MoneyWeek 12.08.2022_downmagaz.net

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12 August 2022 | Issue 1116 Britain’s best-selling financial magazine From the editor “The only The Bank of England has been caught on the hop by inflation as economist Paul Krugman function of put it. The more effectively an economic economy uses its workforce and forecasting is to capital, the richer it will get. But make astrology Britain’s productivity growth look respectable,” is abysmal, as Neil Shearing of said JK Galbraith. Predictions Capital Economics points out. about stockmarkets, earnings or Average output per hour macroeconomic trends can be worked rose by just 0.7% a year safely ignored, especially if you in the ten years before Covid-19, are a picky Virgo like me. a far cry from the 1.7% average That is why we haven’t in the five years to 2008 and the been too fazed by the Bank of 2.8% seen in the 1980s. England’s forecast of a 15-month Productivity growth hasn’t recession. Its record is no better ©Alamy been this low since the start than any other forecaster’s, to of the industrial revolution, put it charitably. A year ago it “Productivity growth hasn’t been this low says David Smith of the Sunday thought inflation would peak at Times. According to The 4%. Now it thinks inflation is since the start of the industrial revolution” National Institute of Economic heading for 13%. It was too gloomy about talk has turned to what measures could and Social Research, if productivity had the impact on GDP of the Brexit vote and alleviate the pain and bolster growth – grown by an annual 2% in the past decade, failed to predict the 2008 financial crisis. state payments to help with energy bills the average worker would now be £5,000 All official forecasters did. and tax cuts, principally. better off. The US Federal Reserve said in January So what’s the problem? What isn’t? It’s 2008, when the credit crunch was Overlooking the key ingredient a toxic cocktail of shabby infrastructure, spreading fast, that the US would expand The fuss over the downturn and fiscal low business investment, poor skills, by up to 2% in 2008 and up to 2.7% stimuli misses a key point, however. The and over-centralisation (which implies in 2009. But GDP shrank by 0.3% in measures being discussed relate to the less scope for a region’s institutions to 2008 and 2.8% in 2009. Andy Haldane, demand side of the economy, but it is galvanise growth and innovation, among the former chief economist at the Bank, improving the supply side that will do other things). There is no way of cutting compared economists’ failure to predict the most good over the longer term. The this Gordian knot, but you have to start the crisis with Michael Fish missing the last time we escaped stagflation, in fact, somewhere, and it would have been 1987 storm. The bigger picture is that the reforms to improve the productive capacity helpful to hear from the Tory leadership stagflationary hurricane is well and truly of the economy, such as privatising state candidates how they might approach it. Liz here, regardless of whether the economy behemoths and taming trade unions, Truss may present a plan when she wins ends up shrinking for several months helped pave the way for a lasting recovery. (see page 9). But don’t hold your breath – or not. The Bank, like its counterparts Those reforms helped bolster and perhaps top up your gold. elsewhere, has been caught on the hop productivity, and we urgently need to do by inflation (see page 4). Now it will try that again. “Productivity isn’t everything, to subdue it by hiking interest rates, and but in the long-run it is almost everything,” Andrew Van Sickle [email protected] Lawsuit of the week Good week for: A long battle over the Golfer Cameron Smith has signed a $100m-plus deal to join the $156m estate left by breakaway LIV Golf tour following his victory at the Open at St Prince (pictured) has Andrews last month, reports The Telegraph. Smith, the world’s ended, six years after number two player, is competing in the US Professional the musician died Golfer’s Association $18m FedEx Cup, but will announce his without a will, says defection to the Saudi-funded LIV tour afterwards. Rolling Stone. Prince, who died in April A railway worker has been awarded £30,000 for wrongful 2016, had no spouse arrest by Hampshire police under Covid-19 laws, says The or children, leading to Times. Desmond Acquah, who was handcuffed, sworn at and a complex process of taken into custody while returning from a shift in May 2020, dividing his assets offered to accept a lower amount if he was given a public between six siblings and half-siblings. Three of apology, but chief constable Olivia Pinkney refused. the heirs agreed to sell their interests to music publishing firm and talent company Primary Wave Bad week for: and two died before the matter was concluded. Further delays resulted from a dispute between The rise of working from home and a trend towards the US Internal Revenue Service (IRS) and estate more casual office clothing is hurting Savile Row executor Comerica Bank over the value of tailors, says Bloomberg. Footfall on the famous street in central intangible assets, such as music, name and London was down 40% in the last week of June compared with the likeness rights. Comerica valued the estate at same period in 2019. A two-piece bespoke Savile Row suit typically $82.3m and the IRS at $163.2m, with the argument costs around £5,000 and takes around 60 hours of work to make. resolved largely in the IRS’s favour in January. The estate will now be owned equally by Prince’s Film studio Warner Bros. Discovery has scrapped its Batgirl film two oldest surviving siblings, the heirs of another (starring Leslie Grace – pictured) even though the $90m production and Primary Wave. The entire battle is believed to had already been finished, says Variety. Some reports suggested have cost tens of millions of dollars in legal fees. that test screenings had performed poorly, while others said that after a management reshuffle and shift in strategy, the company moneyweek.com decided that it was better to take a complete tax write-off. Cover illustration: Adam Stower. Photos: Alamy; Getty Images 12 August 2022 ©Getty Images; Alamy

4 Markets Bank turns bleak as inflation mounts Alex Rankine Markets editor The Bank of England has set off “the most ©Getty Images Bank of England governor Andrew Bailey has missed his target by a factor of six piercing of warning sirens”, says Faisal Islam on the BBC. Last week the Bank’s only target by a factor of six and still says Robert Peston in The Spectator. The Monetary Policy Committee (MPC) raised take home [governor Andrew] Bailey’s independence of the Bank of England, interest rates by half a percentage point to £575,338-a-year pay?” Interest rates of granted in 1997, has helped the UK to 1.75%, “the largest interest-rate rise in a 1.75% look like a “peashooter” in the face command the confidence of bond markets. quarter of a century”, while forecasting that of this inflationary monster. While the Bank Politicians’ influence over interest rates inflation will peak at 13% later this year. is keen to blame everything on Russia’s helps explain why in the 1980s the UK Even more shocking, it is now predicting invasion of Ukraine, inflationary pressures paid between 9% and 13% to borrow for that the UK is heading for “a recession as have been “bubbling up for ages: the result ten years, compared with 6%-8% paid by long as the great financial crisis and as deep of a decade of easy money” and “central- West Germany, where the Bundesbank was as that seen in the early 1990s”. bank groupthink”. It was “too slow”, adds already independent. a Times editorial, to respond to the risk that The Bank reckons that inflation will still soaring commodity prices would “trigger As former MPC member Kate Barker be near double digits this time next year, a wage-price spiral”. Now it acknowledges tells Oliver Shah in The Times: “If you look while GDP will contract in the last quarter that “the greatest risk... lies in the tightness back at the benefits that were originally of this year and throughout the whole of of the labour market”. delivered in 1997, and you saw the increased 2023, say Delphine Strauss and George confidence in the bond market that came Parker in the Financial Times. Inflation- Still, history hardly suggests that from Bank independence… with the level of adjusted post-tax household incomes are removing its independence or “allowing borrowing that we have recently done, and projected to shrink by an unprecedented politicians greater sway over how much and maybe intend to do, it would seem a very 5% over the next two years. when interests rise” would be preferable, funny time to give that up.” “I cannot remember a central bank... being this negative about its own economy,” says John Authers on Bloomberg. Central bankers usually tiptoe around uncomfortable truths, so the bank’s “brutal honesty” is a breath of fresh air. These forecasts mark the end of any talk of striking a careful balance between supporting growth and fighting inflation. Clearly, the MPC has decided that “it has no option but to engineer a more severe economic downturn in order to bring inflation down”. A day late and a pound short The Bank has embarrassingly failed to achieve its only job – to keep inflation at 2%, says Alistair Osborne in The Times. “In what other job can you miss your Is the worst of the food crisis over? Global food prices recorded Russia and Ukraine jointly accounted for ©Getty Images struggling with a surge in their steepest monthly fall 30% of wheat exports in the past three years input costs, especially since 2008 in July. The UN fertilisers and diesel.” That Food and Agriculture consequently prices, says port of Odessa this month has could endanger yields from Organisation’s FAO food price Myra Saefong in Barron’s. also raised hopes that the winter wheat, normally sown index, which tracks a basket of Good harvests have also worst of the food crisis is over, between September and soft commodities including helped lower food prices. The says the Investors’ Chronicle. November in the northern sugar, meat, and cereals such pullback may be a sign that Yet the knock-on effects from hemisphere and harvested the as wheat and maize, fell 8.6% , “inflation will soon reach its soaring commodity prices following summer. says Euronews. But food peak”. A deal to allow mean that things could yet get prices are still up 13.1% since Ukrainian grain to leave the worse: “Farmers have been Agricultural commodity July 2021. The index hit a prices are only one of many record high in March after factors causing hunger, says Russia invaded Ukraine. David Fickling on Bloomberg. “Together, Russia and Ukraine Currency fluctuations can be accounted for around 30% and just as significant: the 20% of global wheat and maize devaluation of the Egyptian exports, respectively, over the pound has added an extra 25% past three years.” to wheat prices in local currency terms on top of the The price declines suggest global price increase. Pricier that a global economic food and stretched national slowdown is weighing on budgets may mean parts of household and industrial the developing world are commodity demand, and heading for currency crises. 12 August 2022 moneyweek.com

Markets 5 Gradual revival A “painful thud” Down Under in Greece “Greece is having a good “So much for the soft landing... ©Alamy Sydney’s house prices are suffering their sharpest decline in 40 years summer”, says Helena Smith in It’s now a painful thud,” says The Guardian. With a million Elizabeth Knight in The Sydney while a steep downturn in the can be broadly defined as visitors a week descending on Morning Herald. Australian country’s A$10trn (£5.8trn) commodities”, says Stephen Athens, this year’s tourist house prices fell by 1.3% in July, housing market would further Koukoulas for Yahoo Finance. season looks likely to top 2019, says CoreLogic. In Sydney they rattle consumers The country is a major global the previous record. That year tumbled 2.2% for the month supplier of iron ore, liquefied brought in 33.1 million visitors and are down 5.2% from their Commodities offer cheer natural gas (LNG), coal, gold, and netted the country €18.2bn January apex: the local market “meat and grains”. The trouble in revenue. is “plummeting” at its “fastest While inflation is running at an is that this reliance leaves pace in 40 years”. The cause annual pace of 6.1%, a 21-year Australia exposed to volatile “Tourism accounts for 25% is rising interest rates. Having high, Australia is one of the few commodity markets. of Greece’s economic output started tightening monetary wealthy countries that benefit and one in five jobs.” The irony policy “too late”, the Reserve when commodity prices soar. Australia ranks 91st is that after years of crisis, low Bank of Australia (RBA), the The country’s trade surplus hit a out of 133 countries in the wages mean that “an estimated central bank, is playing “catch- record high of A$17.7bn in June. Atlas of Economic 43 % of the labour force can’t up” at “warp speed”. “Earnings from metals jumped Complexity , “just below afford to take a holiday” of their 27% in June while cereal and Kenya”, says Brandon own. However, the tourism Tighter monetary policy has grains climbed 21.1%,” says How on InnovationAus. boom should still see GDP weighed on the stockmarket, Pandey. Strong demand for iron This data, published by the growth hit 4% this year, with the benchmark S&P/ ore and coal has seen Australia Harvard Kennedy School of according to forecasts from the ASX 200 index down 7.5% enjoy trade surpluses every Government, measures “the European Commission. That since the start of the year. Still, month since 2018. Trade should number and complexity of the would see Greece comfortably that is better than many other provide a sizeable 1% boost to products” a country exports. outperform the wider eurozone, developed markets, reflecting second-quarter GDP growth Japan is top, while the UK which is forecast to grow about a heavy weighting towards figures, says Marcel Thieliant of is in tenth place. Australia’s 2.6% in 2022. commodities, which account for Capital Economics. commodity focus leaves it more than a fifth of the MSCI notably “less complex than The ASE index of local stocks Australia index. Australia’s Around three-quarters of expected for its income level”. is off less than 5% in 2022, a central bank hiked interest Australian exports are “what better performance than most. rates by 0.5% to 1.85% at the That reflects low starting start of August. That marks valuations: the index is trading “an eye-watering 175 basis on a price/earnings (p/e) ratio of points of hikes since May”, says 13.6. Years of gloom meant that Wayne Cole on Reuters. With there was no bubble to burst in “unemployment at 48-year Athens. Greek stocks have been lows” the central bank thinks flat since 2014 and are still far the economy can take the pain. off their pre-2008 highs, notes Eleni Varvitsioti in the Financial The RBA shouldn’t be too Times. The post-2008 sanguine, says Swati Pandey depression “robbed Greece of on Bloomberg. The household many investable stocks, with debt-to-income ratio has 100 companies leaving the reached an all-time high of exchange”. Among those that 187%. Higher mortgage rates remain, property developers will eat into household budgets look well placed to profit amid a boom in foreign direct investment into the local property market. Viewpoint n Suffering 20 years of stagnation For a country maligned as chaotic and spendthrift, “Italy “Soaring interest rates, galloping Italian vs EU GDP per capita seems surprisingly functional”, inflation, the Russian invasion of Ukraine says Paul Krugman in The New and the impact of ‘zero Covid’ policies Change since 2000 in real purchasing power parity terms York Times. It has done a good have driven financial markets since the job vaccinating its people and start of the year. The result has been a 30% European Union Italy life expectancy is 83 years, succession of stalls and rebounds for 25% compared to 77 in the US. world stockmarkets, enough to give Rome’s reputation for fiscal investors cold sweats. But stockmarket 20% irresponsibility stems from the operators are rubbing their hands 1980s, when imprudent outlays together. While volatility frightens 15% lumbered the state with high investors and weighs on the number of debt. Yet in recent years “Italy listings, it also drives up [trading] 10% has been quite disciplined”. volumes. The two main operators on the Before Covid, the government continent, Euronext and Deutsche 5% Source: World Bank / Our World in Data was consistently running a Börse, have published solid results for primary fiscal surplus, meaning the second quarter... Euronext’s turnover 0% it was collecting more than it jumped by 14% on the year... while that was spending, excluding debt of Deutsche Börse climbed by 12%. -5% payments. Italy doesn’t have a Their profits rose 37%... and 10% spending problem, it has a respectively over the period... In Europe, -10% growth problem. Even before volatility on the [bluechip] Stoxx 50 2000 2005 2010 2015 2020 the pandemic, Italy saw no index has jumped 50% compared to the growth in real gross domestic first half of 2021.” product (GDP) per capita for two decades. Bastien Bouchaud, Les Echos 12 August 2022 moneyweek.com

