Moneyweek 1.07.2022_downmagaz.net

ANALYSIS PROFILE PLUS The best The billionaire A safari-park trusts for bracing for a stay in Kent income crypto winter TRAVEL MAKE IT, KEEP IT, SPEND IT 1 JULY 2022 | ISSUE 1110 Cash in on copper How the electric economy will drive a metals boom BRITAIN’S BEST-SELLING FINANCIAL MAGAZINE MONEYWEEK.COM



1 July 2022 | Issue 1110 Britain’s best-selling financial magazine From the editor-in-chief... I wonder if you wary will still prefer private cars have finished to public transport) and around making your 33% higher than summer 2021 summer holiday already, according to Amadeus plans yet? If you Hospitality (around half of cars have not you might want to get are booked only a week going – particularly if you think in advance). you might need a hire car. In the So there you have it. Enhanced summer of 2019 you would have demand meets restricted supply, been able to rent a normal family and prices go nuts (even before car for around £310 a week. Try you start trying to pay for fuel and get your hands on the same (see page 24). This will sort itself this year (good luck to you) and out – as we know, the solution to it will cost you more like £652. high prices is always high prices Over double. Why? ©Alamy (which prompt rises in supply). The answer is more Take a taxi and drink more rosé But it won’t do so in time for interesting than you think – this your summer holidays. is the post-pandemic global “Taxi transfers are cheaper, easier (no queues, On the plus side, there is a economy in a nutshell. When the maybe fewer scams) and more fun too” silver lining here. Most of us hate lockdowns began, the car-rental business neon, which is vital for chip production). renting cars (the endless insurance and fuel pretty much shut down globally – and The upshot? Industry associations reckon scams, the queues, the laughably inefficient car-hire firms, keen to raise cash and cut that 2.2 million fewer cars have hit the logistics). Now we might not have to. At costs, sold down their fleets (often at very road worldwide this year than would have £600 a week, it is almost always going to low prices). At the time, they presumably with no chip shortage (800,000 of those in be cheaper to arrange taxi transfers from assumed that when demand returned, Europe). There just aren’t enough cars. airport or station to hotel and back – and there would be no supply problem – and to anywhere else you might want to go in between. Cheaper, easier (no queues, maybe they would rebuild those fleets cheaply (car Enhanced demand, restricted supply fewer scams) and more fun too (more rosé). manufacturers have a history of giving the Still, this isn’t just about the supply rental agencies huge discounts anyway). shortage. It is about the fact that when On page 17 we look at how thrift is one Whoops. When 2021 dawned, cars demand came back, it really came back. answer to beating inflation. I’m not sure were not just not remotely cheap, they were Global hotel occupancy rates were above taking taxis instead of renting a car quite almost impossible to come by. Thanks to pre-pandemic levels in April and May this fits in with the spirit of that idea, but it is at the fact that computer-chip manufacturers year (63% in May 2022 versus 60% in least a start. I’m a convert. had either suffered rolling shut downs or May 2019) and look like they will stay that switched production from car chips to way all summer (this is also a reminder of chips for products everyone wanted during just how odd this economic downturn is – lockdowns (phones and laptops), there were you don’t normally get excess demand for precious few available for car manufacture leisure services with a recession looming). – a situation made significantly worse by Car-hire demand is at least as high as in the war in Ukraine (Ukraine produces 2019 (maybe higher, as some of the Covid- Merryn Somerset Webb [email protected] Lawsuit of the week Good week for: Cover illustration: Adam Stower. Photos: Alamy; Getty Images; Port Lympe ©Strutt & Parker Kate Bush (pictured) made an estimated $2.3m in royalties between 27 May and 23 June, after her 1985 single Running Up That Hill jumped back up the charts, says Quartz. The song has seen a 16,867% leap in streaming plays since featuring in Netflix show Stranger Things. Unlike many of her peers, Bush owns the entire recording copyright to the original recordings of her music. A 54-year-old employee of Burger King in Las Vegas has received more than $200,000 in donations after making a viral TikTok video about an underwhelming gift from his employer, says Las Vegas Review Journal. Kevin Ford received a gift bag to celebrate 27 