the balance changes to brew Budweiser in Russia is unlikely whenever potential value is unearthed. 175 to affect the top line. The group also He famously said he makes money from turns by-products of the brewing “studying natural stupidity”. His personal 150 process into plant-based proteins for sale wealth has jumped over 20% since the to the food industry, which bolsters its pandemic, which makes it hard to question 125 environmental credentials. his judgement. 100 75 50 25 A S O N D JFM A MJJ 2021 2022 Online furniture retailer Made.com’s (LSE: MADE) share price has slumped further following its third profit warning in less than a year, says The Guardian. The cost-of-living crisis is denting consumers’ home-improvement budgets. Made.com also announced job cuts. It now expects to make a £50m-£70m loss for 2022, with sales for the first six months of the year down by 19% compared with the same period in 2021 (although they were still up by 55% from 2019). Supply disruptions at ports, along with the need to clear excess inventory, have raised costs. The stock has fallen by 89% in 12 months. ©The Telegraph 2022 29 July 2022 moneyweek.com

Profile 29 American dream on steroids Jennifer Lopez built a business empire on top of an entertainment career, thereby paving the way for the likes of Reese Witherspoon and Gwyneth Paltrow. Jane Lewis reports Jennifer Lopez postponed her wedding to dance in front of the bedroom mirror noted Variety in 2019. At 50, actor Ben Affleck days before the ceremony pretending to be Rita Moreno in West Side the “multifaceted mogul” – was due to take place in 2003. “Twenty Story. “I wanted to accomplish things. I had then engaged to the athlete- years, three marriages, five children, a that kind of competitive spirit,” she later turned-entrepreneur Alex Las Vegas residency” and “more than told Rolling Stone. At 18, she dropped out Rodriguez – had “never 18 fragrance launches” later, “Bennifer of college, where she was studying business, been more formidable has been born anew for 2022”, says the to pursue dancing full-time. A stint on a as an entertainer or Financial Times. Earlier this month, the popular comedy show led to appearances more ferocious as a couple were quietly married at the drive- in music videos before her big break in businesswoman”. through Little White Chapel in Las Vegas. 1996, when she landed the title role in a According to a biopic of the Mexican-American singer, business partner, Cynics may say that “Bennifer, the Selena – becoming rematch” has “only vivified a flagging the first Latin “You have to work harder interest” in the couple’s upcoming projects. American star to “But it’s hard not to feel a pinwheel of earn more than $1m than everybody else... excitement for a fairytale narrative in for a film and a role when everybody is which the publicly broken Affleck has model for millions of sleeping, I’m doing more” been rescued by his Latina queen.” And young Latinas in the J.Lo, aged 53, is certainly on the up, having process. “clawed back a career from the precipice “she understands of irrelevance” over the past decade via a Unstoppable cultural force the power in the three-year run on the hit TV talent show By 2000, by which time she had a triple- pivot”, believing “American Idol” and “a star turn at the platinum album to her name, J.Lo had that “the only Super Bowl”. become “an unstoppable cultural force”, thing stopping aided by the emerging internet, says The you is you”. “It turns out love is patient,” J.Lo wrote Times. An appearance in a plunging Lopez herself in her newsletter, describing “a narrative Versace gown at the Grammy Awards admits to “a arc” worthy of the many romantic comedies triggered “one of the first viral fashion constant drive for that she has starred in, says The Times. moments”, prompting Google to launch perfection” and Indeed, according to Alice Leppert, its Images search engine. By 2004, the self- puts it all down professor of media and communication styled “Jenny from the Block” had launched to solid graft. “My studies at Ursinus College, Pennsylvania, a successful lifestyle brand (perhaps inspired business philosophy is and co-editor of the journal Celebrity by her relationship with the rapper P Diddy) that you have to work Studies, “People lost their minds when that brought in more than $300m that year harder than everybody they reunited”. We “invest” in celebrity alone. It started with a fragrance and grew else…When everybody to compensate for our own romantic to include clothing, watches and bed linen. is sleeping, I’m doing disappointments and part of J.Lo’s charm – She is credited with pioneering “a new era of more. It’s