6 Shares Oz Minerals rejects red-metal bid Softbank’s Vision blurred The Japanese technology investor is nursing a nasty hangover now that its Australian copper miner big bets have been hit by the market downturn.Alex Rankine reports Oz Minerals has rejected an A$8.4bn (£4.8bn) takeover “When we were turning out big profits, I became ©Getty Images Masayoshi Son: first delirious, bid from BHP Group, the somewhat delirious, and looking back at myself now embarrassed and remorseful world’s biggest listed miner. now, I am quite embarrassed and remorseful,” The offer came at a 32% said SoftBank’s CEO Masayoshi Son, as he time markets bubble up again, Son’s brash style premium to Oz’s share unveiled a record quarterly ¥3.1trn (£19bn) may resurface as well”, says Jacky Wong in The price last Friday, but Oz, net loss this week. The Japanese conglomerate, Wall Street Journal. In 2019 SoftBank “booked which runs copper- and known for its multibillion-dollar bets on billions of dollars of losses” after WeWork’s gold-mining operations in technology companies, has been caught up in the botched IPO. Yet he was soon back at it, pouring South Australia, branded the market sell-off. Son says that “dramatic” group- funds into tech firms at the height of last year’s move “highly opportunistic” wide cost-cutting will be needed. boom, resulting in more “hefty losses this year”. as copper prices have slumped recently. Softbank’s two Vision funds, launched in 2017 In 2020 Son appeared to compare himself to and 2019, have “deployed a $162.2bn war chest, Jesus Christ, says Gearoid Reidy on Bloomberg. BHP, which is currently with about $7bn still available to invest”, says Now he likens himself to “defeated feudal reliant on iron ore, is keen to Katie Prescott in The Times. Son made his name warlord” Tokugawa Ieyasu. Son says that like increase its exposure to with early bets on Yahoo founder Jerry Yang and the shogun he has lessons to learn. Critics will copper, demand for which it Chinese e-commerce behemoth Alibaba. But his say that Son’s refusal to buy in the current slump thinks will “double in the recent record hasn’t been so impressive: he “wrote leaves him “at risk of buying high and selling next three decades”, says a $4.4bn cheque, the first of many, for WeWork, low”. SoftBank has sold the last of its stake in Rhiannon Hoyle in The Wall the shared-office space business, in 2017 after a Uber. But like Ieyasu, who ultimately bounced Street Journal. “Electric 12-minute tour of one of its New York premises”. back from defeat to unite Japan, Son seems vehicles use four times as That bet turned out to be a disaster. to hope that things will turn in his favour. He much copper as [petrol]- thinks that the “future giants of the AI age are” fuelled cars… and wind-and For all Son’s talk of “long horizons”, somewhere within the 473 firms in Softbank”s solar-power production SoftBank’s investment record is unimpressive, portfolio. “He just needs one or two of them requires more copper”. says Jennifer Hughes on Breakingviews. In the to succeed” and “grow to the level of an earlier five years since the first Vision Fund’s inception, SoftBank bet, Alibaba”. For all copper’s growing the tech-focused Nasdaq Composite index “has importance, there are produced a total return of 107% while SoftBank “precious few dedicated shares have produced a mere 31%.” miners of the red metal”, as Lex points out in the Note that instead of going bargain hunting Financial Times. “Even after the downturn he has also “drastically cut” fewer operate in politically the Vision fund’s investment rate. It approved stable countries.” Oz fits $600m of new investments in the first quarter, the bill. down from $20.6bn at the same time last year. “That doesn’t suggest he believes valuations will The deal makes sense for fully recover.” both sides. Both firms have operations in South Buying high, selling low Australia, providing the opportunity for synergies, At their peak last year, Son’s Vision funds “had and BHP’s greater scale and grown by more than ¥7trn (£43bn)”, says Ben financial firepower will Dooley in The New York Times. By the end of mitigate the risks for Oz of June this year, “the funds had given up almost all “digging deep for higher- the gains they had made over their entire history”. grade copper”, a costly For all his apologies, “the odds are that next endeavour. Mining giant cashes in on coal BHP is “offering a 41% Glencore “has long been used from activist investors who premium to Oz’s 30-day to doing business in unstable ©Getty Images have called for it to exit coal. trading price for a company places”, says Megha Mandavia Instead, it has opted to “run that has had a couple of in The Wall Street Journal. group’s market capitalisation. down mines until they run out stumbles of late”, including “Now that the whole world is Glencore is set to make annual of coal sometime before 2050”. rising operating costs and looking unstable, it is pre-tax profits of $26bn, around lower production, says unsurprising to see Glencore double 2021’s total. Glencore was not inclined to Antony Currie on doing well.” Profits more than divest from coal like its peer Rio Breakingviews. doubled in the first half of the The results have been driven Tinto. It decided that “it would year, with earnings before by soaring coal prices. be better... to gradually and The proximity of BHP’s interest, taxes, depreciation Newcastle coal futures, the responsibly denude the assets Olympic Dam copper project and amortisation (Ebitda) Asian benchmark, have “risen in full public view”, says Alex in South Australia would hitting a record $18.9bn. from around $134 to $390 a Brummer in The Daily Mail. also make this “one of those metric ton” over the past year. relatively rare tie-ups where It’s quite a turnaround, says Glencore has defied pressure With the likes of Germany both sides reckon revenue Lex in the Financial Times. In turning back to coal to get synergies are both realistic 2016 and 2020 Glencore paid through this winter, that stance and bigger than the value of no dividends because of has been rewarded. The cost cuts”. Indeed, commodity downswings. group’s exposure to “sought- “removing just 20% of Oz’s Shareholders who stayed after ‘green’ metals such as operating expenses would... put should enjoy forecast copper, cobalt, nickel and zinc” cover the A$2bn premium payouts of $8.5bn for 2022, mean prospects are BHP has dangled”. equivalent to 12% of the encouraging even once the energy crunch is over. Oz feels it is entitled to a bigger slice. BHP may come 12 August 2022 back with a larger offer, but last year boss Mike Henry walked away from a bidding war for Canadian nickel explorer Noront Resources. He may be similarly reluctant to overpay for Oz. moneyweek.com

Shares 7 MoneyWeek’s comprehensive guide to this week’s share tips Three to buy Unite but the shares are volatile. Buy healthcare sectors. It provides sector. It services gas and on the next dip. 1,148p them with funding to invest electricity supplies in social The Daily Telegraph in research and development. housing and installs smart Property offers protection from Halma The group reported turnover of meters. It also has “tentacles in inflation. Unite, a real-estate more than £1.5bn and profits construction work”. Sureserve’s investment trust that owns The Mail on Sunday of £316m in the year to March order book rose by 50% to student accommodation, differs Halma owns 43 companies in 2022, and a 7% rise in the £512m in the six months to from other commercial- the safety, environment and dividend was declared. The March from the year before, property funds because its shares have slipped by 30% and 95% of 2022’s expected contracts are often only a year this year due to the gloomy revenues are already covered long. The short-term leases market backdrop – a slide that by orders. It has long-term mean the trust can bolster seems overdone. 206p relationships with local income rapidly by charging next authorities, which gives it year’s tenants higher rents. Sureserve “valuable visibility” over future Demand for student revenues. A 12% slide in the accommodation is increasing The Sunday Times share price this year constitutes fast. The only drawback is the Sureserve does “dull but a buying opportunity. 86p 21% premium to net asset value, important work” in the energy Two to sell the year before, thanks to past nine months and are 29% the bank raised its full-year the boom in second-hand below their September high. forecasts after “strong Motorpoint cars. Motorpoint benefited Nor does a weaker economic growth in lending and from this trend; it focuses on backdrop bode well for car deposits” in its first six Investors’ selling cars that are up to four sellers. Time to sell. 195p months. However, the cost- Chronicle years old through bricks-and- of-living crisis is worsening Car dealers mortar shops and its online NatWest and inflation shows little sign had a tough portals. It has ambitious of declining, with the Bank of growth plans and wants to Motley Fool England predicting a rise to pandemic: invest in expansion in order “The pull of big near-term 13% by the end of the year. most of them to “get its message across dividends” is not enough to This raises the prospect of a “wouldn’t have about its competitive pricing”. make NatWest worth investing “tsunami of bad loans”. The survived without However, it has been building in. The darkening economic Insolvency Service reported government up its inventory, which could outlook could cause a sharp 28,946 personal insolvencies assistance”. fuel investors’ concern over correction in the stock, which in the second quarter, a 7% However, last falling used-car prices; these seems especially vulnerable increase year-on-year. It’s best year the top-20 have dropped in seven of the owing to the “impressive gains” to steer clear. 255p dealerships it made last month, when reported an increase in profits to £746m from £105m ...and the rest Investors’ Chronicle The Daily Telegraph Shares The Times Telematic data provider Lloyds Bank’s latest results were “Marmite-to- Software company Sage’s Quartix Technologies tracks boosted by an increase in Magnum” maker share price “does not reflect cars and vans, which helps the first-half dividend, Unilever’s the benefits” that could come fleets optimise their vehicle use upgraded profit customers are from its shift to a software- and insurers price premiums guidance for the year loyal to the brand, subscription service. Buy (738p). accurately. However, given and “very modest” enabling it to counter Morgan Advanced Materials “the prospect of automated loan losses. The stock inflation through price makes ceramic and carbon vehicles emerging in the is on a 17% discount increases; it has already materials used in industries mid-to-long term, there is no to book value hiked prices by 9.8% in from aerospace to renewable guarantee” that the company’s and offers a 5% the six months to June. energy and healthcare. customer base will endure. yield. The wider Activist investor Nelson Sustained demand from these Sell (333p). Aston Martin economic outlook Pelts has joined the board sectors means this year’s trading won’t become an “investable is discouraging but and may push for a break-up, figures are expected to be at the prospect” until it manages to this is priced in, which could “offer a long-term top of the forecast range. The become cash-flow positive. making now a good catalyst for the share price”. stock looks cheap despite its Sell (468p). time to buy (45p). Buy (3,979p). positive prospects. Buy (299p). ©Alamy An American view IPO watch The United Nations says that almost a third of the world’s South Korea’s initial public offering (IPO) market has been hit by population couldn’t get enough to eat last year due to droughts cancellations as global markets have suffered from jitters over and pandemic-induced supply disruptions, says Reshma Kapadia inflation and interest-rate hikes. The benchmark index has lost a in Barron’s. And the rocketing global population means that by fifth this year. The first six months of 2022 saw just 36 flotations, 2050 we will need 60% more food than in 2010. This bodes well for while 2021 was a record year: 89 listings raised 19.7 trillion won America’s Deere & Co., which specialises in farm equipment and ($15.7bn). Korea is highly geared to global growth, so it is agricultural technology. Its global presence has helped it become especially vulnerable to worldwide turbulence. Global investors more profitable than its peers, facilitating expenditure of $1.5bn a are heading back to safer assets outside emerging markets. year on research and development. Products boosting farmers’ Withdrawals from IPO funds on the local market – these hold efficiency include robotic tractors and precision-spraying, and newly issued shares and bonds – eclipsed 1.6 trillion won planting systems that save on chemicals. ($1.23bn) in the first half of 2022, says Korea JoongAng Daily. moneyweek.com 12 August 2022

8 Politics & economics Heat turned up in US/China cold war Chinese sabre-rattling over Taiwan got louder in the wake of Nancy Pelosi’s visit. Emily Hohler reports US House speaker Nancy Pelosi’s visit to Xi’s “honeyed talk” is fooling no one ©iPictue credit Taiwan last week made her the highest- ranking US official to visit the self-ruled, status quo in the region is “critical” to from the mainland, and know that Xi’s democratic island in 25 years, says Matthew containing China’s influence in Asia. . “honeyed talk” of “peaceful reunification” Brooker in Bloomberg. Although Pelosi is code for “annexation and incorporation insisted that her visit doesn’t contradict “Not just possible but probable” into a dictatorship”. Hong Kong serves the one-China policy and Washington as an “awful warning”. A war would be has maintained a policy of “strategic How likely is military conflict? Although disastrous on many levels. We can only ambiguity” towards Taiwan for decades, senior Western officials are “too cautious” hope that both sides are bluffing. the trip has enraged Beijing, which considers to say so in public, a growing number of Taiwan a breakaway province. Xi Jinping experts believe a US-China conflict over A “Normandy-style, amphibious has repeatedly said that reunification must Taiwan in the next decade is “not just invasion” of Taiwan is unlikely because be fulfilled, if necessary by force. President possible but probable”, says Rachman. This the costs and risks of failure are simply too Biden has also said three times that the is driven by changes in China, the US and high, says Minxin Pei in Bloomberg (an US would fight to defend Taiwan if China Taiwan itself. Since Xi Jinping took power invasion would require an estimated force invades, says Gideon Rachman in the in 2012, Beijing’s foreign policy has become of two million, notes Ian Williams in The Financial Times. His officials’ insistence “noticeably more aggressive”. China has Spectator). Beijing is more likely to resort to that their boss had misspoken becomes “less built military bases across the South China “increasingly aggressive gray-zone tactics” convincing each time”. Sea and now has more naval vessels than to try and deter international support the US. Some Chinese nationalists “seemed for Taiwan and achieve reunification by China’s retaliation was swift, says disappointed” that the military didn’t shoot peaceful means. This should prompt the US Bloomberg. It launched a series of missile down Pelosi’s plane. Meanwhile, “about to rethink its own tactics. The best option tests and days of live-fire military exercises the only thing for which there seems to be is to “engage in preemptive diplomacy”, as a way to demonstrate how easily it could cross-party agreement in Washington is that however difficult politically. It will “require “blockade Taiwan and cripple its export- China is an increasingly dangerous rival”. pragmatism and restraint from all sides dependent economy”. More “attempts at As for Taiwan, it is clear that a younger – the US, China and Taiwan” – but the intimidation”, such as cyberattacks, are generation see their future as separate “alternative is too bleak to contemplate”. likely, and it has already banned imports of thousands of food products, notes Cissy Zhou in Nikkei Asia. The tension between the US and China over the visit is “not the cause but a result” of “intense rivalry” between two superpowers competing to control the international order, says Hiroyuki Akita, also in Nikkei Asia. As the Chinese Communist Party sees it, the US is “doing whatever it can to prevent the rise of China, and any talk of human rights and democracy are merely pretexts”. The US supports Taiwan not simply because Taiwan is a “bastion for democracy” and a “key technological centre” (it produces 90% of the world’s most advanced microchips), but because maintaining the Biden’s ambitious climate bill President Biden has earmarked ©iPictue credit Democrats in the US celebrated The bill “will be one of the energy costs and hopefully $300bn to tackle climate change on Sunday as the Senate passed greatest misallocations of reduce the costs of climate- the Inflation Reduction Act, says federal resources in American driven events.This bill is our Ryan Ermey on CNBC. It history”, say Stephen Moore best shot at building an energy authorises $430bn in spending, and Tomas Philipson in The future that is “cleaner, cheaper $300bn of which is “earmarked Wall Street Journal. It transfers and more secure”, agrees Bill for investments to curb climate about $250bn from the Gates in The New York Times. change” and introduces a 15% pharmaceutical industry, which Many of the technologies minimum corporate tax rate. “saves lives”, to the “climate- needed to reach net-zero Although the “sweeping” change industrial complex, emissions “don’t exist, are in legislation has inflation which makes energy more early stages of development or reduction “right there in the expensive”. Many wind and are still too expensive to scale title”, rising energy, food and solar firms already receive up”. Solar, wind and electric property prices will have more more in subsidies than they pay vehicles need to be deployed of an impact in the short-term. in tax. It “will make Americans more widely. This bill ensures However, it is also designed to poorer and less competitive that new industries have reduce the prices consumers and it will cost lives”. sustained support and provides pay in the key area of Medicare the confidence needed for long- (Americans pay far more than Rubbish, says Joseph term investment. This may be the rest of us for drugs), and the Stiglitz on Project Syndicate. the “single most important impact of this should be felt The effects of the legislation piece of climate legislation in almost immediately. may be felt gradually, but American history”. ultimately it will help lower moneyweek.com 12 August 2022

Opinion 9 Investors should get ready for a revolution Liz Truss will beat Rishi Sunak, cut taxes, and then shake up the Bank of England, says Helen Thomas ©Getty Images Liz Truss and Rishi Sunak would like to convince you Taxes will fall; interest rates will rise that they are a breath of fresh air, despite both having served in Boris Johnson’s government. New policies Once the woman who wants you to perceive her as are being thrown around thick and fast as they spend a loyal, hard-working, Thatcherite Brexiteer gets to the summer sipping warm pink fizz and eating cheese work, we can expect her to deliver a fiscal stimulus canapes with the rather niche electorate of around that will see monetary policy tighten in response. 160,000 Conservative Party members. Polling of the Higher interest rates and steeper yield curves will membership has consistently shown Truss (pictured) support UK banking stocks. to be ahead. We believe she will be announced the winner on 5 September for three reasons. They will also bring about a stronger currency, with sterling benefiting from a boost to growth Firstly, she has chosen policies that appeal to and a wider interest-rate differential. That will be members. Reversing tax hikes resonates strongly particularly the case versus the euro, where the across a party that has become more and more looming energy crisis over a protracted war with perturbed by the tax burden rising to its highest Russia will cripple an economy that was already level since the World War II. Truss’s tax cuts structurally stagnant. could be inflationary, but she is pointing the finger squarely at the Bank of England (BoE) Truss’s tax cuts will also help the British consumer taking its eye off the ball, promising to during the stagflationary period ahead, which review its mandate. should in turn bolster the consumer-goods sector She has also managed to reinvent and the leisure and travel industries. But there herself as a Brexiteer, thanks to the will be a divide between the luxury and endorsement budget ends of Steve Baker of the and Jacob Rees- market. Mogg, leading The latter members of the will struggle European Research due to the high Group. inflation rate for essentials, In the culture wars she gains plaudits from Conservative which hurts lower-income groups more. voters for treading the “anti-woke” path. But Truss is taking a gamble on her economic Truss wants to redress the balance towards what Conservative members might call plan, as her opponent never fails to point out. She common sense. might simply stoke the inflationary fire, which the BoE now predicts will reach the incendiary level Another reason to expect Truss to prevail of 13% by the end of this year. Truss would argue is that she has put in the hard yards to gain that the five-quarter recession the BoE also predicts members’ approval. In the past few years she has necessitates action now. And she plans to review been meeting activists in constituencies up and down the country. She knows it’s not just about a the BoE itself. highly visible social-media profile, although she’s With inflation now so far from the mandated been putting effort into that too. 2% target, her ally and possible future chancellor A cursory glance at her carefully curated Kwasi Kwarteng, the business secretary, warned Instagram account reveals her in a tank, in that “something’s gone wrong” and “we’ve got to Russia, in front of the flag at her desk – anything look at how [the Bank] is performing”. Rumours to remind you of her proto-Thatcherite abound over what this might mean in practice, but expeditions to sign trade deals and defend with suggestions that the target could be shifted Ukraine during her time as trade secretary and from inflation to GDP, or intervening in what then foreign secretary. Finally, her opponent has attorney general Suella Braverman called “its entire upset the membership on a number of levels. It’s exclusionary independence over interest rates”, we not just that Rishi Sunak has raised taxes and is could be in for a radical new approach from a now trying to convince them he’s a tax-cutter. Truss government. They feel he has no integrity following the furore The next prime minister will have just over over the tax status of his wife, his US Green Card two years to convince the country to vote in the and his Partygate fine. Conservatives for what will then be almost two decades in power. Truss has to go for broke. In the regular monthly surveys conducted She will inherit a 71-seat working majority that is by the grassroots ConservativeHome website, desperate for unity and vision after almost two years Sunak’s score in approval ratings of Cabinet of directionless discontent. Her chief enemy will be members has collapsed. Throw in the fact vanquished and she will be almost unassailable, with that his resignation triggered the fall of the party unwilling to put its members – or the country dominoes that removed Boris Johnson, and – through yet another contest. She will put this power Sunak can be accused of back-stabbing to boot. to work quickly, before the honeymoon dissipates. Truss, rather conveniently, was out of Get ready for the Truss revolution. The political risk the country while her colleagues were premium on UK assets has just gone up. stepping down. Helen Thomas is the founder and CEO of Blonde Money, a macroeconomic consultancy (blondemoney.co.uk) moneyweek.com 12 August 2022