years of employment without missing a day of work, which included items such as a reusable cup, a film ticket and pens. A £1.25m castle in Scotland has gone up for sale ©Getty Images Bad week for: through Strutt & Parker following the eviction of its former owners in a decades-long battle over an The US Federal Bureau of Investigation has raided the Orlando unpaid debt of £230, says The Times. The Grade Museum of Art in Florida and seized a collection of 25 paintings A-listed Knockderry castle was previously owned said to be by Jean-Michel Basquiat, says The Art Newspaper. The by Marian van Overwaele, who was put into provenance of the collection has long been questioned, and it last bankruptcy in a dispute stemming from a £230 bill sold for $15,000 in 2012. Works by Basquiat, who died aged 27 in for her bridal-wear business in 1997. The debt 1988, usually sell for millions. ballooned to £30,000 including costs in the course of Van Overwaele’s attempts to fight it, which A Japanese court has ruled that 7-Eleven store operator included trying to transfer ownership of the Mitoshi Matsumoto must give up his store in Osaka for failing property to her brother George Amil in order to stop to keep it open for 24 hours a day, says Kyodo News. it being seized. The family was evicted in March. Matsumoto, who must also pay ¥14.5m (£87,500) to the 7-Eleven chain, had headed a franchisee campaign for moneyweek.com shorter working hours after his contract was cancelled. 1 July 2022

4 Markets Metals wobble on slowdown fears Alex Rankine Markets editor “There really is no pretence now that Electric vehicles should drive long-term demand for key metals ©Getty Images the Fed [hasn’t], in an act of penance for allowing inflation to get out of control, Aluminium is also trading close to a commodity as a forward-looking equity”, donned a horsehair shirt and is fully one-year low, “with zinc and nickel not too say Goldman’s analysts. The result of prepared to drive the US economy into far behind”, says Ehsan Khoman of bank short-term oversupply is that lithium prices, recession,” says Albert Edwards of Société MUFG. As well as faltering demand from up more than 400% over the past year, are Générale. The more important question China, “higher than expected Russian heading for a “sharp correction” over the is whether bringing about a recession will supply is leading to more stocks being next two years, and cobalt and nickel will dispel fears about inflation. “The outlook deposited on to European exchanges”. also weaken. However, long-term structural for commodities is key, especially with the demand from more electric vehicles should backdrop of the war in Ukraine. But I still EV metals run out of charge bring a rally after 2024. see commodity prices plunging just like in Q4 2008.” Back then, headline inflation Not everyone is gloomy. Commodities “Commodities bulls may soon regret dropped from 5% to -2% in just 12 months. have yet to peak, say analysts at Goldman their enthusiasm,” says Gary Shilling on Sachs. “Economic growth and end-user Bloomberg. The very long-term trend is Certainly, recent trends in commodities demand [are] simply slowing, not falling for commodity prices to fall as people find have been more bearish. The S&P GSCI outright.” Yet some key electric vehicle (EV) cleverer ways of using resources. “Except index of 24 major raw materials is up 31% metals – cobalt, lithium and nickel – may for brief rises during wars and the 1970s oil in 2022, but has fallen back 9% since still be heading for a rough patch. There embargoes, inflation-adjusted prices have mid-June on growing fears of a recession. has been “a surge in investors’ capital into fallen steadily since the mid-1800s, by a Copper, a key gauge of the global economy’s supply investment tied to... long-term EV total of 83%... Bet on human ingenuity, not health, has hit a 16-month low after losing demand... essentially trading a spot-driven shortage-driven chronic price rises.” 