just a relentless forming the basis of her $400m fortune – is fame where celebrities became the product”: pursuit of creativity.” her girl-next-door quality. “Her rags-to- creating “a blueprint” for later business riches story represents the mythology of the empires built by Kim Kardashian, Gwyneth American dream on steroids.” Paltrow and Reese Witherspoon. Throughout her career, J.Lo – described The daughter of Puerto Rican parents – by Rolling Stone as “warm, yet sphynx- her father was a computer technician, her like” – has continued “to reinvent herself”; mother a nursery school teacher – Lopez was raised in a cramped one-bedroom apartment in the Bronx where she would The best trades in history... shorting Enron ©Getty Images Born in 1957 in Milwaukee, What was the investment? selling large amounts of shares. declared bankruptcy in Wisconsin, Jim Chanos In the 1990s Enron was Kynikos started shorting Enron December 2001. (pictured) graduated deemed one of the top in November 2000. from Yale. He later energy companies in Lessons for investors joined Gilford the world. However, What happened? Chanos made around $500m Securities as an in late 2000 a friend In early 2001 several executives from his Enron trade. Other equity analyst, told Chanos about unexpectedly left Enron; the successful short sales include where he made his an article on the share price had halved to Boston Chicken and Tyco name as one of the controversial around $40 by the time its CEO International. Dubious first people to accounting practices Jeff Skilling resigned in August. accounting techniques, opaque question the opaque of energy firms, Kynikos thought Skilling’s financial structures and insiders accounts of Baldwin- resignation showed that Enron dumping their shares can all be United, a piano retailer that including Enron, which was hiding problems and signs of trouble. But perhaps became an investment were treating expected profits greatly increased its short the most telling anecdote was company; it later declared from future deals as current position. A few weeks later from one analyst Chanos spoke bankruptcy. In 1985 he set up profits. Chanos also saw that Enron admitted it was being to after he had begun shorting hedge fund Kynikos Associates Enron had set up several investigated by US regulators Enron, who, “while admitting (named after the ancient Greek satellite entities, which were and had to restate its earnings. that Enron was a ‘black box’ for “cynic”), which takes short engaged in trading with the With creditors demanding their regarding profits, said that as positions balanced by being main company but not subject money back and a bid by long as Enron delivered, who long on the wider market. to normal financial reporting Dynegy falling through, Enron was he to argue”. rules. Finally, insiders were 29 July 2022 moneyweek.com



Travel 31 Escape to the beach this summer From laid-back bliss in France to a Greek island paradise. Jasper Spires reports France’s answer to Cornwall ©Alamy Grands-Sables : a convex arc of fine, white sand “In this most British corner of France, the beaches have echoes of Cornwall – deep bays bookended by rock pools and green and heathered headlands. Except here, 200-odd miles due south, the weather’s a bit better – the Ile de Groix even has its own microclimate,” says The Telegraph. Ile de Groix is a “laid-back”, “timeless” little island off the French mainland’s west coast, lapped by the Atlantic and famed for its languid spots and coastal attractions. Cycling holidaymakers will make particularly good use of the flat ground by the seaside to drink in the views, gliding from beach to beach. “Grands-Sables is Groix’s poster girl, a convex arc of fine, white sand – but there are numerous others, including pinot-blush Sables- Rouges and, a scramble down the rocks, the hidden nook of Poulziorec.” Stay at the three-star Hôtel Ty Mad Groix with its 24 rooms, “sequestered” pool and a nautical-themed restaurant on the terrace. From £69 per night, tymad.com ©Kim De Klerk/Tintswalo A boutique gem in South Africa ©Alamy Private paradise in Greece The Tintswalo Atlantic boutique hotel in Cape “Unlike the Greek islands of Kos or Mykonos, Kefalonia isn’t Town, South Africa, is “uniquely located in known for its nightlife, but that doesn’t mean entertaining is off the Table Mountain National Park”, says the cards… Avithos beach is just ten minutes away by car, so pile Sally Hunter in Glamour. This, an “ocean- in and take the plunge,” says Anna Prendergast for Condé Nast side hideaway”, lies nestled at the base of Traveller. Sea Lily, a villa on the south of the island, is the precipitous Chapman’s Peak