10 News Seattle information as they clean, mapping room that gives it access to shapes and furniture.” Nonetheless, the group’s 767,000 Amazon hoovers up Roomba: Amazon “collecting data about the state of members. This seems is acquiring vacuum-cleaner maker iRobot America’s carpets does not seem the most a more pressing matter for around $1.7bn, thereby adding to its dangerous manifestation of the surveillance for data campaigners collection of smart home appliances, says state”. The spatial data Roombas provide to focus on. Meanwhile, The Guardian. IRobot’s most famous is “less comprehensive than the online Amazon is also “picking up a product is the Roomba, a circular-shaped, purchase information that Amazon already bargain”. The $61-per-share, all-cash deal robotic vacuum cleaner. The acquisition has on 200 million Prime membership represents a 22% premium to iRobot’s could give Amazon a “massive foothold in shoppers” and less invasive than medical recent price, but last year the group was the consumer robot market” thanks to the records; earlier this year the e-commerce worth double the current price. Delayed Roomba’s strong reputation. However, the giant bought subscription healthcare deliveries owing to supply-chain problems deal “has privacy campaigners riled up”, provider One Medical in a $3.9bn deal have hampered sales recently. says Lex in the Financial Times. “Roombas trundle along the ground… collecting Santa Clara Chipmaker stumbles: Semiconductor-maker Nvidia has released second-quarter results and its video-gaming business has taken a battering, says Umar Shakir on The Verge. Gaming revenues were down a “staggering” 33% from the same period the year before, dropping to $2.1bn. The decrease is similar to that experienced by other gaming-hardware companies and highlights consumers’ post- pandemic behavioural changes. Consumers are investing less in computers and gaming, and going outside more. However, Nvidia deserves “a bit of credit for knowing to get the bad news out early”, says Dan Gallagher in The Wall Street Journal. The company’s warning came two weeks before official results and revealed revenue for the quarter ending 31 July would be 17% below its previous forecasts. The company “might have learned from Intel’s major stumble less than two weeks ago”. Intel’s second-quarter numbers missed Wall Street’s estimates by 15%, prompting questions as to why it hadn’t warned investors sooner. There was some good news: data-centre revenue was up 61% year-on-year to $3.8bn. But “getting the bad news out early doesn’t mean there isn’t more to come”, and the shortfall is “still a notable stumble” for such a stellar recent performer. Buenos Aires end of 2022. Investors seem to be more optimistic about Third time lucky? Argentina Massa’s prospects than those of his has appointed its third predecessor Silvina Batakis, who economy minister in a month. was in the job for 24 days. She took Sergio Massa has admitted over from Martín Guzmán, who that restoring “fiscal order” quit unexpectedly after months of will be an “enormous” intra-party fighting over economic challenge, claiming he’s “not policy. However, analysts are unsure a magician or a saviour”, says whether Massa will actually have much control over the energy ministry and Lucinda Elliott in the Financial other financial bodies. In order to build Times. Massa (pictured) has credibility among investors he will have to promised to fund the budget through put a “credible break” on money printing. deficit reduction or borrowing instead of money At present the country can only print printing (which is pushing up inflation), build 765 billion pesos (£4.6bn) for the dollar reserves and review state subsidies. The full year under its debt restructuring deal country’s populist Peronist administration is with the IMF, but it has printed out 630 hoping to “restore its crumbling credibility and billion pesos this year already. regain market confidence by establishing a ‘super ministry’” to tackle inflation, which is currently running at 60% and set to reach 90% by the The way we live now... pampering perspiring pets Fido is in no danger of fainting This summer’s heatwaves have five sizes and costs ¥9,900 (£61). fuelled growing concern about our Pet mania continues to grip the UK four-legged friends in permanent fur too. The latest trend is an exclusive coats. So it was only a matter of time West London private membership before pet-cooling devices hit the club for dogs. WagWorks charges market. Enter the wearable fan, says members £45 a month, with an Reuters. Japanese clothing maker additional £48 daily rate. It only Sweet Mommy is helping keep dogs admits up to 100 dogs at a time, cool on Tokyo’s baking streets with all of which have been vetted for its new fan for pets. The fan is behavioural quirks, health and designed to stop pets growing sociability with other dogs, says the anxious in the hot weather and can Daily Mail’s Kate Spicer. Once inside, be attached to dogs and cats through they are allowed to play with the staff a mesh-wrap outfit; it then blows air and enjoy dried cow-tail treats or a against the animal’s body to prevent “licky mat” with dog-friendly liver overheating. The device comes in pâté smeared on it. 12 August 2022 moneyweek.com

News 11 New York City Pfizer’s Covid-19 vaccine is one of the most lucrative products in history Pfizer cashes in on Covid-19: US pharmaceuticals giant Pfizer “continues to spend its Covid-19 windfall wisely,” says Lisa Jarvis in Bloomberg. On Tokyo Monday the pharma giant announced it is to buy Global Blood Therapeutics (GBT) for $5.4bn. “It’s a smart deal for both companies.” GBT, which has one Car giant faces cost squeeze: approved drug to treat sickle-cell disease, Oxbryta, and two more in the Toyota Motor will spend an extra pipeline, will benefit from Pfizer’s “marketing muscle”. Meanwhile, the deal ¥1.7trn yen (£10.5bn) this year owing allows Pfizer to expand further into rare diseases, “an area that may be less to supply disruptions caused by the vulnerable to Medicare price negotiations”, while avoiding antitrust war in Ukraine, says Nikkei Asia. Last difficulties thanks to the company’s lack of an existing presence in the field. week’s report revealed a 20% increase Pfizer made a reported $37bn from its Covid-19 mRNA vaccine last year and is in costs for the year to March 2023 on track to make $54bn this year, making it one of the most lucrative products compared with earlier projections from in history, says The Guardian. Its Covid-19 antiviral Paxlovid has further this year, and reflects trouble for Japan’s boosted the bottom line. “The company’s goal is to add £25bn in revenue by economy as a whole. Twelve big parts 2030 through targeted acquisitions and partnerships – to sustain... growth suppliers all saw their bottom lines and offset patent losses on several key products,” adds Jarvis. The GBT deal, deteriorate from April to June as import notes Allison Gatlin in Investor’s Business Daily, could contribute up to $3bn costs for coal (used in steel production) in worldwide sales to Pfizer’s coffers. and naphtha (a raw material for plastic) both tripled year-on-year. Similarly, “electricity bills for businesses have shot up 30%-50% over the past 12 months, while utility gas fees jumped 60%”. Now Toyota expects a 42% reduction to its operating income, with an operating profit of ¥2.4trn (£15bn) for the year to the end of March. The extent of the damage is also worse than it appears. The Japanese yen fell to a 24-year low last quarter, which inflated sales figures from cars sent overseas. Toyota’s sales abroad are almost double domestic ones. “Every one yen of weakness adds around ¥45bn to Toyota’s profit,” says Lex in the Financial Times. The same boost gave Subaru a 25% lift in profits. ©Alamy; Getty Images Marche, Italy Hong Kong Luxury loafers leave the market: Twenty years after its flotation A fintech flies high: AMTD Digital, an obscure Hong Kong- in Milan, Tod’s, the luxury-loafer brand, is being taken private based fintech firm, “has soared since it listed in America a fortnight by its owner. The stock is trading at less than a third of its 2013 ago, surpassing Chinese e-commerce giant Alibaba Group in peak, and sales of €973m are expected in 2022; they have not market capitalisation”, says Nikkei Asia. The firm offers what it advanced in a decade. The group launched the highly successful calls “one-stop, cross-market” digital financial services, including “Gommino” loafer (pictured) in the 1970s, but the company insurance and portfolio management; there is also a platform has proved “unable to innovate much since”, says Lisa Jucca on for entrepreneurs called SpiderNet. The stock started trading at BreakingViews. Now founder Diego Della Valle plans to release $7.80 in New York and for no discernible reason kept climbing. value by breaking the group up “away from market scrutiny”. It has since hit an all-time high of $2,555, producing a market Tod’s could revamp Tod’s and Pilgrim pumps capitalisation of $310.6bn. The company “leapfrogged” the value manufacturer Roger Vivier in preparation of Toyota, Coca-Cola and Pfizer; trading at nearly 6,000 times its for possible sales. These labels could earnings per share based on a net profit of $21.7m for the year to jointly fetch 40% more than the €1.4bn April 2021. It seems to be another meme stock due a fall: indeed, overall value of the group implied by last week it slipped by 30%. AMTD’s boom greatly resembles a Della Valle’s offer, which represents series of small-cap Asian stock bubbles that have burst over the a 20% premium to the recent share last decade, says Jennifer Hughes on Breakingviews. They all had price. “For minority investors, the a small free-float and shaky underlying financials. Likewise only exit price is probably not particularly appealing. But with Della Valle’s large 11% of AMTD’s shares are beyond the control of its majority stake discouraging any rival bid, their owner AMTD Idea, whose chairman Calvin Choi, is fighting a best bet may be to go along with it.” two-year ban by Hong Kong’s regulator for failing to disclose moneyweek.com conflicts of interest when he worked for UBS. 12 August 2022

12 Briefing The legacy of the London Olympics The 2012 Games would benefit not just athletes and spectators, but the whole economy over the longer term, we were told at the time. Ten years on, how has that panned out? Simon Wilson reports Is there a legacy? The picture is inevitably mixed, but overall London 2012’s legacy is looking pretty positive, yes. In purely sporting terms, the most striking legacy has been the boost to performance of Great Britain’s elite sportsmen and women. In 2012, Team GB triumphed with 65 medals, 29 of them gold, placing us third in the medal table behind the US and China. That compares with just 30 medals, and only nine golds, in Athens in 2004. Back in 1996, in Atlanta, we won only 15 medals and a solitary gold. The success reflects massive investment by the UK government in elite sport in the run-up to 2012 and a ruthless “money-for- medals” funding formula. What’s happened since 2012? The success has proved to be enduring – which is far from typical for Olympic host ©Getty Images nations. At the following 2016 Olympics A ruthless “money-for-medals” government in Rio de Janeiro, Great Britain won even strategy paid off handsomely in London 2012 more medals than in 2012 (67 medals sites built for London 2012, continue to including 27 golds) and eased past China provide world-class venues for both elite to host in 2024 and 2028 were Paris and to finish second in the table. That made us and grassroots sport, making London an LA, after popular dissent forced Hamburg, the first nation ever to exceed their medal attractive location for world and European Rome and Budapest to withdraw. In the haul from a home Olympics at the next championships in several sports over the event, they got one each. Games. Then at Tokyo 2020 (held in 2021 past decade. In most other recent Olympic due to Covid-19) Britain again triumphed, cities – Atlanta, Athens, Beijing, Rio – the So it’s all positive then? with 65 medals and 22 golds. This time, we “hulks of great sporting buildings stand came fourth behind the US, China and the marooned in expanses of open space, The blot on the landscape is the Olympic host nation, Japan. But the tally confirmed forever unable to attract the crowds that Stadium itself. Rechristened the London Britain’s status as Europe’s most consistent filled their brief lives as Olympic venues”. Stadium, and leased to West Ham football outperformer at the Summer Olympics, and club, the stadium is a drain on taxpayers, a genuine global sporting superpower. And London? losing £29m a year pre-pandemic. The The legacy there is the “creation of a London Legacy Development Corporation So 2012 “inspired a generation”? thriving new urban district” that’s easily (LLDC, the mayoral agency overseeing London 2012 gave the nation a morale- reachable from the rest of the city and the site) hopes to cut annual losses to boosting summer of sporting success that region, and the development of a cleverly £8m-£10m by selling naming rights; it is remembered with a rosy glow by many. landscaped large new park that people may less ambiguously become a football But the organisers’ self-defined mission was actually visit. What have the Olympics stadium, with West Ham assuming greater bigger than that: they pledged to “inspire a ever done for us? “Nothing,” says Rowan financial responsibility. The other big generation” to take up sport. In that, they Moore in The Observer – “apart from the downside is unmet promises on housing. have broadly failed. Despite an initial surge 226-hectare park that attracts six million following the Games, visitors a year, the What were they? the proportion “London 2012 merits a magnificent sporting of British adults podium place, but not gold” facilities, the tens of The London 2012 organisers pledged regularly taking part thousands of new 30,000 to 40,000 new homes in and around in sport has flatlined at a bit more than jobs, the decontamination and opening up the Olympic Park. But so far, according to a third. And this month a new report by of ex-industrial land, the schools” – and the LLDC, only around 1,180 new homes the National Audit Office confirmed that the many institutions currently under have been built, of which around 39% are London 2012 did not boost participation in construction in the East Bank. Earlier this classed as “affordable”. The agency says grassroots sport. The belief that people will year London mayor Sadiq Khan revealed that almost 6,000 new homes will have be inspired to play sport just by watching it he had held preliminary talks to bring the been built within the Park by 2032, and turns out to be a myth. Games back to London in 2036 or 2040. that, including nearby new-builds, the Olympic legacy will deliver 33,000 new What other positives are there? Is that plausible? homes by 2036. Whether that will happen is another question. What’s clear, though, London 2012’s most important legacy is Given that the number of cities prepared is that Olympic-related improvements have the sporting and transport infrastructure to spend billions on hosting mega-events changed the area, sucking in more young now in place in east London, says Ben has dramatically shrunk since the 2008 professionals and seeing house prices rise Rumsby in The Daily Telegraph. London’s global financial crisis, it’s entirely possible. sharply. In Newham, the London borough organisers had clear plans in place to avoid The bidding process for 2012 was one of that has the most overlap with the park, the kind of white-elephant venues and the most hotly contested ever, with five average house prices have risen from 51% wasted billions that have plagued many strong shortlisted bids from London, of the London figure in 2012 to 79% today. Olympic host cities before and since. The Paris, Madrid, Moscow and New York. “The Games fell short on their promises for Queen Elizabeth Olympic Park, and other By contrast, the only cities that competed affordable housing but did boost a neglected corner of the capital,” said The Economist. 12 August 2022 “That merits a podium place, but not gold.” moneyweek.com