22% since a peak in early March. “In a downturn, construction slows – copper is used in wiring and plumbing – and other industries make fewer things like electrical equipment, which also uses the metal,” says Lawrence Strauss in Barron’s. Meanwhile, Chinese benchmark iron- ore prices are down 43% over the past year. China’s “voracious economy usually consumes about half of global industrial metal supply and more than 70% of the world’s iron ore”, says Lex in the Financial Times. About 40% of domestic steel (which is produced from iron ore) goes into the property sector, but Beijing’s crackdown on excessive leverage means that “floor space both sold and newly started is dropping at double-digit rates year on year, [a situation] not seen since the global financial crisis”. Oil shortage starts to curb demand “The oil price says a trans- Sanctions are reducing supplies from Russia ©Getty Images “very limited spare capacity in Atlantic recession is almost the Middle East, and none nailed on,” says Russ Mould of present because of sanctions, Don’t expect Opec+ to ride outside the Middle East”. Iran AJ Bell. “Since 1970, the oil says Myra Saefong in to the rescue either, says Pavel has capacity, but its exports price has doubled year-on- Barron’s. “US production, Molchanov of bank Raymond are subject to sanctions. year six times and on four of meanwhile, hasn’t climbed James. The producer group, those occasions the US and back to pre-Covid-19 levels” which includes Saudi Arabia Enthusiastic oil bulls UK have gone into recession because of “pandemic-related and Russia, underproduced its dominate online conversations within the next two years.” labour shortages and supply- output target by 2.616 million about energy, says Jared At around $116 a barrel, Brent chain constraints”. barrels a day in May. There is Dillian on Bloomberg. Many crude is up by 475% since its “predict oil will rise to $200 a March 2020 nadir. “Everyone barrel. In fact, call options with is waiting nervously to see if a $200 strike price have traded 2021 makes it five out of six.” rather briskly in recent weeks”. Yet fears of a recession have Prices got an extra boost seen oil prices fall 7% since this week as G7 leaders they topped $124 a barrel in discussed plans to impose a early June. When oil prices price cap on Russian oil (see rise, people start to reduce page 9). That may exacerbate consumption. “The only existing supply problems. constant in financial markets is “About two million barrels a that when bullish or bearish day of Russian oil and refined- sentiment becomes crowded, product supplies” are unable it is usually profitable to go the to enter global markets at other way.” 1 July 2022 moneyweek.com

Markets 5 Russia goes Vietnam makes its mark into default “‘Made in Vietnam’…is making its mark on the global stage”, ©Alamy Textile exports are on course for an all-time high Russia has defaulted on its debt says investment fund Vietnam for the first time since 1998. Holding. “Manufacturers from Even Chinese electronics state” it can be difficult to know Sunday marked the end of a all over the world are looking groups “are moving facilities to what is really going on, but the 30-day grace period for interest at Vietnam as part of their Vietnam”. Still, Vietnam faces firings appear to signal a desire payments of $100m on two relocation strategy to effectively plenty of economic challenges to clean up the exchange. eurobonds. Russia says that it diversify and reduce supply of its own. Deep integration sent the funds to Euroclear, a chain risks”. Apple recently with global supply chains However, that seems to have Brussels-based clearing house, moved some iPad production leaves it vulnerable to ongoing rattled investor confidence. The but sanctions prevented the into the country, joining firms disruptions emanating from benchmark VN-Index is now money from being paid to such as Samsung and Intel Shanghai. With foreign trade down by 21% since its January bondholders. Moscow has that already have a significant representing 209% of GDP, the peak, after a superb run that called the default artificial. presence, partly in response to country is also heavily exposed saw it gain 120% from its lows “Everyone in the know manufacturing delays caused by to fluctuations in world trade. in late March 2020. understands that this is not a lockdowns in China. default at all,” said finance Cleaning up the bourse Still, while domestic retail minister Anton Siluanov. The textile industry is also investors have retreated from booming, says Tomoya Onishi Corruption is also a big the market, foreign institutions “Governments usually in Nikkei Asia. Exports are on weakness, says Philip Heijmans seem to be “buying the bear”, default when the burden of course to hit an all-time high on Bloomberg. The ruling says VinaCapital Vietnam borrowing is too painful or they of $22bn in the first half of Communist party has recently Opportunity Fund. Foreigners suffer a currency crisis”, says 2022, a 23% rise on last year. launched a crackdown on graft were net buyers of another Neil Unmack on Breakingviews. Numerous free trade deals and – including firing the head of $151m in stocks in May after “Yet Russia had debt of just 17% the post-pandemic boom in the Ho Chi Minh bourse and buying $175m in April. And, of GDP last year and has the West have turned Vietnam the