Drive. No close to Argostoli, houses six guests and has a large social media post can compare to seeing the pool, plus there’s plenty of good weather. When real thing for yourself. To call it picturesque you’re not lounging on the sandy shores of the would be “an absolute understatement”. Mediterranean, “stock the freezer with ice, The Tintswalo Atlantic is composed of 11 pick up produce at one of Metaxata’s mini- markets and invite guests over to grill some suites named after islands and are “cleverly fresh fish on the barbecue after poolside landscaped to complement the idiosyncrasies of cocktails”. Your days will begin with the the mountain-and-sea surroundings”. Dining at the ocean and end with the sun. Then don on-site restaurant, Chefs Warehouse, “is an evening to share with your sunglasses and “take up the recovery those closest to you and a moment in time for the memory box”. position the morning after on one of the sun Every dish was stunningly presented and cleverly thought out, as loungers overlooking the blue horizon”. Seven well as creating flavours “that I didn’t know existed”. Island rooms nights £1,562, plumguide.com cost from £308 per night, tintswalo.com Beach bliss away from the crowds Living la dolce vita in Capri and sits “like a generous dollop of volcanic rock in the Tyrrhenian Sea”. “The terrace of this boutique hotel is Cornwall “The mystical, magical island of Capri The island’s history speaks for itself, at its most convivial, permanently packed with has bewitched visitors for centuries,” its mythology chronicled early on by bright young things in slip dresses and neon board says Lilah Ramzi in Vogue. It is Homer, embellished by the hedonism shorts,” says Susan d’Arcy in The Times. “Even located off the Bay of Naples, in Italy, so, the crowd isn’t nearly as cool as the view.” of Roman Emperor Tiberius, Overlooking Cornwall’s Summerleaze beach, The and made a symbol of la dolce Beach at Bude is “a glorious evocation of those lazy- vita in the 1960s. However, less hazy-crazy days of summer”, and offers guests the well-known are its beach clubs, possibility of lapping up the august views and among which the Il Riccio cool waters, away from the bustle of traditional is the only one of its kind to tourist destinations. “As you tuck into an al fresco be Michelin-starred. Lounge lobster lunch, you will see fishing boats drifting on the day bed and lunch at along the River Neet, kids splashing about in its the restaurant, admiring the tidal pool and parents chilling on deckchairs in sea views. Then check in at front of pastel-coloured beach huts. And surfers, the Caesar Augustus hotel. If heaven is a place on earth, it lots of them is to be found here. Alluringly and always suspended over the sea with sucking in their 49 beautiful bedrooms and six six-packs.” suites, the Caesar Augustus B&B doubles will enrapture, impress, and from £145, satisfy. From €1,500 per night, thebeachatbude. caesar-augustus.com co.uk ©Alamy ©Relais & Chateaux ©Pic Credit 29 July 2022

32 Property This week: properties with vineyards – from a palace in Braga, Portugal, with vineyards planted with thre Longwells Vineyard, Warnham, Chianti Castle, Tuscany, Italy. A Horsham. A timber-clad cabin with gardens restored medieval castle with its own chapel leading onto a woodland glade in a certified surrounded by vineyards and olive groves, organic vineyard planted with seyval grapes, currently producing up to 150,000 bottles which are popular for making English of wine per year. 25 beds, 33 baths, receps, sparkling wine. 3 beds, bath, recep, kitchen, commercial kitchens, gardens, orchards, office, 2 outbuildings, 2.16 acres. £625,000+ outbuildings, 222.4 acres. £17m Christie’s Batcheller Monkhouse 01798-872081. International Real Estate +39 0575 788 948. Sedlescombe Organic moneyweek.com Vineyard, Staplecross, Robertsbridge, East Sussex. One of the oldest biodynamic vineyards in the UK. It comes with a bungalow subject to agricultural occupancy conditions, a visitors’ centre, cafe and shop with a wine- tasting area, and has seven acres of vines planted with regent, solaris, monarch and pinot noir grapes. 3 beds, 2 baths, recep, grounds, parking, 16 acres. £1.95m Savills 01732-879050. 29 July 2022