City view 13 China is still on track to be top dog Some analysts think China is on a path to economic disaster. They are kidding themselves Matthew Lynn Xi: increasingly autocratic ©Getty Images capital in record numbers while IPOs City columnist are virtually dead in the US and Europe. The trouble is, there is a lot of wishful Growth may come in a little below target, Tensions between China and the West thinking and confirmation bias in that but China is still predicted to expand by 4% are rising all the time. Over the last week, analysis. Lots of people in the West want this year, while inflation is running at just the country has been launching a series of China to fail and are simply looking around 2.2%. Britain, the US, Germany or France alarmingly aggressive military exercises for whatever evidence they can find to back would kill for numbers as good as that. around Taiwan. Even if that does not lead that up. In fact, China’s economy is still to an invasion, or a blockade, it is a scary an emerging powerhouse. Only this week A helping hand from the US escalation of the simmering conflict in the we learned that its trade surplus reached Pacific. In the background, China has been another record high. It hit $101bn for Meanwhile, US president Joe Biden is lifting actively supporting Russia’s brutal invasion July, the first time it has broken through Trump’s tariffs on Chinese imports into of Ukraine, while Xi Jinping’s regime has the $100bn level, and up by 18% on a the US, mainly as a way of trying to bring been becoming increasingly autocratic. Led year earlier. There is not much sign of a inflation down. Right or wrong, there is no by the US, the Western powers’ relationship slowdown there. In the first half of this year, question that will help Chinese companies with China is more fraught than at any the Shanghai stockmarket took the global sell more into their biggest foreign market. time in the last half century. A cold war has lead in new initial public offerings (IPOs), China’s alliance with Russia effectively opened up, and one day that may turn hot. with 680 firms coming to the market; new insulates it from shortages of energy and Chinese firms are still listing and raising commodities that are driving inflation in An emerging powerhouse so much of the rest of the world. It will also benefit from cheaper Russian raw There are plenty of predictions that China’s materials, for which it is now the only buyer. powerhouse economy, already on track And China is also switching increasingly to overtake the US as the world’s largest, to internal demand as a driver of growth. is about to crash. And, true, there are Exports are hitting record levels, but with challenges. While most of the rest of the every year that passes China is becoming world has adjusted to Covid-19 and moved less and less an offshore manufacturing on, China is still locking down whole centre for the rest of the world and cites, along with their factories and offices. increasingly a highly developed domestic Its debt-fuelled banking and property economy that exports stuff too. industries look poised to collapse, with reports of local riots as banks close their China may or may not be a deadly threat doors. The state is taking a larger role in to the West. It may become more autocratic many of its bigger companies and that is over the next few years, or it may pivot seldom good for competitiveness, and the back towards gradual democratisation and increasing levels of military adventurism, liberalisation. We will see over the next few along with domestic repression, will all years. But whether or not there is a new prove expensive. Perhaps most importantly, cold war between China and the West, we the legacy of the one-child policy is that the should not start kidding ourselves that the country faces a demographic crunch. Its country is in any kind of serious economic population is ageing rapidly and will soon trouble. There is no substantial evidence for be falling in absolute terms, and that will hit that and most analysts pushing that view the economy very hard. Add it all up, and are deluding themselves. China is still racing you can make a case for a China crash. towards becoming the world’s dominant economy, and its largest as well – and there is no point in pretending otherwise. City talk l Apparently Revolution £90m”. The shares now trade hikes by saying that they are activism”, says Alex Brummer at 25p, down 59% in one day experiencing cost pressures; in the Daily Mail. SoftBank’s Beauty, the Aim-listed “multi- after a profit warning and a that they need to make vast CEO Masayoshi Son only won brand, multi-category, multi- delay to the full-year results. investments; and that users are approval to take over Arm back channel, mass-beauty Broker Zeus has cut forecasts consuming more and more in 2016 after repeatedly innovator”, specialises in for 2023 earnings from £30.5m data. Regulator Ofcom has pitching to Downing Street and “cruelty-free” products, says to £19m. “This Beauty is “repeated the industry line”, then-chancellor Philip Alistair Osborne in The Times looking a right beast.” suggesting it “doesn’t plan to Hammond. “Letter writing and “Try telling investors who crack down”. This year’s rise reliance on officials is no stumped up 160p a share in l“Broadband and mobile was steep enough (9.3% at BT); substitute for personal arm July last year.” US private- next year’s could be 17%-plus, twisting.” Naysayers claim that equity outfit TSG Consumer operators have found a new based on inflation forecasts. the London Stock Exchange Partners did fine when it sold ruse,” says Cat Rutter Pooley in If providers can get away with “lacks enough heft in growth £156m of shares at the float. the Financial Times. Contracts that, they may join the list of stocks” to host Arm’s return to Co-founders Tom Allsworth for users of BT, EE, Vodafone, businesses “whose prospects public markets, but “that is and Adam Minto also cashed Virgin Mobile and O2 now have are actually improving in the hooey”. All the major players in out £15.6m a piece, although mid-contract annual price rises face of inflation”. fund management and finance they retain around 30%. For of 3.9% plus inflation. These are in London as well as everybody else, this “make-up stealth increases are “working l Chancellor Nadhim Zahawi’s New York. So are tech giants: dream, big on social out nicely”: in results last week, Meta is shifting its Instagram influencers… has morphed BT, Vodafone and Virgin Media decision to lobby SoftBank division to London. It’s time “to into a scary clown face” – not all pointed to UK price rises in about a London initial public stop being passive about the least for Jupiter, which was helping grow revenue and offering (IPO) for chipmaker City’s great credentials”. “daft enough to have put in earnings. The firms justify the Arm is an “admirable piece of moneyweek.com 12 August 2022

14 Investment strategy Guru watch The power of best ideas Jim Rogers, founder, Fund managers’ top picks beat Beeland Interests the market, but the rest of their portfolios often add little value “More bear markets are Cris Sholto Heaton coming. The next Investment columnist one is going to be the worst in my It’s widely accepted that your portfolio should The top dogs convincingly beat the rest lifetime,” says Jim Rogers, be well-diversified to prevent a single disastrous the veteran investor who decision from wiping out a large chunk of your the cost associated with one going badly wrong co-founded Soros Fund wealth. At the same time, if a portfolio is too is vast – and even if all ideas ultimately work out, Management with George large, your chances of outperforming the market volatility along the way will usually be staggering. Soros. “We’ve made so shrink and you might as well hold a cheap tracker many mistakes this time that fund. These extremes are self-evident: the big For institutions, one answer could be to divide interest rates will have to go question is the number of holdings that gives you a portfolio up by regions and industries, and hire very, very high” to bring the best trade-off between return and risk. different managers to run ultra-concentrated five- inflation under control, he stock portfolios in each area, suggests Cohen in tells Kitco News. “We will Research by Miguel Antón of the University of an interview with Citywire. The result would be a have a serious recession; Madrid, Randolph Cohen of Harvard Business diversified portfolio, but one that does not simply many people will go School, and Christopher Polk of the London replicate the market. bankrupt, we’re going to School of Economics gives us an interesting have a lot of problems. way to think about this. Their paper Best Ideas Private investors can’t do the same and in any There’s no other way to solve looks at how many of a fund manager’s highest- case our portfolios are often quite concentrated. the problem other than conviction stocks make a contribution to beating Still, this kind of thinking may help. Does your double-digit… rate hikes.” the market. Based on holdings in US mutual portfolio consist of your very best ideas across funds between 1983 and 2018, they found that several complementary sectors and strategies, or While inflation rages, managers’ top picks outperformed the market alternatively a smaller number of high-potential investors should look to by 2.8%-4.5% per year on average (depending picks plus a cheap tracker to diversify away some agricultural commodities on exactly how you measure risk-adjusted of the risk? Or have you ended up with a large and energy and take performance) – but this only extends to the top pool of similar stocks, all driven by the same advantage of any setbacks. three-to-five highest-conviction ones. “The vast factors? Do you hold a few distinctive focused “If there’s peace in Ukraine, majority of the other stocks managers hold do not funds? Or have you got a grab-bag of 100-stock all grain prices are going exhibit significant outperformance.” monsters that just add up to the market portfolio? down for a while, and that’s In short, assume that you may only make a few the time to buy.” That would Drag on returns good decisions, then try to do so in a way that gives the successes a chance to make a difference. also bring a short-term relief If investors only have a few stellar ideas at any one rally in equities and bonds, time, this implies that portfolios pretty rapidly but Rogers recommends grow to the point where no potential alpha gets using the opportunity to sell added. Given that many funds run portfolios of out of shares and buy into 50 or even 100 stocks, it’s obvious that the vast commodities while they’re majority can’t contribute much and the extra relatively cheap. Gold should cost and time of looking after them is a drag on also perform well. During the returns. However, cutting the portfolio down global financial crisis in 2008, too much means that risk soars. With five stocks, “gold went down a lot at first, and then it hit bottom I wish I knew what alpha and beta were, had negative alpha of 2% (ie, earlier and skyrocketed… I’m but I’m too embarrassed to ask their returns were worse than not buying now, but I’ll buy they should have been more silver or gold soon”. Alpha is the amount of value an 10% for the benchmark, then considering the composition ©Alamy; Getty Images investor adds or takes away the manager has generated and risks of the portfolio). Rogers also owns a lot of from an investment portfolio. In positive alpha of 5% on this US dollars. “Not because it’s other words, it measures how simple measure. Beta is a way of measuring a sound currency – it’s a their stock- or asset-picking the risk of a share or a disaster going forward – but skills affect the portfolio, above Of course, the manager portfolio compared with the in times of turmoil, people and beyond any returns that are might be taking more risk than risk of the market as a whole. look for a safe haven, and for simply down to what you’d the overall index (for example, A share with a beta of one historic reasons many expect from the performance of by only investing in small will move roughly in line with people think that the dollar is the market as a whole. companies). More in-depth the stockmarket. A beta of a safe haven. It’s not, but ways of looking at alpha takes more than one suggests that they think it is… The US Alpha can be looked at in two this into account. One measure a share rises and falls in line dollar is going to get main ways. The first is simply to known as Jensen’s alpha with the direction of the overpriced” and might even compare the portfolio’s compares a portfolio’s risk- market but by a greater turn into a bubble. “It’s not performance with a benchmark adjusted returns with what a amount. A beta of less than my first rodeo, I’ve seen this index. So the returns on a financial model called the one indicates a share that is movie, I know how it works.” portfolio of UK shares might be capital asset pricing model less volatile than the market compared with the returns on (CAPM) predicts it should (or an investment that does moneyweek.com the FTSE All-Share index over a achieve. So if CAPM predicts a not consistently move in line given time period. If a fund portfolio return of 17% in the with the market, even though manager’s portfolio has example above, but the it may still be volatile). Beta is returned 15% compared with manager made 15%, then they one of the key inputs into the CAPM and similar models. 12 August 2022



16 Best of the financial columnists We need Economics classics including Adam Smith’s The Wealth of Nations fail to Money talks an energy mention the word “energy” once, says Matthew Syed. This is “curious” revolution given that, as Charles Hall, professor at the State University of New York, “About a year puts it: “Energy is used at every step of every economic process.” Although after The Matthew Syed the commodity constitutes just 5% of the economy, without that 5%, the The Sunday Times rest “would grind to a halt”. All revolutions, from the invention of fire to X-Factor, when the industrial revolution, are “ultimately triggered by transformations in I’d done the energy”. Hall says the current energy crisis has been a “long time coming”. In 1919, it took the energy equivalent of one barrel of oil to extract tour and made 100; today, the ratio is one to five. This, he argues, is at the core of our some money, predicament and not something that can be “wished away by interest-rate tweaks or tax cuts”. Although a “sharp rise” in nuclear-fission technology I went into will help, the ultimate goal, according to a fellow researcher, is to harness Louis Vuitton nuclear fusion, the “technology” used by the sun. Given the magnitude of and bought a pair the challenge, it is “dangerously parochial” to fixate on anything that “fails of trainers for £1,000. to address the underlying tectonics”. It seems Tory leadership hopefuls At the time I’d not spent aren’t even asking the right questions, let alone speaking the right language. anything close to that much on any item in my Bring on Might house prices actually be starting to fall? asks Ross Clark. Although whole life. I still remember the house- house prices are still up 11.8% year on year, the Halifax House Price index putting my card into the price crash fell 0.1% month-on-month and, with interest rates rising to 1.75%, it seems machine and desperately unlikely prices will keep going up. Will our next prime minister be happy to hoping it wouldn’t be Ross Clark “shrug their shoulders” and say publicly that falling prices would be a good The Spectator thing? It’s about time they did. The generational gap in home ownership declined.” has become unbridgeable due to “rampant” house-price inflation over the Singer Fleur East (pictured) past 25 years and governments siding “with the oldies” for nearly as long. Wheezes such as George Osborne’s Help to Buy were effectively “taxpayer in The Sunday Times bungs for first-time buyers helping to keep the housing bubble inflated”. The recent “clampdown” on tax relief and buy-to-lets and higher stamp “Pin your ears back in duty for second homes and investment properties is helping, but it’s too maths classes and know late for would-be first-time buyers. Unfortunately, neither Liz Truss nor your value. It’s no good Rishi Sunak seem likely to “reverse the orthodoxy” of recent times. Truss has backtracked on her plan for building on the green belt; it was Sunak’s going through life in a stamp-duty holiday in 2020 that led to a “Covid housing boom”. If prices financial haze because do fall, expect our new prime minister to step in to “reinflate” the bubble. you’ll end up the loser.” Actor Maureen Lipman on London’s Thanks to surging demand for electricity-hungry data centres in London the advice she would give energy and the southeast, the Greater London Authority (GLA) has announced a her younger self, quoted in vampires de-facto ban on housing developments in the area until 2035, says Gareth The Sunday Telegraph Corfield. Britain’s estimated 200 data centres are heavily concentrated in Gareth Corfield the southeast, particularly in the M4’s “Silicon Corridor”. A typical data “There’s no chance the The Daily Telegraph centre is estimated to use the same power as a development of 5,000-10,000 iPhone is going to get homes. And it’s not just the data centres, with their hundreds of thousands significant market share. of heat-generating servers and cooling fans; it’s all the associated power- hungry data transmission networks. The industry is working on initiatives No chance.” to reduce power requirements, such as the Open Compute Project. Steve Ballmer, CEO of Business secretary Kwasi Kwarteng says the regulator Ofgem will change Microsoft, in 2007, quoted the connection framework from April 2023 to lower connection costs for in The Spectator. The Apple developers. Ultimately, however, “the answer lies with electricity generation iPhone now has a 62% and distribution capacity, combined with political pragmatism” so that global market share for house building takes precedence over new data centres. While data centres may be vital to modern businesses and lifestyles, “their vast electrical premium mobiles demands add yet another hurdle to solving Britain’s housing crisis”. “It’s a good job he didn’t A ceasefire The “war on drugs” cannot be won and polls in the UK and the US suggest ask me to name three.” in the war the public think a new approach is needed, says Michael Plant. In the West, on drugs teenagers can often buy illegal drugs more cheaply and easily than alcohol Margaret Thatcher in or cigarettes. The US has spent $1trn on drug enforcement; 20% of its 1981 after being asked Michael Plant prison inmates have committed drug offences; then there is the violence by opposition leader The New Statesman related to drug trafficking. Although decriminalisation, as Portugal has Michael Foot to name two shown, has major benefits, some of the “greatest ills associated with the economists who agreed drug trade” are a direct result of its illegality, not the substances sold, as with her on austerity. ©Getty Images was the case during Prohibition. It needs to be made legal to produce, She replied: “Alan Walters transport and sell drugs, too. The challenge is coming up with a workable and Patrick Minford.” plan. The best option seems to be a regulated market, “with controls on Quoted in The Times who can buy what, when, where and how”, much as we have for alcohol and tobacco. Regulatory frameworks already exist. It will need to be done “You feel like you’ve done slowly and a balancing act is required, otherwise the “black market will the work, but it’s lovely persist”, but ultimately, putting drugs in the hands of doctors and regulated retailers will make drug use safer and end the “chaos, violence and work, so you go through a corruption caused by the criminal networks that run the illicit drug trade”. period of thinking that you 12 August 2022 don’t deserve [it]… But then afterwards you think, well, all you can do is buy your parents a house, go on nice holidays.” Musician Andy Bell (formerly of Erasure) on pop success, quoted in The Guardian “Having had years of baked potatoes and cheap bottles of wine for every meal, knowing that you can take anything off the shelf... and not have to think about whether can you afford it is very nice.” Comedian Richard Herring on fame, quoted on telegraph.co.uk moneyweek.com

Best of the blogs 17 Why promoting Politics is too “hectically busy” to hear growth is hard your fantastic growth-boosting ideas freethinkecon.wordpress.com Or consider your estimate ©Alamy of innovation and investment I used to think boosting growth – both of which can have the marginal goods, meaningless and ignores the fact that many was a simple matter of boosting paradoxical effect of lowering growth in “consumer surplus” of their “growth-boosty things” demand, says Giles Wilkes. GDP and productivity. A lot (think of those trainers), and are already working to supply Now I realise the whole subject of effort is put into making not towards solving the hard us with our baseline situation is vastly more complex. People people pay through the nose problems such as the constraints and may not work to deliver who have a strong view are for snazzily marketed, mass in energy or the environment. much more. And that’s if you claiming an opinion about produced trainers, for example. can get anyone to listen. Politics the UK’s potential ability to That would count as a boost to Turning the oil tanker is already hectically busy, so combine future labour, capital GDP. Yet a firm that produced getting political leaders to stop and technology into additional a fantastic new technology There are no shortage of focusing on all the good and bad economic product. That would that does the work of 1,000 commentators with long lists things they are already doing to mean taking a view on shifting men might lead to lower GDP. of growth-boosting ideas. But put energy into new potentially relative prices and productivity. The Western world’s declining these tend to underestimate growth-boosting policy will reliance on manufacturing the vast stock of what we are be hard. A developed economy Consider just some of the and increased involvement in already doing compared with such as ours is an oil tanker – it’s complexities. Hairdressing is intangibles also tends not to be the small flow of what these very hard to turn it round. not much more efficient now good for GDP growth. measures might conceivably add than in 1900. Yet the ability to discover information has The concern, in short, is that increased exponentially. it is “far from obvious how Depending on how you choose a more services-heavy, aged, to measure value, you can environmentally challenged then “paint a fantastical and world can use innovation to almost entirely useless picture” address its problems” when of continuing massive growth innovation is often geared just by valuing an internet towards rent-seeking, the search at the pre-internet cost of provision of low- or zero-cost learning something. Boosters versus Doomsters The economics of the news sambowman.substack.com washingtonpost.com Economic policy commentators are divided into two camps, says Sam Bowman: the Boosters and the The changing economics of the Doomsters. Boosters believe that economic growth is the best way to solve all kinds of other problems, news business has altered the and that this could be achieved pretty quickly through better policy. Housing supply, for example, is nature of the news itself, says clearly broken, and could be fixed. Corporate taxes are badly structured. Infrastructure, healthcare, George Will. Newspapers once policing, regulation, access to capital, immigration and education are all “pretty dysfunctional” in the had a monopoly on assembling UK, and all affect big parts of the economy. Doomsters (see top story for an example), on the other for advertisers a broad audience hand, agree that the country has big problems, but believe we’re stuck with low growth. We have fewer of the sort of readers advertisers young workers and more old people, and this puts us on an economic “death spiral” we can do little value – affluent and mature. This about. Policy design is difficult and there are no free lunches – the UK could, for example, improve gave newspapers a respectful skills, but this would require huge amounts of government spending and take decades to bear fruit. attitude toward readers who Better, then, to focus on what we can control, such as the deficit. The debate may soon have real-world wanted to make their own consequences. It’s not clear what the Tory leadership candidates really believe, but whether they choose judgements and were averse to to listen to Boosters or Doomsters may determine what they actually do in No. 10. political agendas in reporting. Slackers: get ©Getty Imagesof employees in the US believe Roosevelt said in 1903, “Far The internet changed all that, back to work their work to be meaningful. and away the best prize that life taking the advertising revenue Not unrelated to this trend, offers are the chance to work and leaving media outlets blog.acton.org the welfare state has ballooned hard at work worth doing”. reliant on readers. In the from $20.8bn in outlays in the It is human nature to want to competition for digital For the past two years, there has early 2000s to $1.75trn now. work, to create, to innovate, to subscriptions, the content been a growing trend for people serve our neighbour. Earning began to be driven more by to quit their jobs, says Andrew Yet slacking off is not the one’s living through paid work fear and anger. Editors Leston. Dubbed “the Great route to happiness. As Teddy is part of this. And if the work is “agitated the digitised, urban, Resignation”, many people, and “menial”, then it is our duty to educated and progressive especially the young, believe Meaningful work gives more joy strive to rise above it; if there are youth to the point of political that “the current system sets problems in the workplace, to indignation”, says Andrey Mir, you up for failure”. This is work to fix them, not run away author of Postjournalism and “a crisis of freedom, identity from them. This is what we the Death of Newspapers. and exhaustion”, of “great were “designed” to do: “being Their papers became part of discontent”. A recent report made in the image of God, it is the “resistance”. As such, they from Gallup found only 21% in our nature to work and to sought to change the world produce, not merely take”. rather than simply report on it. In other words, the news is now mostly propaganda. “Post- journalism has turned the media into the crowdfunded Ministries of Truth.” moneyweek.com 12 August 2022