chair of the State Securities importantly, the sell-off has plentiful revenue from selling into the world’s second-largest Commission – over claims of brought valuations down to oil and gas.” It is sanctions that clothing exporter. market manipulation and “illicit just 12 times expected 2022 have triggered this default. profits” on the exchange. In a earnings – not a bad price for a “The outcome suits both sides: Things looked very different “closely controlled, one-party country where GDP looks set to Moscow can say it hasn’t last summer, says Rodion grow by at least 6.5% this year. defaulted and blames the West, Ebbighausen in Deutsche Welle. while Western politicians gloat A surge in Covid-19 cases saw over Russia’s apparent the likes of Samsung, Apple, humiliation.” This “act of Nike and Zara forced to close political theatre” leaves factories for weeks. GDP fell 6% bondholders facing years of year on year in the third quarter. delays and legal quarrels until But since then Hanoi has taken the dispute is settled. “a pragmatic approach”, helped by the use of Western vaccines The default has revived (unlike China). memories of the 1998 default, says Martin Farrer in The That has enabled a reopening Guardian. That triggered the that contrasts markedly with the collapse of US hedge fund situation in China, says Daniel Long-Term Capital Müller of the German Asia- Management. However, this Pacific Business Association. time analysts expect that default on Russia’s fairly small $40bn external debt pile will have a much more limited effect on global markets. Viewpoint n Growing more from less land “The cold reality is that globalisation Land use versus food production After millennia of expanding purely for pursuing economic interests agricultural land use, the and commercial profits is deemed by Global agricultural land use, billions of hectares (LHS) amount of land that humans some as outdated… On the one hand, Global food production, trillions of US dollars (RHS) use to grow crops and raise the US will form an anti-China livestock has peaked, says geopolitical alliance in the economic and 5.0bn $4trn Hannah Ritchie for Our World in technological spheres, contain Chinese Data. Global agricultural land technology and blacklist Chinese Global land use for agriculture use more than quadrupled technology companies, which may… between 1700 and 1960, but it hinder technological innovation in 4.8bn $3trn has been declining since around China. But on the other hand, the Biden 2000. The drop has not brought administration may exempt household 4.6bn $2trn a reduction in food production, goods and those that do not involve key which has continued to expand. technologies from Trump’s tariff ‘legacy’ Global agricultural production Source: UN FAO / Our World in Data The fall in land use has been [as] they have become an increasingly driven by a decline in pastures: heavy burden in the face of high 4.4bn $1trn the world consumes more pork inflation. The Biden administration’s and chicken – which are not strategy toward China will shift from the 1961 1970 1980 1990 2000 2010 2018 pasture-fed – than it did in the ‘continuous pressure’ policy adopted by past. Less encouragingly, global the Trump administration to one that will cropland is still increasing, allow the US to outcompete China with while grazing land for beef superior economic, technological and production also continues to military power.” expand in biodiverse tropical regions, even as it has fallen Zhu Changzheng, Caixin elsewhere. moneyweek.com 1 July 2022

6 Shares How success almost broke Robinhood Cashing in on Tencent Naspers is starting to unwind its hugely successful investment in the “Remember Robinhood?” Chinese tech group. Investors will be relieved. Simon Wilson reports It’s the app-based brokerage that boomed on the back of “Naspers has finally realised the value of ©Getty Images Naspers’ van Dijk plans to offload Tencent “meme-stock mania” – then simplicity” with its plan to sell down its vast stake ©Getty Imagesappetite for unprofitable tech start-ups. In thatnearly collapsed under the in Tencent, says Ed Cropley on Breakingviews. context, the Tencent sell-down looks sensible but weight of demand, says The South African investment company is the also necessary. Bryce Elder in the Financial biggest shareholder in the Chinese internet giant, Times. The firm survived, via its Amsterdam-listed subsidiary Prosus. The The announcement was greeted warmly by the and floated a year ago with a 29% stake, bought for $32m almost two decades market, says Lex in the Financial Times. Prosus valuation of $32bn, but a ago, is now worth $133bn – a phenomenal return. shares