Property 33 ee varieties of local grapes, to one of the UK’s oldest biodynamic vineyards in Robertsbridge, East Sussex Castelo Póvoa de Lanhoso, Braga, Portugal. A palace built in 1906 surrounded by gardens leading down to the River Ave and vineyards planted with loureiro, trajadura and pedrenã grapes, which produce fine white and green wines. It has ornate ceilings and frescoes, a grand wooden staircase, tiled floors, and comes with a caretaker’s house, outbuildings and a fully equipped modern wine cellar. 13 beds, 8 baths, receps, 99 acres. £6.6m Christie’s International Real Estate +351 224 057 008. Pilgrims Nook, Willow Woods, West Studdal, Dover, Kent. A 19th-century house with a newly planted vineyard with four grape varieties, including pinot noir and ortega. I has an indoor swimming pool and a conservatory. 5 beds, 3 baths, 3 receps, breakfast kitchen, annexe, gardens, 15.44 acres. £2.2m+ Finn’s 01227-454111. Kingscote Estate Vineyard, Kingscote, East Grinstead, West Sussex. A commercial vineyard with 60 acres of vines and a winery producing 100,000 bottles of still and sparkling wine a year. It comes with a Grade II-listed farmhouse, a 2-bed coach house and a visitors’ centre in a converted, 15th-century barn. 5 bed, 2 bath, 5 receps, orchard, 22 acres of woodland, 2 fishing lakes, 152 acres. £4.95m-£6.75m (available in 2 lots) Savills 01732-879050. Coldwell Farm, Leominster, Willow House, Herefordshire. A Grade II-listed, Fressingfield, Eye, Suffolk. 12th-century farmhouse on a A Grade II-listed house with smallholding with large gardens gardens that include a vineyard that include a medieval orchard with planted with Bacchus grapes, a damsons, quinces and cider apples, wildlife area with a pond, and a and a vineyard with mature vines. It bridge over a stream. The house has flagstone floors, beamed ceilings, has exposed wall and ceiling exposed stonework and a country timbers, brick and tiled floors, kitchen. 4 beds, bath, 3 receps, a dining room with an open outbuildings, 11 acres. £1.1m+ fireplace and a wood-burning Jackson Property 01568-610600. stove, and a country kitchen moneyweek.com with an Aga. 6 beds, 3 baths, 2 receps, study, 1-bed detached annexe, 2 outbuildings, greenhouse, 2.76 acres. £1.20m Strutt & Parker 01473-220433. 29 July 2022

34 Cars An SUV that’s big on thrills The new Jaguar F-Pace SVR delivers on performance and kicks. Jasper Spires reports In 2025, Jaguar will re-emerge, butterfly-like, from A Grand Prix experience its chrysalis. A brand reborn with an all-electric, all-new change of direction, meaning no more It’s a difficult car to beat. “The F-Pace SVR petrol-fuelled engine growls, says Ollie Marriage even trumps the in-house hooligan Range Rover in Top Gear. But before the door closes on internal Sport SVR for sheer bonkers performance,” says combustion, the new Jaguar F-Pace SVR will still David Green for Sunday Times Driving. “There deliver your kicks with a supercharged V8 engine. is something incredibly pleasurable (some would say childish) about seemingly bending the laws “Rekindling memories of Le Mans” with the of physics as you throw a two-ton vehicle into a F-Pace SVR Edition 1988, Jaguar’s latest offering is roundabout and accelerate out of it like you’re about as exclusive as it is fast, says Yousuf Ashraf in exiting the La Rascasse [corner at the Monaco Auto Express. Only 394 will be built and all of them Grand Prix]. It certainly gees me up more than an cap out at a top speed of 178mph. The acceleration espresso shot in the morning.” isn’t bad considering the car’s weight, climbing from 0-62mph in four seconds, and the handling is top It’s also a looker inside and out. “The cabin notch. On the move, the SVR’s engine response, benefits from a smart new dashboard, higher steering and gearbox calibration can be tweaked quality trim, and a redesigned centre console,” say to unlock an impressive breadth of ability – “a Mike Duff and Mike Sutton for Car and Driver. calm, opulent SUV which, while firm, tackles some “Jaguar won’t be making vehicles like this for much scarred roads better than a standard F-Pace”. longer. We will miss them when they are gone.” From £77,665, jaguar.com “The F-Pace SVR even trumps the in-house hooligan Range Rover Sport” Wine of the week: a scintillating chasselas 2020 Pouilly Sur Loire, Matthew Jukes seems to me that this unique wine. With a slightly Chasselas, Jonathan Wine columnist extraordinary care and fleshier mid-palate and less Didier Pabiot, France attention taken in the dramatic acidity on the finish than a traditional Pouilly-Fumé, this £21.88, laywheeler.com vineyards has paid great shimmering beauty looks ridiculously enticing already, and Made from the rare chasselas dividends. While all of it manages to capture haunting orchard florals with invigorating grape, this incredible white wine Jonathan’s other wines breeziness, making it a shockingly comes from sauvignon blanc’s are made of sauvignon pure experience. If you want to top up your basket, look no spiritual home in Pouilly-sur-Loire. blanc, this scintillating further than 2021 La