18 Analysis Diamonds are ready to shine Demand for the gems is set to outstrip supply, making it a good time to buy miners, says David J. Stevenson “Diamonds are a girl’s best friend,” sang Marilyn “Lab-grown The Pink Star diamond sold for a record $71m in 2017 Monroe in the 1953 film Gentlemen Prefer Blondes. diamonds And who, regardless of gender, wouldn’t want to own account to a substantial drop in sales of conflict diamonds the renowned Pink Star diamond? This stunning for roughly and associated crimes, although some human rights 59.6-carat (the industry’s diamond weight measurement 5%-10% organisations say that it does not go far enough in unit: one carat equals 200 milligrams) gemstone sold preventing human-rights abuses and financial crimes. at auction in 2017 for $71m, the highest price ever paid of jewellery for a jewel. However, stockmarket-listed diamond diamond Alternatives to mined diamonds are the other shares could also be a great friends for investors. To sales” obvious potential risk. Historically, the cheaper understand why, let’s start at the beginning. substitute to natural diamonds were “simulants” – substances such as cubic zirconia (CZ), which is Diamonds began to form in the ground around three manufactured from zirconium dioxide and which billion years ago and are the hardest natural material has been commercially produced for the jewellery known to man. They are highly effective at conducting market since 1976. Nobody worried much about heat, and expand only slightly in high temperatures. these. “Although popular in its own right, CZ is easy They’re also resistant to most acids and alkali. to recognize as a diamond simulant,” says diamond marketplace RapNet, “because it is more brilliant Around two-thirds of diamonds come from Africa, and sparkly than a real diamond and has no tint or with Angola and Botswana the top suppliers. But the inclusions [small imperfections in the structure].” largest individual producer is Russia – a fact that has assumed more significance for the supply outlook since However, “synthetic” or “laboratory-grown” gems its invasion of Ukraine, as the US has imposed sanctions are a different proposition. These are composed of on Alrosa, the state-owned diamond company. Open- the same materials and share identical chemical and pit mining – digging out diamonds on the earth’s physical properties. Two main techniques – high- surface – accounts for most of the industry’s output. pressure high temperature (HPHT) and chemical Much of the rest is derived from mining underground to vapour deposition (CVD) – were developed in the a depth of at least one kilometre. Ore containing rough 1950s, although it took until the 1970s for them to diamonds is then crushed and processed to enable produce gem-quality stones and only within the past extraction. Alluvial mining of deposits of sand, gravel decade have these become cost-competitive with and clay along river banks, shorelines or the ocean bed natural diamonds. The synthetic diamond market was can also produce diamonds. worth $14bn in 2021, according to Data Bridge Market Research. It’s expected to grow by 7.5% a year to 2029, Rough, or raw, diamonds vary in size, shape and by which time its value would exceed $25bn. Much of quality. About 30% of diamonds are gem quality, and this is for industrial purposes, but lab-grown diamonds are cut and polished for jewellery manufacture. The are increasingly used in jewellery as well – and the best other 70% are sold for industrial applications, including ones can only be distinguished from natural diamonds cutting, drilling and grinding. In total, global rough with specialised equipment. diamond output is worth $13bn a year and the industry that employs about ten million people from mining to moneyweek.com retail, says the World Diamond Council, an industry group. Annual diamond jewellery sales have trebled within the last 25 years. Include the cost of precious metals and other gems, and this has become a $72bn market, of which the US accounts for half, followed by Japan (15%), Italy (5%), India (3%) and China (2%). Tackling the stain of blood diamonds Not only are diamonds big business, their economic contribution can be substantial, especially in Africa. For example, diamond mining represents a third of Botswana’s GDP. It makes a pivotal contribution to that country’s healthcare and education funding. Yet the industry also has a dark side. “Blood” (also known as “conflict”) diamonds are mined in war zones and sold to finance military activities, as depicted in the 2006 film Blood Diamond, which was set during civil war in Sierra Leone in the 1990s. This came to present a major reputational risk for the diamond industry. After the Sierra Leone war, the industry set up the United Nations-backed Kimberley Process Certification Scheme, which is intended to verify the origin of rough diamonds and stop conflict diamonds entering the supply chain. Each diamond receives a certificate verifying that it comes from legitimate sources. The industry says this has led 12 August 2022

Analysis 19 “Global©Alamy The fact that diamonds already come certified, and that production certification specifies whether they are mined or lab- has fallen grown, should make this possible. to its lowest level since The post-Covid bounce will endure 2008” The compound price return for top-quality diamonds Lab-grown diamonds now account for roughly 5%- from 1960 to 2019, measured in US dollars, was 10% of jewellery diamond sales, according to estimates around 4.3%, according to Ajediam (the Antwerp by industry analysts, and are used by mass-market Jewels & Diamond Manufacturers group). Granted, jewellers such as Pandora and Signet. This could pose a that’s not a spectacular performance as US consumer- threat to demand for natural diamonds, so the mining price inflation was averaging 3.7% over this period. industry is pushing back by positioning its product However, at least it’s been on the right side of the ledger as rare and unique, in contrast to mass-produced, – and in any case, we are not looking for opportunities potentially unlimited supplies of lab-grown diamonds. to buy and hold diamonds themselves, but rather in diamond miners that may be underpriced. Diamond prices initially dropped in the pandemic, but recovered well from their mid-2020 lows and the outlook remains auspicious. Now the supply/demand balance for gemstones could lead to average prices for natural diamonds climbing by up by 15% in 2022, according to analysis released last month by Bank of America. “[There] is a lack of substitutes for luxury spend amongst consumers, with tourism unlikely to rebound to pre-Covid levels amid ongoing travel restrictions,” says the report. So “demand will remain buoyant” with diamond sales forecast to grow by 10% this year. Strength in Asia and the US is expected to more than compensate for weakness in China. However, the real kicker is that global diamond production is at its lowest since the 2008 financial crisis. Overall supply will stay flat over the next few years, as no major new projects will open up, reckons Bank of America. Despite possible output rises in Angola and Botswana, production drops are expected in South Africa and Canada, while sanctions on Russia could hit supply further. The bank anticipates shortages in small diamonds, given the rebound in the watch industry. Meanwhile, diamond-exploration budgets have been reduced. “A diamond project now takes between ten and 15 years from exploration to first production, largely due to the need to deliver projects in an ESG [environmental, social and governance]-friendly manner.” The corollary of less exploration is a smaller increase in supply over the next decade. Of course, a recession could cause near-term damage to demand. But the longer-term outlook for the sector is looking increasingly bullish. In the box below we recommend an overlooked stock that will benefit from rising diamond prices. Petra Diamonds could prove a major moneymaker Petra Diamonds (LSE: PDL) is a London- closed owing to Covid-19. Meanwhile, Petra management, three-year labour listed independent diamond miner. It holds is planning to sell one of its South African agreements to June 2024 and exposure to a 74% stakes in four production operations sites (Koffiefontein) and has received weaker South African rand will assist us in (three underground kimberlite mines in expressions of interest from several better absorbing these cost pressures.” South Africa and a large high-volume interested parties. If a buyer is not found, opencast kimberlite mine in Tanzania). the group will continue to operate the mine Petra is confident enough to provide before starting a decommissioning and forward guidance for its potential These sites include the Cullinan Mine in closure programme. In total, Petra’s production on a mine-by-mine basis until South Africa, which was the source – in 1905 resource base is 230 million carats. 2025. Although there may be some volatility – of the world-famous Cullinan diamond. At in the short to medium term, the company 3,106 carats, this was the largest rough gem In its trading update last month, Petra says that “structural changes to the supply diamond ever found. It was cut to form the says that it “continued to deliver safe, and demand fundamentals in the diamond two most important gemstones in the UK’s robust operating performance into the market remain unchanged”, and it expects Crown Jewels. As at 30 June 2021, fourth quarter… total revenue increased to more of the same in the future. Cullinan’s gross resource was 150 million $585m [amid] supportive diamond market carats, meaning that its life could be much fundamentals and a 41.5% increase in like- Petra’s market value is £196m. By longer than the current target of 2030. for-like diamond prices year-on-year... contrast, sterling-equivalent sales for the Strong free cash flow generated in [the year to 30 June 2022 were around £480m. Last year Petra undertook a restructuring year to the end of June 2022]… has On a price-to-earnings (p/e) ratio of just over which, along with the sale of several delivered an 82% reduction in consolidated six for the year to 30 June 2023, according exceptional blue and white diamonds from net debt to $40.6m.” to analysts’ forecasts compiled by the Cullinan, cut net debt by around two-thirds Financial Times, this little-known stock looks to $228m (despite its London listing, the The board is unfazed by inflation. It cheap. Against the backdrop of a fast- group reports in US dollars). The Tanzanian reckons that “relatively low fuel improving diamond market, it could prove operation (Williamson) was temporarily consumption, disciplined cost to be a major moneymaker. moneyweek.com 12 August 2022

20 Analysis The irresistible rise of ESG investing Many fund managers talk up their green credentials to sell funds, but buying an environmental and sustainability specialist is the best way to profit from the boom, says Bruce Packard Back at the time of the 1984 miners’ strike, Arthur funds with ESG credentials had reached €4.18trn. That Scargill, the president of the National Union of equates to 46% of the overall market by assets under Mineworkers (NUM), was involved in another, much management (AUM). less famous dispute. Scargill had put the Coal Board’s pension fund under pressure to avoid investing in oil The first set of SFDR rules came into effect in and gas companies and divest from South African March 2021, with secondary rules that come into mining companies – partly because the NUM wished force this year and next. Essentially, these split green to avoid funding competitors of British coal mines and investment vehicles into two groups: i) funds that partly out of a genuine desire not to support the South promote environmental or social characteristics (“light African apartheid regime. green” or Article 8) and ii) funds that have a sustainable investment objective (“dark green” or Article 9). But The case went to the High Court and Scargill lost. there’s no standard definition, and fund managers are The judge ruled that the purpose of the Coal Board’s allowed to apply their opinions of what investments pension and the duty of trustees was to optimise the are to be excluded to qualify as either shade of green. expected financial return. They were to put aside Article 8 funds tend to be a catch-all definition, but with personal views and moral qualms. The trustees’ duty tobacco and weapons excluded. More recently the list to their coal miner beneficiaries was to serve the best of common exclusions has expanded to include thermal financial interests, rather than divest assets for social coal, tar sands, Arctic oil, as well as traditional oil and reasons. “Trustees may even have to act dishonourably gas companies. It’s always seemed a little odd to me (though not illegally) if the interests of their beneficiaries that oil majors are the target of environmental angst require it,” ruled the judge. from the likes of Extinction Rebellion, whereas car manufacturers and airlines are not. Yet while trust law such as this still requires investment trusts and corporate pension funds to Littered with contradictions put financial returns first, much has changed in practice. The issues that Scargill wanted to take into In fact, the whole concept of green investing is littered account are now widely analysed under the banner of with contradictions. A couple of decades ago, diesel cars environmental, social and governance (ESG) investing. were encouraged by government policy because carbon It is acceptable to put ESG criteria first if the manager dioxide emissions were lower than with petrol engines. has an explicit mandate, and some now do. However, Later, attention focused on the harm caused by nitrous ESG factors can be considered more widely if they oxide and particulates from diesel engines – not helped potentially affect investment returns and risks. by Volkswagen and other car manufacturers cheating emissions tests. More recently copper, lithium and “Funds Vast growth opportunity cobalt, which are essential for electric vehicles (EV) and with ESG their batteries, have come under scrutiny. A battery- credentials Thus marketing teams at asset management companies powered electric car requires at least 2.5 times more account for have realised they can attract money by promoting copper than a conventional car; a medium-sized truck 46% of AUM their funds’ ESG credentials. This realisation is not four times as much. Yet the environmental impact of in the EU” unrelated to the rise of low-cost tracker funds. A copper mining can be devastating. Currently there is a decade or two ago, fund managers would tout their water crisis in Chile – one of the world’s largest copper- “star” fund managers and face-to-face meetings with producing countries. Cobalt is even more problematic, corporate management. Marketing would consist of with much of it being sourced from the politically sturdy-looking classical architecture or mountains with unstable and resource rich (these two things often go impressive hanging glaciers. They would promote a together in Africa) Democratic Republic of Congo. particular fund with a track record of outperformance while being required to warn in a much smaller font There is a suspicion that fund managers and that past performance should not be taken as an corporations are investing in the same activities they indicator of future performance. have always done, paying lip service to sustainability for marketing reasons. However, you could argue Despite the marketing, which was meant to convey that almost any activity that generates a return on expertise, sturdiness and longevity, active fund capital damages some part of society or the planet. managers were vulnerable to what John Bogle, the Tesla, which many see as the future of environmentally founder of Vanguard and proponent of index-tracking friendly transportation, was removed from the S&P funds, called “the relentless rules of humble arithmetic”. 500 ESG Index over concerns about workplace culture This humble arithmetic meant that the higher at its California factory and the company’s safety track costs charged by active fund managers resulted in record. Elon Musk responded by calling ESG a scam, underperformance of the vast majority of active funds and criticising S&P for including ExxonMobil, the over a ten-year time period. But “socially responsible” world’s largest oil company, in the index. investing has presented active fund managers with a new way to attract inflows, while differentiating their Despite the contradictions, ESG investing now has product from low-cost index trackers. The market significant momentum. Even if you disagree with the is huge. A report by Morningstar earlier this year on premise, then it’s still worth considering how to make the EU’s Sustainable Finance Disclosure Regulation the most of the trend. Buying shares in fund managers (SFDR) – which is supposed to improve the disclosure who are successfully promoting their ESG offering of sustainability-related information – suggested that seems a good place to start. 12 August 2022 moneyweek.com

Analysis 21 ©Getty Images Scargill’s other battle was ultimately a lot more successful management, rather than rely on star personalities. “Impax’s BlackRock, with $8.5trn AUM and 150 ESG funds, is first-half net An ESG stalwart almost 100 times larger than Impax and doesn’t seem inflows of troubled by diseconomies of scale. £2.5bn were Unlike many asset managers that have more as large as recently jumped on the ESG bandwagon, Impax The other concern is that the inflow of money into total AUM a Asset Management (Aim: IPX) has been focused on environmentally friendly opportunities led to a huge decade ago” environmental and sustainable assets since it was bubble. For example, the performance of Tesla – up founded in the 1990s by Ian Simm, the current chief 14,200% in the past decade – saw capital flow into EVs executive. That long history is important, because the and battery firms, with euphoria reminiscent of the one moat that a fund manager has that can’t easily be internet bubble from two decades earlier. Many have replicated is a long-term record. The shares have sold off now fallen back to earth, down 90% or more. steeply from their peak of 1,508p in December last year, and are down 57% to 650p as of Tuesday this week. Impax has not been immune to market conditions. AUM peaked at £41bn in December 2021 – of which Impax has been listed on Aim since 2001, after £39.6bn was listed equities – so had fallen 17% in the reversing into a cash-shell Kern River (which ironically first six months of the year. This was driven mainly was an oil company with unviable oil fields in Louisiana by market movements rather than outflows. There and California). The market capitalisation of the doesn’t seem to be a large exposure to EVs or similar company was tiny, less than £5m versus £880m now. if you check the top ten shareholdings of Impax In 2007, BNP Paribas bought a minority shareholding Environmental Markets, the group’s listed investment and agreed to distribute Impax’s funds through its trust. The fund looks well diversified by geography. network. The French bank is currently Impax’s largest Large positions include US-listed Clean Harbors, shareholder with a 13.8% holding. which provides environmental services to industrial and automotive customers (up 12% year to date). The Before the financial crisis, environmental investing largest UK holding is Spirax Sarco, the engineering and came into vogue and Impax had to compete with peristaltic pumps company, which is down 28% year several funds that were launched and were trying to to date, but is an established company. In short, the attract inflows. However, the sector saw something investment process looks sound, and is not weighted of a bust following the financial crisis, as government towards unproven environmental technology. subsidies for environmentally friendly energy projects were cut. The low oil price also undermined the Impax shares are currently trading at just below prospects for renewable power sector, as some projects 16 times forecast earnings for the years ending became unviable relative to the cheaper cost of oil. September 2022 and 2023. An alternative measure Thus the firm has shown that it can succeed through a for asset managers is market cap/AUM, which is 2.4% couple of market cycles. AUM stood at £34.5bn on 30 (suggesting the shares are good value versus a past rule June, while net inflows of £2.5bn in the first half (to 30 of thumb of 4%). Impax executives also seem to believe March) were as large as total AUM a decade ago. the sell-off has presented an opportunity. At the end of June, finance director Charlie Ridge bought 100,000 There is a conflict of interest at the heart of fund shares, worth more than £650,000 at today’s price. management, as Marc Rubinstein, a former hedge fund Founder and CEO Simm still owns 7.2%. I’ve owned manager turned financial blogger, points out. Investors the shares since 2016, and though I sold a few at 1,299p in funds would like to maximise returns, whereas fund last September, I think the prospects look bright. managers are rewarded for increasing AUM. Yet many star managers have seen performance decline as AUM 12 August 2022 grows. The solution seems to be to institutionalise moneyweek.com