jumped 15% on the news and Naspers share price down 87% from leapt 20%. Yet “there were plenty of missed last August’s high-point The problem for Naspers is that its own shares opportunities” to sell Tencent at higher prices “tells its own story”. Trading have consistently traded at a big discount to that last year. Shares in China’s largest social media by its mostly young stock- stake’s value, while the company has “tied itself in company have halved from their peak, largely due and crypto-speculators has increasingly complicated knots to close the gap”. to increased regulatory scrutiny. crumbled with the market. Chief executive Bob van Dijk’s plan to gradually offload the Tencent stake and use the proceeds For example, China’s gaming regulator has just Last week, a new report by to buy back Naspers and Prosus stock is both granted publishing licences for 60 new games, US legislators documented “intelligible and reassuring”. In effect, it creates but Tencent was “conspicuously missing” from how Robinhood’s success a “put option” for investors, and signals that the the list of favoured firms. Meanwhile, at 26 times “came shockingly close to Tencent riches will not be “frittered away on some forward earnings, its shares stand at a hefty 90% killing it”, says Matt Levine high-risk internet start-up” – a non-trivial risk premium to global equivalents such as Facebook- on Bloomberg. Trading given Naspers’ track record. And by keeping the parent Meta. “Prosus should keep on reducing its activity soared so fast in exact parameters vague, van Dijk has scope to heavy exposure.” January 2021 that the firm slow the sell-off if the gap narrows as planned. was short of $3bn in collateral that it needed to A discount on top of a discount back its customers’ trades. It survived only because the Does this sale by such experienced venture-capital clearinghouse waived most investors signal that this month’s “mini-rally” in of the collateral required for Chinese and tech stocks is over? Not necessarily, the day, while Robinhood says Shuli Ren on Bloomberg. In March 2018 raised fresh capital, limited and April 2021, Naspers managed to sell Tencent customer trading and slowed shares close to market tops. This time, though, we down the approval of new should not “read too much” – in terms of market accounts. “The meme-stock timing – into a decision apparently driven by craze was so good… that Naspers’ own financial pressures. 430,000 people tried to sign Before this week’s rally following the Tencent up for its service overnight! announcement, Prosus’s shares were 53% below And so bad… that it had to book value, says Stephen Wilmot in the Wall ignore all of them.” Street Journal, while Naspers’ stock trades “at a discount to this discount”. That gap has widened In other words, this is a this year due to Prosus’s sizeable exposure to high-risk stock and its Russia (including 100% of the online classified reversal of fortune has been ads platform Avito, and a 27% stake in social dramatic, says John Foley on media firm VK) plus the regulatory crackdown Breakingviews. Stripping out on big tech in China and the globally waning the $6bn cash on its balance sheet, Robinhood has at Wise tumbles on earnings miss points in the past month Shares in money-transfer firm anybody other than been worth less than zero. Wise fell 15% on Tuesday after ©Alamy regulators”. This is the type of But “it may be getting too disappointing full-year results, “governance situation” that harshly punished for the says Aisha Gani on Bloomberg. investigation into his failure to makes other shareholders downward slide”. Robinhood The company reported pay £720,495 in personal taxes, understandably nervous. still has 22.8 million recently adjusted earnings before despite repeated reminders active accounts, and hopes interest, tax, depreciation and from HM Revenue and On the known evidence so to cross-sell more products amortisation (Ebitda) of Customs (HRMC) – a lapse that far, any talk of potential ban for to its users, including crypto- £121.4m, up 12% year-on-year, cost him a £365,651 fine. Käärmann looks “alarmist”, wallets, bank accounts and but below forecasts of £129.6m. Käärmann owns 18% of the said Alistair Osborne in The debit cards. If it can hold on Revenue of £559.9m was up by shares, has 40.6% control via a Times. “A warning and fine to even five million users, it a third, ahead of expectations. special share and is the public looks a likelier – and fairer – could be an attractive target The shares closed the day at face of the company – making outcome”. That said, the FCA is for crypto exchange FTX, 316p, far below the float price him “virtually untouchable by unpredictable, and the precise which is said to be mulling a of 880p one year ago. scope and purpose of its bid, or even for Goldman investigation are not yet clear. Sachs or JP Morgan. The firm’s governance woes The risk for Wise is that the didn’t help, says Nils Pratley in inquiry drags on, distracting a moneyweek.com The Guardian. News broke on business whose share price is Monday that co-founder and already under severe pressure. CEO Kristo Käärmann is the “Käärmann may yet discover subject of a formal Financial that dealing with the FCA is Conduct Authority even worse than HMRC.” 1 July 2022