Brise So, why does Pabiot bother white is a constant Marine, Château de la Négly, La Clape (£14.08). This is another making a chasselas – a grape that memory of his bracingly vital French white. very few have ever heard of? The grandfather while also Matthew Jukes is a winner of the International Wine & short answer is that it is drop-dead celebrating a historical Spirit Competition’s Communicator of the Year gorgeous, but the longer answer grape variety. (MatthewJukes.com). is more intriguing. Jonathan’s While chasselas moneyweek.com grandfather, Lucien, planted just may not be as famous one half-acre plot of chasselas, as sauvignon, in the and the vines are now 45 years right hands it old. Jonathan has farmed his transforms into an family’s vineyards first organically ethereal, succulent and now biodynamically and it and mesmerisingly 29 July 2022

Collectables 35 A £16m tipple served with froth Undiscovered gems from the distilleries The market in high-end whisky is looking very bubbly. Chris Carter reports It seems like just about Earlier this month, a cask “A cask of 1975 whisky from Ardbeg sold everyone and their West of 1975 whisky sold for for £16m to a collector in Asia” Highland terrier has gone £16m in a private sale to a cask-whisky crazy. collector in Asia. The single in recent years. That trend the investment market has Edinburgh-based Artisanal malt, known as Cask No culminated in 2019 with the “expanded considerably” as Spirits Company, which 3, from the 207-year-old sale at Sotheby’s in London investors diversify into tangible listed on the London Aim Ardbeg distillery on the island of a bottle of Macallan 1926 assets and seek decent returns. junior stockmarket in of Islay, sold for more than 60-year-old for almost £1.5m. June last year, says double the price that LVMH So why not seek out tomorrow’s “It’s an industry ripe membership of its Scotch subsidiary Glenmorangie paid million-pound bottles? The for scalping,” one industry Malt Whisky Society for Ardbeg and all of its stock same month the Macallan sold, insider tells the FT. “I strongly (smws.com) grew by almost in 1997, as Alice Lascelles Cask Trade launched its online suspect there are multiple a quarter year-on-year in the and Oliver Barnes note in the platform, allowing collectors pyramid schemes that haven’t six months to the end of Financial Times. For the next to buy and sell whole casks, yet been exposed.” So do your June, to 35,500. First-half five years, 88 bottles, each and the Swedish-regulated The research and get a “delivery sales rose to nearly £10m, worth £36,000, will be drawn Single Malt Fund opened up order”, which gives you legal from £7.9m a year earlier, from the cask every year and to British investors. Braeburn proof of cask ownership, with revenues for 2022 dispatched to Asia. “The sale,” Whisky, which specialises in the advises Andy Simpson of forecast at around £21.6m. says the paper, “represents a sale of investment-grade whisky analysts Rare Whisky 101. And The club seeks out casks new high-water mark for the casks to investors, is now on as with any market from 140-odd distilleries, increasingly competitive market the fourth edition of its annual that has risen strongly over which it then bottles and in rare whisky.” Whisky Cask Market Report. years, particularly one that offers to members at cask Its BC20 Whisky Cask index, continues to do so in an strength. It’s a business We are not talking about a which tracks and collates the environment that has seen model that is becoming simple rising of the tide here. values of 20 casks from assorted stocks and even gold flounder, increasingly popular as That £16m figure is well above distilleries around Scotland, while achieving a new high whisky enthusiasts seek the previous record of £1m for rose by 14.4% last year. The price record 15 times in excess out undiscovered gems a cask, when a 1988 Macallan report notes that, since 2020, of the previous record, beware was sold to an American buyer, the bursting of the bubble. away from the main only last April. And while that distillery offerings. price somewhat unusually includes the costs of storage, House of Hazelwood is a insurance, bottling, labelling, collection of whiskies distillery visits and taxes (you spanning seven decades could infer a price closer to and held in cask, built up £8m for the whisky itself), it is by the Gordon family over still a significant mark-up. We the best part of a century. can only presume the buyer It claims to be “the greatest will drink or give the bottles inventory of aged Scotch away. “They were so dear in the whisky held anywhere first place it’s hard to see how in the