22 Funds Getting ready for take off again Aircraft-leasing funds crashed during the pandemic, but things could finally be looking up David C. Stevenson Investment columnist When the Doric Nimrod ©Alamy Emirates has kept up lease payments on its A380s aircraft funds launched a few years ago, they offered some the very first fund, owns a single Doric Nimrod Air Three has improved and it is set to tempting asset-backed income A380 that it let to Emirates (LSE: DNA3) has four A380s, restart fixed payments next year from a portfolio of A380 back in 2008. It’s now agreed whose leases expire in 2025. (currently AA4 gets paid only superjumbos that were leased to to sell the plane to Emirates for Analysts at Jefferies reckon a for the time it uses the planes). Emirates. A later fund, Amedeo £25.3m ($30m) at the lease-end prudent valuation for DNA2 The A380s are of uncertain Air Four Plus (LSE: AA4) date in December. and DNA3 could be $25m per value, though DNA’s deal is broadened out the concept with aircraft. If that materialises, positive. Analysts at Liberum a portfolio of Airbus and Boeing We can sensibly use this as investors could expect a return believe AA4 is building up its planes that were let to both a marker for the other Doric of 1.47 times the current share cash reserves to meet its debt Emirates and Thai Airways. Nimrod funds, although price for both funds, including obligations (the aircraft funds with lots of caveats. For future dividends. Nothing use a lot of debt to buy the But the security that these Doric Nimrod Air Two is guaranteed, but that’s planes, then pay it down over assets offer looked fragile when (LSE: DNA2), which owns potentially very good news. the course of the lease). the pandemic hit. No A380s seven A380s with leases ending were flying. Many airlines in 2023 and 2024, Emirates A more complicated case The wider story is that were in trouble. And Airbus has already given notice that demand for aviation has picked had already cancelled A380 it is exercising the option AA4’s situation is more up. Many airlines are struggling manufacturing the previous that allows it to redeliver the complicated. It owns six A380s to get planes in the air. Emirates year. All this made it difficult aircraft in half-life condition, or (leased to Emirates), two is experiencing capacity issues, to work out what the aircraft between two major overhauls B777s (leased to Emirates) and partly due to problems with would be worth once the leases in its maintenance cycle. If this four A350s (leased to Thai the delivery of Boeing’s 777X expired. So the price of the happens, a return condition Airways). It had to suspend programme, says Liberium. funds crashed way below stated payment of $12m per aircraft dividends for much of 2020 and If all goes to plan, its analysts net asset value, even though all will be made by Emirates. 2021 while Thai Airways was think AA4 could deliver an three Doric Nimrod funds kept restructuring and renegotiating internal rate of return (before paying regular dividends. At that stage Emirates could its leasing deal. Dividends have fund costs) of 14% from the still buy the planes, although now resumed at a lower level, current share price. Whether or Analysts have tried to most analysts think that it although these are covered by not those exact numbers work put a value on how much probably wouldn’t offer exactly Emirates’ leases only. But Thai out, the outlook for these funds these stranded A380s might the same price given to DNA. Airways’ financial situation might finally be improving. be worth, but this has been Meanwhile, the third fund, a largely fruitless exercise as second-hand values are not advertised – there is no Rightmove for planes. It also hasn’t helped that Thai Airways has fallen into bankruptcy, although Emirates looks in much better shape. But last month we finally got some concrete data. Doric Nimrod Air One (LSE: DNA), Activist watch Short positions... Schroders stays in the dog house Activist Bluebell Capital is battling to n Funds run by Schroders lead the latest Spot n Global macro hedge funds – which install its co-founder Francesco the Dog report of consistently poor performers, aim to profit from market swings caused Trapani on the board of Swiss luxury says Citywire. While the fund house’s name by political or economic events – “are goods giant Richemont, says Reuters. appears on just one laggard – the £41m Schroder enjoying their biggest gains in years as Bluebell is calling on investors to back European Sustainable Equity – it also manages inflation unlocks some of their favourite Trapani, a former CEO of Bulgari, as a the three largest by terms of assets held: Halifax trades in bond and commodity markets”, representative of the firm’s A-class UK Growth, Halifax UK Equity Income and says the Financial Times. The yield on shareholders at the annual general Scottish Widows UK Growth. These funds hold two-year US Treasury bonds has soared meeting next month, instead of nearly £6.7bn in assets, amounting to 62% of from 0.7% to 3.1%, benefiting funds that existing director Wendy Luhabe. the assets named and shamed by the report. were short these bonds. Betting on a Bluebell, which owns a 0.2% stake, All three are part of the Lloyds Bank group, but narrowing gap between two-year and also wants Richemont to focus on Schroders has overseen the two Halifax funds ten-year yields and on big swings in “hard luxury” jewellery and watches, since 2018 and the Scottish Widows one since commodity prices has also been highly which make up 80% of sales, instead 2020. “Investors would be forgiven for expecting profitable. Macro funds are up by an of its loss-making e-commerce arm, to see an improvement in performance by now,” average of 8.5% for the first half of the and to rename itself Cartier, after its says Jason Hollands of investment platform year, says data firm HFR. Meanwhile, the most famous brand. Richemont is Bestinvest, which compiles the biannual list. wider hedge-fund industry is down by controlled by its founder Johann “The HBOS funds, in particular, remain some of 5.6% on average, in part because Rupert, through unlisted B-class Spot the Dog’s most persistent offenders, and managers held “too many overpriced shares that give him 50% of votes their poor performance has continued through a technology stocks that have been with just 9.1% of capital. range of market conditions.” hammered by rising interest rates”. 12 August 2022 moneyweek.com



24 Personal finance Cost-of-living crisis fuels rise in scams Sun can help you save Criminals are using the cost-of-living Installing solar panels could be the answer to rising energy bills crisis to create new scams to part you from your money. “During the pandemic, Ruth Jackson-Kirby criminals adapted their methods to Money columnist exploit victims’ fears over [Covid-19], and are now finding new avenues of Shaving some money off rising energy attack,” says Siddharth bills by generating your own power is Venkataramakrishnan in the Financial becoming ever more appealing – so much Times. Losses from authorised push- so that solar-panel installation firms are payment (APP) scams – where you are reporting a four-fold increase in orders this conned into transferring money into the year compared with 2021. criminals’ accounts – have leapt by 40% High installation costs have deterred this year to over £580m. Impersonation households in recent years. But “[the] scams, whereby you are contacted by time it would take to recoup the cost of someone pretending to be the police, installing the panels from savings on bank staff or HMRC, for instance, have energy bills is expected to get much also risen. Losses from these scams shorter – from... 11 years at January climbed by 15% in 2021 to £96.6m. 2022’s rates to fewer than four years from January next year,” says Ali Hussain in ©Getty Images One strategy that exploits the cost-of- The Sunday Times. living crisis involves fraudsters sending It costs around £6,500 for the average Do you have a south-facing roof? you an email pretending to be from your energy supplier. You are invited to claim solar-panel system to be installed on a provider. The amount they pay you for a refund as there has been a three-bedroom semi-detached house, electricity varies massively, from a miserly “miscalculation” on your bill. But you according to the Energy Saving Trust. 1.5p per kWh from EDF up to 12p per have to supply your bank details, which Once your solar panels are up and running kWh from Octopus Energy. the crooks then use to steal your money. you can use your household appliances Invest in a battery and you can store without it costing you a fortune as long as the electricity you generate rather than Another ploy comes as a text message the sun is shining. The Energy Saving Trust selling it back to the grid. You’ll pay where you are asked to claim or apply for says that the average household could save around £2,000 for a 3kWh one, but once a cost-of-living payment from the between £165 and £405 a you have one it will help government. Ignore these texts. The year with solar panels. “Orders for panels you save even more. Eon government’s energy grant will be You can also sell back have increased four- estimates that solar-panel applied automatically as a credit to your the electricity you don’t use fold from 2021” households with batteries energy bill in October. The £150 council- to the national grid, but can use 30% more of the tax rebate is paid automatically to unfortunately you won’t power they generate. eligible homes paying by direct debit. If be able to charge anything close to what Surging demand means longer waiting you don’t pay by direct debit, your energy firms make you pay. The energy times for installation, so keep this in council will contact you. cap put a maximum price on electricity mind when making any decisions. Also of 28.34p per kilowatt hour (kWh) but consider whether you have a suitable Be on your guard against fraud by the most you can sell your electricity for is home. The ideal pre-requisite is a large, looking for errors in emails or text 12p per kWh. If you decide to install solar south-facing roof that is free from shade messages, and look up your provider to panels, you may want to switch energy for most of the day. see if to see if the email address matches its official contact details. Never give out personal financial details to anyone who calls you. Instead say you will call them back. Hang up, then look for a number online or on your banking paperwork and ring it to see if the call was genuine. Pocket money... Bank of Mum and Dad runs out of cash l The Bank of Mum and Dad is running out couples up to three years from the split to analysts predict that the base rate will hit of cash, says Lily Russell-Jones in The sort out their assets without triggering 3% next year, causing that same mortgage Sunday Times. Parents who are struggling CGT, “and an unlimited time if those assets rate to rise to 4.88%. with inflation are cutting back on how are part of a formal divorce agreement”. much money they give their children. l The state pension “is set to top £10,000 a Research by Brewin Dolphin has found The new rules will also affect someone year for the first time ever, giving retirees a that 41% of parents are no longer setting who moves out of the family home but much-needed boost,” says Sam Barker in aside money for their child’s future. “retains an interest in it”. This can occur if The Mirror. a judge rules that the home can’t be sold “This could mean fresh hardship for until the children have turned 18. When the Thanks to the triple lock, which was young people trying to get on the property house is eventually disposed of, they will suspended in 2021 but will return in April ladder”: the Bank of Mum and Dad be able to claim private residence relief 2023, pensions rise each year by currently hands out about £6bn a year to and avoid CGT. whichever of three variables is highest: help with property purchases. inflation, average earnings growth or l Homeowners face the biggest mortgage 2.5%. Inflation will “almost certainly” be l A government rule change could help rate shock since the 1980s, says Melissa the benchmark this year as it is already divorcing couples, says Jenny Ross in The Lawford in The Telegraph. Last week saw 9.1% and is expected to hit 13% before the Yorkshire Post. At present, as part of any the largest rise in the Bank of England’s end of the year. divorce agreement you need to give assets base rate for 27 years. Economists are now to each other within the same tax year as warning that “repayments on home loans This means the inflation rate in the separation for it to be classed as a are rising twice as fast as they did in the September will decide how much state transfer between spouses and not trigger run-up to the financial crisis of 2008”. pensions rise by in April 2023. “If inflation capital gains tax (CGT). is 10%, this would mean the state pension Before the base rate began to rise in goes up by £962.52 and tops £10,000 a Crossing tax years while you’re still December, the average two-year fixed-rate year for the first time.” However, soaring sorting out the details could make your mortgage for a buyer with a 25% deposit inflation also means “state pensioners will transfers subject to tax. However, new was 1.2%. That has now risen to 3.63%. not be much better off in real terms – rules from April 2023 will give divorcing “There is likely to be more pain to come”; perhaps just 8p a week”. 12 August 2022 moneyweek.com

Small business 25 Time to find a better bank account Shopping around for a better deal could pay off now that there is more competition in the market David Prosser is also a potential deal-breaker Business columnist for Monzo, another digital new entrant to the business-banking Research reveals that sector, which otherwise wins most firms don’t bother plaudits for its products. It switching business bank has two different accounts, accounts: two-thirds have not Monzo Lite and Monzo Pro. done so in the past six years. The former is free while the But moving could get you a latter costs £5 a month, but it better deal. Possible benefits does come with free access to include improved customer the cloud-based small business service, access to additional accounting service Xero for facilities – often for free – six months. and potential cost savings, particularly as a growing ©Starling Bank In fact, few digital banks number of digital banks add to Starling Bank’s account features look appealing – including Revolut, Tide and Monese – offer overdraft competition in the sector. facilities, so if this is important Moreover, many small the priority will be to find lower can’t respond to your routine to your business, you will need businesses are entitled to take overdraft rates; others may be enquiries in a timely fashion – or to look elsewhere. Co-op Bank, advantage of the Current more focused on good foreign- worse, if it makes mistakes. Metro Bank and Santander Account Switch Service, an exchange services, or perks such For this reason, the all charge competitive rates of initiative aimed at persuading as free accounting software, Competition and Markets interest on overdraft borrowing, more consumers to shop around now widely available. Authority (CMA), the regulator, though no bank will guarantee for a current account. now pays for regular surveys that it will offer credit to your Firms with fewer than 50 The service is crucial of customer satisfaction with business. And pricing may vary employees and an annual You may also want to identify banks in both the consumer according to your company’s turnover of less than £6.5m specialist accounts. Some and the business-account particular circumstances. benefit from the scheme, which business bank accounts are market. Its most recent research, requires banks to manage aimed at larger firms, but there published in February, crowned Store extra cash wisely switches in no more than seven are also products designed app-based Starling Bank, working days. It must also specifically for freelancers and Handelsbanken and Metro Finally, one issue that small minimise the disruption faced self-employed people operating Bank the best business bank- companies often overlook by customers – as sole traders. account providers on overall when choosing bank accounts for example, “Very few digital Moreover, quality of service. Two high- is the interest they can earn on by ensuring customer street banks, Santander and surplus funds. If your business stray payments banks offer companies service, a Barclays, did make the top five, has cash at hand – buffer funds end up in the overdraft facilities” crucial point but trailed some way behind. or money earmarked for future right account. of competitive Starling Bank also scores investment, for example – just Which bank account you differentiation, is hard to very highly with experts when parking it in your business go for depends on your firm’s measure objectively on a it comes to account features. Its bank account is likely to mean needs. An online price- price-comparison website. The offer of free banking and the it is generating little or no comparison service can be fact that an account comes availability of multi-currency interest. Instead, look for a instructive, but there is no with a market-beating interest accounts look especially decent business savings account, single answer to the question of rate on credit balances, or appealing. The downside is that especially now that interest who provides the best business ultra-low charges, may be Starling doesn’t offer overdraft rates are rising. You don’t accounts. For some businesses, little compensation if the bank facilities or business loans. This have to save with the same organisation that you use for Petty cash... start your side hustle now your banking. l Keen to launch your own small business but of potential customers. It offers tools such as worried about the risk of leaving the day job? free business accounts, a creative centre meant Financial analyst Moneyfacts There is a middle way. New research from to inspire content ideas and advertising and says the most generous business- GoDaddy suggests that a third of businesses promotion services. savings account currently pays with fewer than ten employees are now run as a 1.5% interest a year. Recognise “side hustle”: in other words, the owner is l More and more small businesses are keen to Bank offers this rate; Aldermore running the business while continuing to hold talk about their commitment to sustainability, but Bank pays 1.25%. These are down a job, either full-time or part-time. Working many aren’t putting their money where their easy-access rates. However, if this way brings extra stress – not least in terms of mouth is. New research from environmental- you are prepared to lock your time management – but provides entrepreneurs services company Biffa shows that while 86% of money up for an agreed period, with an opportunity to test the waters before small businesses say they consider sustainability you can earn more. jumping in with both feet. to be important, fewer than half are paying for a recycling service and instead throw recyclable The Union Bank of India l Short-form video-sharing social-media app waste into general refuse bins. The cost of these is paying 3.3% a year on its TikTok is launching a range of new tools aimed at services is one reason for not using them, but two-year bond, for example. small businesses. TikTok says its Follow Me 25% of small businesses told Biffa they didn’t However, remember that with programme will enable small and medium-sized know how to start or manage a recycling these accounts you will typically enterprises to connect with a broader community contract, or simply hadn’t got round to it. lose some or all of the interest if you make an early withdrawal, and there is also the danger of missing out on better rates elsewhere as interest rates continue to rise. moneyweek.com 12 August 2022