Shares 7 MoneyWeek’s comprehensive guide to this week’s share tips Three to buy CVS to June 2021 and is expected to Games Workshop Procter & Gamble Investors’ Chronicle climb a further 25% this year. Shares The Sunday Telegraph Dogs are for life, and so are their Competition in the sector has This fantasy games and Customer loyalty to P&G’s vets’ bills. CVS is one of six large sent the shares down by around figurines maker thrived in the brands, which include Head firms that control half the UK a quarter since the start of the pandemic as people invested in & Shoulders shampoo and veterinary market. It owns more year, but demand looks set to their hobbies, but has suffered Fairy Liquid washing-up than 500 veterinary surgeries, remain high. 1,592p. from the growth stock sell-off. liquid, should enable it to pass three laboratories and seven However, core sales for the year on inflation to consumers crematoria across the UK, the just ended are set to be at least without hurting sales. The Netherlands and the Republic 9% higher than the previous company has a record of stable, of Ireland. New management year’s record £353m, while growing returns and further has shifted its focus from mass royalties jumped 72% to £28m. growth potential thanks to acquisitions to organic growth, It has an “unlimited scope” for “premiumisation” trends upped its spending on facilities, innovation and “many different (consumers trading up to its and made an “impressive growth avenues”: it’s bringing more expensive brands). It’s a dent” in its debt. Operating out several video games this “very high-quality company profit tripled in the five years year. 6,045p. that merits purchase”. $143.74. Three to sell Naked Wines warned the path to its goal “will cables, should have benefited The Times not be linear”. Avoid. 156.2p. from the increased investment CareTech Online wine retailer Naked Tekmar in wind power. However, the Investors’ Chronicle Wines posted decent results for The Telegraph company has “struggled to turn Specialist social-care provider the year to March. Sales were Tekmar, a supplier of protection that potential into cash” and CareTech was affected by staff up £10.1m, profit was up £6.2m systems for undersea pipes and is now in a delicate financial vacancies caused by Covid-19. and pre-tax profit increased positions. It’s still winning big It resorted to hired agency to £3m from a £500,000 loss contracts, but the market is staff, which meant increased last year. However, the CEO showing doubts about its ability costs. Half-year results showed raised the possibility of a loss for to return to profitability. Bosses modest growth in revenue, flat the 2022-2023 financial year. have “acknowledged its plight” profits and rising debt due to Even more concerning was the by putting it up for sale – and acquisitions. The company’s co- possible breach of the firm’s not from a position of strength. founders are seeking financing $60m asset-backed lending Some investors might want to allow them to take it private, facility. There is too much to hang on, but others should and as a result it will not pay uncertainty surrounding the “take what little is on the table an interim dividend. There are business and management has now and sell”. 8.25p. two 750p offers, but talks are progressing slowly. Sell. 630p. ...and the rest The Telegraph The Times looks able to fulfil its potential. Gold is a “traditional safe Housebuilder Berkeley might Buy (240p). Micro Focus helps The Sunday Times haven” in periods of inflation, not “entirely avoid the perils its customers make the most Alternative asset manager but surprisingly it hasn’t shot of a UK economy in its current of their IT systems. However, Gresham House is “proving up recently. However, there are shape”, but this is “likely to this is one of the first things money can grow on trees”. take the form of a pause rather to go when businesses start Assets under management good reasons to expect its than an outright setback”. It “battening down the hatches”. jumped 65% to £6.5bn last price to