world”. Every year, they could deliver a return,” new stock is laid down for says Lascelles. Is this yet future generations to enjoy, another sign that the market in and from this summer, collectable assets is frothing? that includes those from outside the immediate Bottles of rare single malts family. The collection is selling for ever higher prices releasing selected small- have grabbed the headlines batch bottles and special releases for the first time. ©Alamy Auctions Gone… The sequined leotard costumes and Prior to bottling, a small proportion of the stock is Going… The Teflon-coated white coverall matching bicorne hats worn by Marilyn Monroe monitored near Dufftown, in (pictured) and Jane Russell as Lorelei Lee and Speyside, where it can be jacket worn by astronaut Edwin “Buzz” Aldrin Dorothy Shaw in the 1953 film Gentlemen sampled from the cask by during his trip to the moon and back as part of private appointment. House the Apollo 11 mission in 1969 was heading Prefer Blondes went up for sale earlier this of Hazelwood also runs its for auction this week with Sotheby’s. It is month with California-based Julien’s own “club”. “Keyholders” the only piece of clothing from the mission Auctions. They fetched $102,400. gain access to members- that is available for private ownership They were, however, outstaged during only releases, private (the others are kept in the National Air the sale by the figure-hugging gown events and preferential and Space Museum collections in worn by Monroe in There’s No Business access to new releases. See Washington, DC ), and as such was Like Show Business, made the houseofhazelwood.com. expected to sell for $2m. Following his following year. The flesh-tone crepe moonwalk with Neil Armstrong, Aldrin gown, embellished with silver and 29 July 2022 found the engine arm circuit breaker switch pearlised bugle beads, scattered had broken off and was lying on the floor of rhinestones, sequins and silver and the lunar module. Without it, they couldn’t return home. Aldrin, ever resourceful, glittering flowers, came with a matching jammed his plastic-tipped pen into the hole, headpiece. Together, they sold for $218,750, and saved them both. The pen and switch more than double their pre-sale estimate. All were also expected to fetch $2m as part of three outfits were designed by Oscar-winner the same sale. William “Billy” Travilla. moneyweek.com



Crossword 37 Bridge by Andrew Robson Tim Moorey’s Quick Crossword No. 1114 Portland Party A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 8 Aug West rued his choice of lead on this week’s slam deal – either a 2022. By post: send to MoneyWeek’s Quick Crossword Spade or a Diamond lead would have defeated the slam. Not so No.1114, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email: a Club… scan or photograph completed solution and coupon and email to: crossword@ moneyweek.com with MoneyWeek Crossword No.1114 in the subject field. Dealer South East-West vulnerable 1234567 ♠ 1087 ♠ KJ54 ♥6 ♠AQ93 ♥5 89 ♦ Q1087 ♥J10843 ♦ AJ643 ♣ J10763 ♦K52 ♣ 542 10 11 12 13 ♣A 14 15 16 N WE S ♠ 62 ♥AKQ972 ♦9 ♣KQ98 The bidding 17 18 19 South West North East 20 21 22 1♥ pass 5♥* pass 6♥ pass pass pass * The deal was played at London’s Portland Club, where no 23 24 conventions are allowed. Playing the full gamut of recommended slam-bidding tools, I’d suggest, One Heart – Four Clubs (splinter, Across clues are mildly cryptic while down clues are straight short Clubs and a good Heart raise) – Four Notrumps (Roman Key card Blackwood) – Five Spades (two Aces and the Queen of ACROSS DOWN Hearts: North pretending holding a fifth Heart) – Six Hearts. But 1 Traded wood on time (5) 1 Remote (7) I doubt West would have led a Club now …especially if East made 4 Crazy part of east London? (7) 2 Tune (3) a lead-directing double of Five Spades. 8 Contracts for psychiatrists? (7) 3 Male singer (5) 9 Soccer team sick in Virginia (5) 4 Vehicle (3) Declarer won the Knave of Clubs lead in dummy. The simplest line 10 Bow taken from a Roman 5 Italian dish of pasta (7) appeared to be to lead a Diamond towards the King; if West held the 6 Acquired by illegal means (3-6) Ace, he could play it, but dummy’s promoted King would provide a Catholic (3) 7 Abnormally large person (5) discard for the losing Spade. If the King of Diamonds was beaten by 12 Find a solution concerning a 11 Mix-up (9) East’s Ace, there was always the Spade finesse to fall back on. 13 Daisy-like bloom associated child not working (6, 3) Declarer reflected that West might have led the Ace of Diamonds if 14 Expression that could bring with Michaelmas (5) he held the card. Thinking East would be more likely to hold the Ace, 15 No good (7) declarer crossed to a trump and played out the King-Queen of Clubs, about stuttering woe? (6, 7) 16 Not working any longer (7) discarding two Diamonds from dummy. He ruffed his fourth Club (to 17 Cheesy long-running play in 17 Game (5) eliminate the suit) then led dummy’s now bare King of Diamonds. 