26 Personal view If only you’d invested in… Solar stocks are set to Compass Group (LSE: CPG) shine for the long term Share price in pence A professional investor tells us where he’d put his money. This week: Nicholas Mersch of the HANetf 2,000 S&P Global Clean Energy Select HANzero UCITS ETF 1,900 1,800 1,700 1,600 1,500 1,400 S O N DJ F M AMJ JA 2021 2022 In investing you have to get the big ideas part to play in addressing climate change, right. By identifying and tracking secular as replacing most sources of fossil fuels themes, you are participating in an industry today with solar energy is one of the only The stock of catering giant Compass where a rising tide lifts all boats. When ways we can achieve our climate goals. Group (LSE: CPG) hit a two-year high the key trend is working in your favour Allocating capital to these innovators is after the group hiked its revenue-growth you benefit from a natural hedge against crucial for our success. outlook for the second time in 2022, says company-specific risk. Reuters. Compass, whose brands Clean energy is one of these secular A key player in photovoltaics include Bon Appetit, expects sales to themes. It is also not always the case that First Solar (Nasdaq: FSLR) is a global solar- rise by 35% this year; in the latest you can do good for humanity while at the technology company that manufactures quarter underlying revenue hit 109% of same time making the best decision for your and sells photovoltaic (PV) arrays with 2019 levels. It is enjoying the post- wallet. Human beings are self-interested, an advanced thin-film semiconductor pandemic rebound in offices, schools and corporations need to allocate capital as technology providing a high-performance, and sports (it is responsible for efficiently as possible. lower-carbon alternative to conventional Wimbledon’s catering). Small firms are There used to be so much fossil-fuel crystalline silicon PV solar modules. The also finding it expensive to manage consumption in the world because it was the company currently operates many of the in-house catering so they are now most cost-effective method of generating world’s largest grid-connected PV power increasingly farming it out to Compass. power. Now, the narrative has flipped. It is plants. It displays impressive attention to The shares are up 28% in a year. Be glad you didn’t buy… much more efficient and profitable on a unit detail in all areas, from the sources of Wickes (LSE: WIX) economic basis to produce one unit of solar raw materials all the way though to the Share price in pence power rather than use traditional fossil-fuel finished product. 250 sources. This is no longer just some sort of Enphase Energy (Nasdaq: ENPH) science project: you can’t fight the numbers. delivers smart solutions that are easy to 225 use to manage solar generation, storage 200 and communication all on one platform. Powering change 175 There is a saying in the renewable-energy Enphase was founded in 2006 and 150 sector that “the “These innovators are revolutionised the 125 sun doesn’t always solar industry with shine, and the wind key to the battle against its microinverter 100 S doesn’t always blow”, climate change” technology. It has O N DJ F M AM J JA which refers to the evolved to produce a 2021 2022 so-called intermittency problem. However, fully integrated solar-plus-storage solution. Home furnishings chain Wickes (LSE: we’ve now found a solution for this: battery SolarEdge Technologies (Nasdaq: WIX) saw its share price slide by 20% technology. Take lithium-ion batteries. SEDG) is also facilitating the race last week after it released poor half-year Using one to power a house cost $75,000 in towards the globalisation of solar energy. results, says The Motley Fool. The the 1990s, and they weighed 250 pounds The company provides smart energy to company lowered its pre-tax profit (lbs). In 2021, the cost is $2,000 and both homeowners and businesses. forecast for this year from £83m to they weigh 88lb. We need to find ways to Solar Edge is a leading provider of an £72m-£82m amid uncertain demand. harness this opportunity, and solar energy is inverter solution that optimises the way The brand boomed throughout the excellent in this respect. power is harvested and managed in PV pandemic, but has been hurt by the The following three stocks are leaders systems. The company’s direct-current cost-of-living crisis, which has in the industry. They are the drivers behind inverter maximises power generation prompted consumers to cut the cost optimisation that makes solar at the individual PV module level while unnecessary spending. The company such an attractive alternative to traditional lowering the cost of energy produced by expects the DIY market to keep fossil-fuel energy. Solar energy has a key the PV system. “softening” as inflationary pressures mount. The share price has depreciated by 45% over the last twelve months. ©The Telegraph 2022 12 August 2022 moneyweek.com

Profile 27 Tech mystic bets it all on bitcoin Michael Saylor, the founder of a data analytics company, has pursued the odd strategy of placing the whole firm on red at the roulette table that is bitcoin. Where will the ball finally land? Jane Lewis reports When cryptocurrency prices a pilot for health reasons, he were plummeting in June, co-founded MicroStrategy two sending billions of dollars up in years out of college at the age smoke, one of bitcoin’s noisiest of 24. Business data analysis evangelists vowed he would proved lucrative, but perhaps “continue to HODL” – hold even Saylor was taken aback on for dear life – “through when tech mania took hold adversity”. A noble sentiment, in the 1990s. Saylor made perhaps. But arguably Michael no bones about enjoying his Saylor had little choice. Having wealth, says the FT. “Multiple strapped his data analytics yachts, lavish parties and a company MicroStrategy – beachfront mansion in Miami” founded in 1989, and his all kept him in the public eye in lifetime’s work – to an “all-or- the two decades between two nothing” bet on bitcoin, his bouts of “market mania.” only recourse was to continue bigging up the currency. ©Getty Images In bitcoin we trust Saylor is so convinced he Opinion is firmly split on Saylor. can turn his investment into a Analysts castigate his timing “bonanza” that MicroStrategy and foolhardiness (“He bet it is ploughing “almost every cent all on red at the roulette table. It it can find into bitcoin”, reported “Saylor saw more than $6bn wiped from his came up black,” says tech analyst personal wealth in a single day in 2000” Dan Ives). Others highlight The Information in February this year, when the price had his selfish gamble with the already halved from its $68,000 November one that has hit crypto markets”, says the livelihoods of others. “It’s important to keep peak. At that point, the company’s total Financial Times. “For a brief moment in reminding yourself that MicroStrategy is an bitcoin holding amounted to $3.77bn – 2000, MicroStrategy became emblematic actual company, employing approximately “about 20 times the cash MicroStrategy’s of the last great tech boom and bust.” 2,100 people,” says the FT’s Bryce Elder. software business generated over the past Its market value leapt as investors bought “Their opinions are free to read on three years”. When Saylor doubled down Saylor’s vision of how data analytics would Glassdoor.” Yet Saylor retains a following on the falling price, borrowing $205m be supercharged by the internet, before among those who hail him as a visionary more to invest in bitcoin – in a loan backed slumping 99%. Saylor saw “more than $6bn and, at least in the short term, shows every by MicroStrategy’s existing holdings – wiped from his personal wealth in a single sign of being able to ride out the storm – the move was viewed as “a trifle risky”. day in March 2000” when the company aided by a recovering bitcoin price. Question: what is today’s best definition of restated its accounts. He still “refuses Saylor, having “chosen monotone a gambler? ran the joke. Answer: someone to be drawn on that experience” and an mystical obstinacy as a personality”, is who buys shares in MicroStrategy. Between investigation by the Securities and Exchange unrepentant, says Elder. But he has made April and May, the outfit’s shares plunged Commission was later settled: Saylor paid a one concession – handing over the formal by more than 60%. fine without admitting wrongdoing. CEO role to a lieutenant. It may not make Saylor, 57, has always been a man for much difference, says CoinTelegraph. Saylor Keeping calm in the storm whom “the sky was the limit”, says the continues as executive chairman and has This isn’t the first time one of Saylor’s South China Morning Post. Born in said that splitting the roles will help the firm “mega-bets” has gone “underwater”, says Nebraska in 1965, into an air force family, continue to pursue its bitcoin strategy. Forbes. Indeed, his extraordinary calm in he spent his childhood moving between US Still, investors seem to like what they hear: the teeth of a 70% bitcoin bust could be air bases around the world – later studying shares have jumped by more than 48% in attributed to “a personal history of market aeronautics and astronautics at MIT. a month. “In #Bitcoin We Trust”, tweeted meltdowns even more dramatic than the Forced to abandon his ambition to become Saylor in June. It’s still a rallying cry. The private-equity old guard strikes back After three decades group that now manages $300m over five years, says the Lee was brought into a “tight Financial Times. Lee’s shock and genteel corporate culture” spent honing the $376bn in assets. When departure sent Carlyle’s shares at Carlyle to be an outside voice plummeting more than 10%. making tough decisions, with art of investing, Bloomberg interviewed them at Youngkin given the role of The pay deal may just smoothing things over and US private- the time, they were enthusiastic have been the straw that maintaining good relationships. finally broke the camel’s back. With Youngkin gone, the outside equity group about the future. The promotion There had been “underlying voice began to rankle. tensions with senior Carlyle’s gives the founders – David employees and the founding Despite the shares’ slide, shareholders”, says Daniel Oppenheimer’s analysts, quoted billionaire Rubenstein, Bill Conway and Davies of eFinancialCareers. by Bloomberg, doubt there is Lee seems to have suffered anything substantially wrong founders took Daniel D’Aniello – time to focus from “the classic politician’s with the company as it begins its problem” – of “knowing exactly search for new leaders. “It is, in a chance and on their strengths and interests what to do but not how to get our mind, most likely a case of re-elected once he had done it”. the empire striking back.” handed the while the next generation “drive reins to a the firm to the next level”, said younger Lee. Now, he’s run out of road. generation. Kewsong Youngkin left in 2020 to stand for Lee (pictured), now 56, and public office. Lee resigned this ©Getty Images Glenn Youngkin, 55, both alumni week when the board refused to of Harvard and McKinsey, took discuss his proposal for a share- over in 2018 as co-CEOs of the based pay package worth moneyweek.com 12 August 2022

28 Travel A South African adventure From buzzy Johannesburg to big game drives, South Africa has it all, says Katie Monk It’s Sunday lunchtime at the Africa’s heritage sites. Not Voco hotel in Rosebank, many safaris combine bush Johannesburg, and families with beach, but iSimangaliso and friends sip glasses of chilled Wetland Park does just that. chenin and dance to live jazz. Our day starts early, just before The Voco, and its in-house sunrise, to watch zebras, water restaurant, Proud Mary, only buffalo and rhino wake from opened in February, but they their slumber and roam the lush have quickly become favourites landscape in search of food. with locals and out-of-towners. We eat breakfast at the beach, Johannesburg has an ever- without a soul in sight, followed evolving social scene, and by a dip in the sea at nearby although some areas have been Cape Vidal. hit harder than others during the pandemic, Rosebank, with TheVoco: a local favourite Thoko takes me to two sites of historical importance its art galleries, shops and My next stop in A resilient people – Pietermaritzburg railway restaurants, is thriving. Johannesburg is the five-star station, where, in 1893, a young From here I head to After Johannesburg, I head Gandhi was thrown off the Constitution Hill – a museum Saxon Hotel, which has hosted down to KwaZulu-Natal, which train because of the colour of his complex made up of Prison many illustrious guests over means “the place of the Zulus”, skin; and the Nelson Mandela No.4, which once held the years. Mandela lived here to meet my guide, Thoko Jili. Capture Site in Howick, where both Nelson Mandela and for six months while editing his There are 11 official languages Mandela was arrested in 1962. Mahatma Gandhi, and the autobiography in South Africa, and around 11 The visitor centre tells the story ©Alamy of his life and struggles, as well Constitutional Court Long Walk to million native Zulu-speakers, as the history of the Apartheid of South Africa. Freedom, most of whom live in KwaZulu- activists. And a steel sculpture A tour here will Natal. This area has had a of Mandela’s face now stands give you a good near the spot where his car was overview of stopped by the police. South Africa’s “Our day starts early, political just before sunrise, to Refined hospitality history. My guide, watch zebras, water After bidding Thoko and Zikhona buffalo and rhino wake Zululand farewell, I fly down to Macala, Cape Town to sample some of takes a group from their slumber” South Africa’s finest hospitality. As in most countries, the of us around pandemic hit restaurants, the complex, rough ride lately, with floods bars and hotels particularly explaining how on top of the pandemic, but it’s hard. Here, places seem to the court resembles when the slowly rebuilding and cleaning be recovering well, all things an African tree, under Saxon was a up. One thing’s for sure, considered, and some have even which citizens traditionally private estate. The South Africans are a resilient opened against all odds. discuss matters of social Mandela suite, where he stayed, lot. Their sense of community importance with their elders. contains his favourite zebra-skin and ubuntu – practising My first night is spent “It was designed to be chair, as well as many artefacts kindness, compassion and at luxurious Labotessa – a transparent, open to all,” and sculptures. The Saxon’s humanity towards one another beautifully restored, European- says Zikhona. “The narrow fine-dining restaurant, Qunu, – has helped them get through inspired townhouse that windows all around are so that has an excellent vegan menu many hard times and bounce wouldn’t look out of place in anyone outside can see inside, that’s as good as the regular back stronger. Paris or London. All seven suites and those inside cannot tell menu – something you don’t Thoko and I drive north have a refined air about them, whether that person outside is often find in South Africa, or to Mkuze, in the heart of and the attention to detail is black or white.” indeed anywhere. Zululand. Ghost Mountain Inn incredible – from the Diptyque is our base – a four-star hotel toiletries and French oak floors, with a gym, spa and outdoor to the complimentary nibbles pool, at the foot of Ghost in the fridge and yoga mats in Mountain. Game drives to the rooms – they’ve thought of Manyoni Private Game Reserve everything. The café downstairs can be booked directly with the is open to non-guests, and serves hotel. It’s busy when we arrive, homemade Dutch apple cake and Thoko tells me all about and coffee at al-fresco tables, so Zulu traditions and culture, even if you don’t stay, I highly which she says haven’t changed recommend stopping by for a all that much over the years. bite. Although Labotessa was “Zulu people are warriors. closed for a time, it’s now very We are very brave. But we’re much open. Book ahead, as it’s also the warmest people in understandably a popular city- the world.” centre favourite. From Mkuze we head south Saxon Hotel has welcomed many illustrious guests to St Lucia – one of South Also downtown is the ©Alamy five-star Gorgeous George – a 12 August 2022 moneyweek.com

Cape Vidal: perfect for a dip in the sea trendy new kid on the block, award-winning restaurant from seasonal, local, often With nine acres of gardens, with spacious studios and buzzy Salsify (salsify.co.za) at The foraged ingredients. The service, two pools, a spa and incredible rooftop bar and restaurant Roundhouse, housed in one of food and views are all sublime. views of Table Mountain, The Gigi. The whole place has an Cape Town’s oldest buildings, Pier at the V&A Waterfront Nellie, as she’s affectionately arty, bohemian look, with overlooking Camps (pier.restaurant) is another known, feels more rural retreat exposed brick and steelwork, Bay. Co- highly recommended fine- than city-centre hotel, and yet is sleek black-and-white owned by dining experience. We go for the right on the doorstep of buzzy bathrooms and tasting menu – a kaleidoscopic Kloof Street. Even if you’re not Bakelite phones. tour of the varied textures and staying, come here for high tea, Although just which is arguably the best in around the “Even if you’re not the city. It’s a truly special place, corner from and the perfect end to my South Labotessa, staying, come here African adventure. Gorgeous for high tea, which George is Labotessa is a European-inspired townhouse a different is arguably the best beast entirely, in the city” Katie was a guest of more suited South African Tourism to hipsters and (southafrica.net), Mount media types. executive flavours of South Africa, paired Nelson (from £544, But any stay here chef Ryan Cole, with delicious local wines. belmond.com), Gorgeous is guaranteed to be an evening here will be an Creations such as tandoori tuna George (£178, gorgeousgeorge. fun. When I arrive on a unforgettable experience. On with buttermilk, and line fish co.za), Labotessa (£300, Sunday, the bar is in full swing, our visit, we opt for the chef’s with harissa, served on unique labotessa.com, Voco (£140, with groups of friends enjoying menu with boutique wine plates and dishes designed to ihg.com), Saxon Hotel brunch and cocktails and enhance the experience, leave (£534, saxon.co.za), poolside sundowners. us feeling like we’ve been on a Ghost Mountain Inn (£100, culinary voyage. ghostmountaininn.co.za). Cape Town has an innovative food scene, with much to pairing, which includes dishes discover, and at very reasonable such as poached langoustine The beloved “Nellie” prices, too. While in town, with chive gnocchi, and smoked be sure to book a table at snoek with apricot, all made My last few nights are spent at the beloved Belmond Mount Nelson – the “Pink Lady” of the Mother City, which has been Georgeous George: a trendy new kid on the block hosting royalty and A-listers for more than 120 years. Sir Arthur Conan Doyle stayed here in 1928, and is said to have held seances in his room, John Lennon used to meditate on Table Mountain, and Mandela could sometimes be spotted sitting quietly in a corner. If walls could talk, this hotel would have much to say. 12 August 2022

30 Property This week: properties with wildlife ponds – from a modern house in Powys, Wales, with a lake that provid Peveril House, Sturminster Marshall, Old Keysford Hall, Horsted, Keynes, West Wimborne, Dorset. A period property in a Sussex. A Grade II-listed, early 18th-century small village, surrounded by gardens with a house set in landscaped gardens with a formal lily pond and reed beds that provide a haven pond and a wildlife pond crossed by a bridge. for wildlife. The house has open fireplaces, The house has exposed wall and ceiling a 30ft-long sitting room and a kitchen with timbers, and inglenook fireplaces with wood- an Aga. 4 beds, 3 baths, 4 receps, 1.5 acres. burning stoves. 6 beds, 2 baths, 2 receps, £1.15m Jackson-Stops 01258-423002. 1 acre. £1.695m Hamptons 01444-360175. Tan Yr Allt, Dolanog, moneyweek.com Welshpool, Powys, Wales. A contemporary property surrounded by landscaped gardens with a large swimming lake stocked with trout and carp, which is regularly visited by otters, herons and pine martens, and a pontoon bridge leading to a decked area and three jetties. 6 beds, 5 baths, dressing room, 2 receps, kitchen, games room, 1.75 acres. £750,000 Savills 01952-239500. 12 August 2022

Property 31 des habitat for otters and herons, to a Grade II-listed Regency villa in Suffolk with a wild-flower meadow Furnace House and Lakes, Slinfold, Horsham, West Sussex. A Grade II-listed house in a rural location with two large lakes formerly used for commercial fishing, which provide habitat for an abundance of wildlife. The house has exposed wall and ceiling timbers, flagstone floors and a semi-vaulted kitchen with an Aga. 3 beds, 3 baths, recep, study, cellar, 1-bed bungalow, 1-bed cottage, stable, barn, lodge, timber-clad retail shop and cafe, 25.7 acres. £2.75m+ Batcheller Monkhouse, 01798-872081. Souldern Mill, Bicester, Oxfordshire. A former watermill with wooden bridges crossing the original mill race and a mill pond providing a haven for wildlife. The house has open fireplaces, exposed beams, and retains its original mill- wheel housing.7 beds, 4 baths, 3 receps, 1.3 acres. £2.25m. Savills 01295-228000 Spottes House, Haugh of Urr, Castle Douglas, Kirkcudbrightshire, Scotland. A renovated, B-listed 1790s house with an arboretum, a Victorian grass bowling green, a pond stocked with trout and pike, and islands that are home to coots, mallard, teal, herons and swans. 8 beds, 5 baths, 4 receps, billiards room, 2 offices, gym, 1-bed flat, 6-bed courtyard house, tennis court, river bank and salmon fishing on the Urr Water, 34 acres. £2.45m+ Strutt & Parker 01738-783350. Low Rough Hill, Askham, Penrith, Melton Hall, Woodbridge, Cumbria. A renovated, Grade II-listed Suffolk. A Grade II-listed, 1690s farmhouse with views towards Regency villa dating from 1807, the Lakeland fells, surrounded by set in large formal grounds that gardens that provide habitat for red include a Japanese water garden. squirrels, and which include wildlife The wooded grounds come with ponds. The house has oak beams, a 3.5-acre wild-flower meadow wood-burning stoves and a bespoke rich in insect and birdlife, with kitchen. 4 beds, dressing room, 2 baths, more than 100 species of wild 2 receps, gym, 1-bed converted school flowers, managed as a private house, 2 barns, 1.2 acres. £2.43m reserve in co-operation with Fine & Country 01768-869007 the Suffolk Wildlife Trust. 9 moneyweek.com beds, 4 baths, 3 receps, coach house, workshop and 2-bed flat, tennis court, swimming pool, 7.5 acres. £2.5m Jackson- Stops, 01473-218218. 12 August 2022

32 Cars The return of the Countach The legendary Lamborghini is back – and it is simply mind-blowing. Jasper Spire reports “The Countach is back,” says Top Gear But for all that, driving it is undeniably, “The handling is raw, Magazine. The legendary Lamborghini, “tinkle-grabbingly exciting”. but the ride is more now dubbed the Mark II, has been born again thrilling for it” in the hyper-car age, drawing inspiration It “offers drama like little else”, agrees from the wedgy Seventies parent that defined Matt Prior in Autocar. “There’s an astonishing these wines through their paces. an era and “helped to set the mid-engine throttle response, a rev limit pushing 9,000rpm While the rosé kept up through the supercar template that has held true to this and a glorious wail when you get up there.” soft shell crab and safer sushi day”. The familiar shape now straddles an This does make the car somewhat anti-social options, the white wine trounced Aventador chassis and provides a – “for every passenger holding a smartphone the eel and spicy tuna and then driving experience that recalls strode onwards through waves of the original’s charms. “If you to the window, there will be ten who much more complex fare. We were want to be reminded think you’re a bit of a knob” – but left breathless by its piercingly you’re in something exotic “true petrolheads” will be fresh citrus, jasmine and seashell- and aspirational, then unfazed and love it. the Countach does The car’s looks are imbued flavours. With the class that constantly.” a sight to behold too, and breeding of the finest exuding a “timely cool”, Chablis, but blessed with a “It’s mind- says Georg Kacher magical Mediterranean allure, blowingly fast. in Car Magazine. this is a wine I will be pouring Laugh-out-loud fast,” “The comeback with alacrity this summer. says Jeremy Clarkson Countach is all about in The Sunday Times. style, substance Matthew Jukes is a winner of The engine delivers 804 and understated sex the International Wine & Spirit brake horsepower and a appeal. Its awesome Competition’s Communicator of top speed of 221mph.“At proportions are bound the Year (MatthewJukes.com) one point… I damn nearly to arouse every single soiled myself.” The Mark dormant macho neuron of II’s handling is raw, retaining the the bedazzled beholder.” The gruffness of its predecessor, and it doesn’t have the “water-boatman agility” of a interior is similarly engaging – “the cutting-edge Ferrari, but the ride is all the low-mounted carbon-fibre bucket seat grabs more thrilling for it. “You drive it by grabbing your hips like a softshell clamp” and “creature the scruff of its neck and kicking it into the comfort and confidence increase with every corners. It’s a brute and it needs brute force.” breath”. It’s a car to drive for the sheer pleasure and adrenaline-pumping fun of it. Price: £2m. See lamborghini.com Wine of the week: Groundhog Day at Jukes Towers 2021 Domaine de l’Ile Matthew Jukes coral-hued, raspberry Blanc, Porquerolles, Côtes Wine columnist and rhubarb-smooched de Provence, France beauty, but it is not the £32.95, handford.net; super-star creation from £240 per 12 bottles in bond, farrvintners.com It is like Groundhog Day at Jukes this Chanel-owned Towers this week. Every year, estate. Our minds turn to around this time, I taste a vast rosé at this time of year, range of top-end French rosés, and but the Domaine de because there are so many, I put l’Ile’s white wine is them on my website. Among this nothing short of epic. pink avalanche of flavours, So moved by its Domaine de l’Ile stands out. flavour, I The 2021 Domaine de l’Ile Rosé immediately rang (£122 per six bottles, £127 per three my great pal, James magnums, £95 per jeroboam, Handford, Master of goedhuis.com; £23.99, handford. Wine, and we net; £175 per 12 bottles in bond, arranged a hasty farrvintners.com; £175 per 12 lunch at an elite bottles in bond, frw.co.uk) is Japanese restaurant undoubtedly a shimmeringly sexy, in Chelsea to put 12 August 2022 moneyweek.com

Crossword 33 Bridge by Andrew Robson Tim Moorey’s Quick Crossword No. 1116 Knowing the spade finesse is wrong A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 22 Aug Plan the play in Four Hearts after West, who has overcalled One 2022. By post: send to MoneyWeek’s Quick Crossword Spade, leads the Queen of Clubs. No.1116, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email: scan or photograph completed solution and coupon and email to: crossword@ Dealer South Both vulnerable moneyweek.com with MoneyWeek Crossword No.1116 in the subject field. ♠ K10985 ♠ 732 ♠ J6 ♥ 84 ♥ K632 ♥ 95 ♦ A107 ♦ 86 ♦ QJ942 ♣ QJ4 ♣ AK75 ♣ 10863 N WE S ♠ AQ4 ♥ AQJ107 ♦ K53 ♣ 92 The bidding West North East 1♠ 3♥ pass South pass 1♥ pass pass 4♥ Declarer won West’s Queen of Clubs lead with dummy’s King, Down clues are mildly cryptic while across clues are straight and reflected that West’s overcall marked the King of Spades, and probably also the Ace of Diamonds, with West: offside. Declarer set ACROSS DOWN out to endplay West into leading away from one of those honours. 1 Advertised (8) 1 Vessel carrying wine, primarily hock (4) Declarer first needed to eliminate Clubs, so he cashed the Ace of Clubs at trick two, and ruffed a third Club high. He cashed the Ace 5 The Beehive State (4) 2 Old seaman talking pompously (7) of Hearts and crossed to dummy’s King (pleased to observe the 2-2 split). He then led dummy’s fourth Club. 9 Quayside area for 3 Team with no fixture? If East had discarded on this final Club, declarer would have loading, etc (5) Odd arrangement (6, 6) made a Loser-on-Loser play, throwing a Spade to endplay West. But when East proved to have the last defensive Club, declarer 10 Traditional German 4 Champion golfer embraced had to ruff. He still had a certain way to win, however, assuming West began with five Spades headed by the King (nailed on for his Christmas cake (7) by Mickelson (3) overcall). Can you spot it? 11 Range in southern 6 A tart served up in US city (5) At trick seven, declarer cashed the Ace of Spades, then exited with the Queen (key plays). West won the King and could cash the Spain (6, 6) 7 Gathering of many layers? (3-5) ten. However, he was then forced to choose between a Diamond away from his Ace (his actual choice) promoting declarer’s King, or 14 Small carpet (3) 8 Historical novel never read on the road, a fourth Spade, enabling declarer to throw a Diamond from dummy and ruff in hand. Either way, only one Diamond was lost. Ten tricks 15 Bring together (5) one’s heard! (7, 5) and game made. 16 Small drink (3) 12 English novelist overlooking hard For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com 17 Immediately (12) US sect (5) 20 Sickness (7) 13 Resort agreed to include two sons in 22 A pale, sandy, equestrian routine (8) fawn colour (5) 16 Earl Grey’s period? (3-4) 23 Not difficult (4) 18 Car turns over (5) 24 Cheers (8) 19 County associated with kippers? (4) 21 What Henry the Fifth has in common with Henry the First (3) Sudoku 1116 Name Address 158 To complete MoneyWeek’s email ! Sudoku, fill in the squares 53 in the grid so that every row Solutions to 1114 and column and each of the Across 1 Dealt deal + t 4 Barking two definitions 8 Shrinks two definitions 6 94 nine 3x3 squares contain all 9 Villa sick in VA 10 Arc a RC 12 Reason out re a son out 14 Tongue twister the digits from one to nine. anagram 17 Mousetrap deceptive definitions 19 Nut two definitions 20 79 3 The answer to last week’s Trike (s)trike 21 Starter hidden 23 Hands-on H + and son 24 Herod HE + puzzle is below. rod Down 1 Distant 2 Air 3 Tenor 4 Bus 5 Ravioli 6 Ill-gotten 7 Giant 11 463 729 Confusion 13 Aster 15 Useless 16 Retired 17 Match 18 Peach 21 Sin 22 Tar. 3 84 6 157486293 71 The winner of MoneyWeek Quick Crossword No.1114 is: 47 248397516 J.S. Murdoch of London 936521487 Tim Moorey is author of How To Crack Cryptic Crosswords, published 892 379652148 by HarperCollins, and runs crossword workshops (timmoorey.com) MoneyWeek is available to visually 865914732 Taylor’s is one of the oldest of the founding port houses, family run and entirely impaired readers from RNIB National 421873965 dedicated to the production of the highest quality ports. Late Bottled Vintage Talking Newspapers and Magazines 582169374 is matured in wood for four to six years. The ageing process produces a in audio or etext. 693745821 high-quality, immediately drinkable wine with a long, elegant finish; ruby red For details, call 0303-123 9999, 714238659 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 12 August 2022

34 Last word A grab bag of boondoggles Editor-in-chief: Merryn Somerset Webb The feds want to do something to keep inflation down. The result will be poverty Executive editor: John Stepek Editor: Andrew Van Sickle Bill Bonner Markets editor: Alexander Rankine Columnist Comment editor: Stuart Watkins Politics editor: Emily Hohler This week we take a look at Wealth editor: Chris Carter the US’s $739bn Inflation Shares editor: Matthew Partridge Reduction Act (IRA). What the Funds editor: Nicole García Mérida heck is it? An attempt to control Digital editor: Ben Judge the world’s temperature? An effort Digital shares editor: to reduce deficits and inflation? Is it Rupert Hargreaves meant to save lives, increase GDP, Web writer: Saloni Sardana boost jobs? Or is it just another Contributors: Bill Bonner, Democrat giveaway to favoured Ruth Jackson-Kirby, Max King, groups and artful lobbyists? Jane Lewis, Matthew Lynn, According to a study quoted David Prosser, Cris Sholto Heaton by Yahoo News, the bill will cut Jasper Spires, David Stevenson, deaths from air pollution in the US ©Getty Images Simon Wilson by up to 3,900 per year by 2030. It provides $369bn in spending Biden: getting a grip on inflation? Art director: Kevin Cook-Fielding Picture editor: Natasha Langan to address climate change over And to two decimal points! If Tim Geithner (Barack Obama) and Chief sub-editor: Joanna Gibbs ten years, in addition to other passed, it will be doctored up, Jacob Lew (Obama) are all for it. provisions, including closing tax interpreted, bent and persuaded to That does it for us. If they’re for it, Account director: Abdul Ahad loopholes and holding down suit the people in control of it. And we’re agin’ it. Group advertising director: the rate of increase in the cost of then, it will run into the real world. Caroline Fenner (020-3890 3841) prescription medication. It will Like an invasion of Russia, no The Wall Street Journal, Chief customer officer: also, apparently, lead to a net “Great Campaign” ever survives meanwhile, looked at the tax Abi Spooner increase of up to the initial angle, renaming the bill “The Chief financial officer 1.5 million jobs “That does it for us. shock. How Schumer-Manchin Tax Increase Penny Ladkin-Brand in 2030 and If these bigwigs are for can democracy on Everyone” (named after the Non-executive chairman “increase US function senators who sponsored the bill). Richard Huntingford GDP by 0.84% it, we’re agin’ it” with such The Journal says the bill will make Chief executive Americans poorer. Of course, Zillah Byng-Thorne to 0.88% in 2030”. gobbledygook dressed up as if it making people poorer is the effect What kind of idiots do they were science? What’s a poor voter (but not the intention) of almost all Subscriptions take us for? This grab bag of to think? How can he think at all? federal legislation. The feds take boondoggles will increase US from the many (thus making them Email: subscriptions@ GDP by 0.84% eight years from Here come the heavies poorer) and give to the few (making moneyweek.co.uk now? It will save 3,700 to 3,900 But no matter. Here come the them richer). Result: most people Web: MoneyWeek.com/ lives? Really? The technocratic heavies: five former Treasury are poorer. All the other promises, contact-us precision is breathtakingly secretaries have thrown their projections and estimates for the Tel: 0330-333-9688 absurd. There is no way on weight behind the IRA, according IRA will fail. Poverty will triumph. Post: MoneyWeek Earth to predict the effect of this to Business Insider. Larry Summers For more from Bill, sign up to subscriptions, Rockwood collection of robbery, flimflam (who served under president Bill his newsletter at bonner House, Perrymount Road, and jackassery on the US’s $24trn Clinton), Robert Rubin (Clinton), privateresearch.substack.com Haywards Heath, West economy, eight years in the future. Hank Paulson (George W. Bush) Sussex, RH16 3DH Subscription costs: £139.99 The bottom line and sausage McMuffins $17bn The estimated €14.5m What a year (credit card/cheque/ and a ham croissant from direct debit), £159.99 in £9m The cumulative McDonald’s. Australia has cost in damages to Shakira (pictured) Europe and ROW £179.99. strict laws against bringing the global economy allegedly owes funds offered by nine packaged foodstuffs into caused by invasive MoneyWeek magazine is an Russell Group universities the country to prevent amphibians and the Spanish unregulated product. to students to defer their the spread of contagious reptiles between 1986 government in Information in the magazine places this year. After a conditions such as foot and 2020. Invasive unpaid taxes. is for general information record number of A-level and mouth disease. species cause the The pop star only and is not intended to entrants received places in displacement or faces a be relied upon by individual higher education, the $1.3bn The amount won extinction of native possible readers in making (or not universities have been ones and the spread fine and making) specific investment overwhelmed by student on the US lottery last week. of disease and crop prison decisions. Appropriate numbers, and are offering The anonymous winner losses, leading to independent advice should up to £10,000 and in purchased their lucky ticket large cumulative sentence if found be obtained before making some cases waived for the Mega Millions for $2 damages. More than guilty of tax any such decision. accommodation costs to from a Chicago petrol 96% of costs could be evasion. The state Future Publishing Limited encourage students to station, and has now taken attributed to one claims she has not and its staff do not accept come next year instead. home the third largest invader: the American paid tax on income liability for any loss suffered jackpot in US history. The bullfrog. It decimates earned between by readers as a result of any $2,664 What an enormous prize was due to smaller frog 2012 and 2014, even investment decision. the fact that 29 draws had populations by though she spent unfortunate traveller failed to produce a winner. eating them. the majority of her Editorial queries: Our staff caught by Australian time in the country are unable to respond to biosecurity detectors during that period. personal investment ultimately paid for two egg 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. Neither the whole of this publication nor any part of it may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the written permission of the publishers. © MoneyWeek 2022 IISSN: 1472-2062 ©Getty Images 12 August 2022 moneyweek.com



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