18 Fruit (5) East won the Ace, but was endplayed. London? (9) 21 Transgression (3) 19 Head, a crazy person! (3) 22 Sailor (3) A second Diamond would enable declarer to discard a Spade from 20 Dropping son off, hit vehicle (5) hand and ruff in dummy; a Spade would run to dummy’s Ace-Queen. 21 What you eat first in Eurostar Slam made. terminal? (7) For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com 23 Henry and his offspring like practical people (5-2) 24 Pole seen behind ambassador and old king (5) Name Sudoku 1114 Address 39 To complete MoneyWeek’s email ! Sudoku, fill in the squares 1 58 in the grid so that every row Solutions to 1112 and column and each of the Across 7 Set in motion anagram 8 Abacus deceptive definition 9 Credit Ed 6 3 24 nine 3x3 squares contain all in crit 10 Learned Lear + ned 12 Caber cab + er 14 Scant scan + t 16 Diverse the digits from one to nine. divers + e 19 Divine IV inside dine 20 Trader re Dart reversed 22 HMS 71 The answer to last week’s Pinafore anagram. Down 1 Usable US able 2 Otic hidden 3 Knesset K + puzzle is below. ness + ET 4 Tosca hidden 5 Airedale aired + (t)ale 6 On fire fir inside one 6 11 Randiest Andie’s inside right = Rt 13 Vietnam v + anagram of meat in 267395184 15 Chichi chi chi 17 Stewed t inside anagram of Swede 18 Benin Ben + in 12 984761523 21 Avon reversal. 135824796 25 61 3 821547639 The winner of MoneyWeek Quick Crossword No.1112 is: 746938251 Robin Boardman of Halifax 97 5 359216847 693182475 Tim Moorey is author of How To Crack Cryptic Crosswords, published 85 6 512479368 by HarperCollins, and runs crossword workshops (timmoorey.com) 478653912 MoneyWeek is available to Taylor’s is one of the oldest of the founding port houses, family run and entirely visually impaired readers from RNIB dedicated to the production of the highest quality ports. Late Bottled Vintage National Talking Newspapers and is matured in wood for four to six years. The ageing process produces a Magazines in audio or etext. high-quality, immediately drinkable wine with a long, elegant finish; ruby red For details, call 0303-123 9999, in colour, with a hint of morello cherries on the nose, and cassis, plums and or visit RNIB.org.uk. blackberry to taste. Try it with goat’s cheese or a chocolate fondant. moneyweek.com 29 July 2022

38 Last word Who’s to blame for inflation? Editor-in-chief: Merryn Somerset Webb No one, it would appear – certainly not those with their hands on the economy’s tiller Executive editor: John Stepek Editor: Andrew Van Sickle Bill Bonner Markets editor: Alexander Rankine Columnist Comment editor: Stuart Watkins Politics editor: Emily Hohler You’d think inflation was Wealth editor: Chris Carter like an invasion from space. Shares editor: Matthew Partridge It caught us all by surprise; no one Funds editor: Nicole García Mérida on earth had anything to do with Digital editor: Ben Judge it. Janet Yellen was chairman of Digital shares editor: the president’s council of economic Rupert Hargreaves advisers, a regional US Federal Web writer: Saloni Sardana Reserve bank boss, then vice- Contributors: Bill Bonner, president of the Fed, then Fed Ruth Jackson-Kirby, Max King, chair and now treasury secretary. Jane Lewis, Matthew Lynn, She, more than any human being, David Prosser, Cris Sholto Heaton should be held responsible for Jasper Spires, David Stevenson, the last quarter of a century’s Simon Wilson inflationary policies. ©Alamy She was right there in the room Inflation, like an alien invasion, appears out of the blue Art director: Kevin Cook-Fielding Picture editor: Natasha Langan and at the head of the table when the underway, it’s hard to bring it back All these programmes transferred Chief sub-editor: Joanna Gibbs Fed was pumping in cash and credit. under control. real wealth from the people who Yet from her comments to the press Hemingway wrote that there are earned it to privileged groups who Account director: Abdul Ahad you’d never get the idea that she had two sure ways to ruin a country: received it. And they’ve left everyone Group advertising director: anything to do with it. war and inflation. With regards to else poorer. GDP growth rates have Caroline Fenner (020-3890 3841) the former, we’ve seen one dumb come down. Prices have gone up. Chief customer officer: Yellen’s brainwave war after another since 1999 and The typical person now has to Abi Spooner She is, though, are currently work more hours to afford the same Chief financial officer now committed “There are two sure cheering on standard of living. The average Penny Ladkin-Brand to bringing it ways to ruin a country: another one. house in 1999 sold for $131,000. Non-executive chairman back down. With regards to Today, it is $428,000. The average Richard Huntingford And what’s her war and inflation” the latter, the hourly wage in 1999 was $5.15. Chief executive Zillah Byng-Thorne solution? Price controls! US has printed $8trn in new dollars Today, it is $10.86. In other words, She and the Biden team are since 1999; dropped interest rates it took the average working stiff 12 Subscriptions working on placing a price cap below zero and kept them there years of work to pay for his house on Russian oil in order to “avoid for almost ten years; shut down at the end of the 20th century. Email: subscriptions@ potential future spikes in oil prices”. the productive economy to defend Today, he’ll work for 19 years to pay moneyweek.co.uk Why didn’t we think of that? Don’t against a bug that was mostly a for his digs. Web: MoneyWeek.com/ want prices to rise? Put on a price serious threat to retired people; We don’t expect the poor contact-us cap. Sure, why not? And maybe distributed billions of dollars in fellow to do any long division. Tel: 0330-333-9688 she could get some advice from stimulus and raised unemployment But when some future president Post: MoneyWeek Argentina or Venezuela on how to benefits higher than salaries; tells him to light a torch and march subscriptions, Rockwood make those price caps work. In the curtailed investment in vital energy on the Capitol, he’ll probably do it. House, Perrymount Road, meantime, don’t expect inflation projects; and put sanctions on a And this time, he’ll surely bring a Haywards Heath, West to back off. Once inflation is major supplier of wheat and oil. pike or two. Sussex, RH16 3DH Subscription costs: £139.99 The bottom line that requires British according to analysis by $12.5m How much a year (credit card/cheque/ wills to be published, Professor Aviel direct debit), £159.99 in £39m How much the says The Guardian. Verbruggen of the Margot Robbie Europe and ROW £179.99. University of (pictured) is being rock band Queen earned £79,967 The value of a Antwerp, in Belgium. paid to play Barbie in MoneyWeek magazine is an from royalties last year, That’s equivalent to a forthcoming film – unregulated product. according to the accounts large diamond ring in the $2.8bn a day. Information in the magazine of their company, Queen shape of a pink oyster the same as her is for general information Productions Ltd. The band mushroom that has broken $10bn The cost co-star Ryan only and is not intended to has become the first in the record for the most Gosling, who will be relied upon by individual Britain to sell seven million diamonds set in one ring, of building and play Ken. This readers in making (or not copies of an album – says Guinness World sending into making) specific investment the band’s Greatest Hits Records. The piece of space the new makes Robbie the decisions. Appropriate compilation is owned by jewellery, made by retailer James Webb highest-paid independent advice should one in four households. SWA Diamonds of India, telescope. It was actress of 2022, be obtained before making contains 24,679 diamonds. launched last according to any such decision. £187m The combined year and Nasa Future Publishing Limited $52trn The total “rent” has released the Variety and its staff do not accept total value, in today’s first detailed magazine. liability for any loss suffered figures, of assets (unearned profit produced images. Its infrared Her fee, by readers as a result of any belonging to several after the total cost of sensors allow it to however, pales investment decision. generations of the production has been peer up to 13.5 billion in comparison with Windsor family that deducted) from global oil years back in time. the $100m Tom Editorial queries: Our staff were kept hidden from and gas sales since 1970, Cruise has so far are unable to respond to the public thanks to an earned from Top personal investment exception in the law Gun: Maverick. queries as MoneyWeek is not authorised to provide individual investment advice. MoneyWeek, 121-141 Westbourne Terrace, London, W2 6JR [email protected] MoneyWeek is published by Future Publishing Limited. 121-141 Westbourne Terrace, London, W2 6JR © Future Publishing Limited 2022. All rights reserved. MoneyWeek and Money Morning are registered trademarks. 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