rise, as supply has a “well-executed, sound It’s a good company, but it’s year, thanks in part to is “all but certain to long-term strategy”, which operating in a bad environment. the £3bn of commercial fall” and investment should shield it from short- Sell (306p). Utilities reseller timberland that it demand should rise. term volatility. Buy (3,837p). Telecom Plus’s new bundle now manages. Miner Newmont is Cable maker Volex’s “position offers provide customers with The sustainability- focusing on making its near the technological cutting cheaper deals. This “new-found focused firm is edge” should shield it from edge is already seeping through small, but its operations more efficient. “macroeconomic headwinds”. to the bottom line”. Debts have chief executive It has a free cash-flow yield The firm’s “well-motivated improved and profits could “has shown his of 5%, “a large proportion and experienced management” accelerate. Buy (1,950p). prowess”. Buy of which should go back to (823.3p). shareholders”. Buy ($65.17). ©Alamy; Getty Images A French view IPO watch TFF is the leading maker of barrels for wines and whiskies, as well Shares in electric-vehicle (EV) manufacturer Polestar went as the number-two producer of bourbon barrels, says Le Figaro. public on Nasdaq last week through a merger with a special This gives the family-controlled firm indirect exposure to one of purpose acquisition company (Spac), says CNBC. The firm – the most robust luxury-goods sectors. The cost of making barrels which began as a joint venture between Sweden’s Volvo Cars is rising – oak prices are up by 20%-30% and iron strapping by and China’s Geely in 2017, and is still 48% owned by Volvo – 100% – but TFF is confident it can raise prices and pass on costs to raised $890m to invest in building new vehicles. Polestar has so buyers. The firm has invested heavily in recent years, spending far sold 55,000 cars in China, the US and Europe. It hopes to €150m since 2019, “but this effort is now over and should bear reach sales of 290,000 per year and become profitable by 2025. fruit”. Sales growth was much stronger than expected in the third Recent listings of EV manufacturers have delivered poor returns, quarter of the 2021-2022 year. “This bodes well for the coming with Lucid, Fisker, Nikola and Rivian all down by considerably years, despite a more threatening global environment.” more than 50% from their highs. moneyweek.com 1 July 2022

8 Politics & economics Johnson prepares for a third term The PM’s critics are getting ever more exasperated, but that’s the way he likes it. Emily Hohler reports Boris Johnson’s leadership of the Tory Keeping the PM in check is proving exhausting ©Alamy party was “plunged into fresh turmoil” last therefore falls to Tory MPs to do their dirty Friday after the Tories “suffered crushing and unsure of what the whole point of being work. Johnson is free from another vote defeats” in by-elections in Wakefield in in government is, beyond holding power for of no confidence until June 2023, but this West Yorkshire and Tiverton and Honiton its own sake”, says James Sean Dickson in rule is “not binding on the parliamentary in Devon, says Jasmine Cameron-Chileshe Unherd. Taxes are set to reach their highest party”. With “apposite timing”, the 1922 in the Financial Times. The results, which level since 1945. It has neither the cash nor executive members are up for re-election prompted the resignation of Conservative the “ideological rigour” to implement its before the summer recess. “The question for Party chairman Oliver Dowden, were “seen “levelling up” mission, instead continuing candidates must be: will you permit a vote if partly as a verdict” on the lockdown parties to throw “jam” at retirees, which is where MPs believe they need one?” scandal, which led to Johnson becoming the the votes are. This cannot last. As the first serving prime minister to be fined for boomer demographic declines, the party Failing a visit from the “men in suits” breaking the law. Johnson survived a vote will be “left with a generation of resentful, who conclude that their political cause no of no confidence on 6 June, but 41% of Tory asset-poor millennials”. longer coincides with Johnson’s, it is up MPs refused to support him. Undaunted, to the parliamentary party to act, agrees Johnson insisted this week that he had a Time for new management Matthew Parris in The Times. There is “new mandate” to lead the party and said still time, but only just. Johnson’s name he was “thinking actively” about the third We need action now, says Nick Timothy in is greeted with “anger, embarrassment, term of his government and remaining in The Daily Telegraph. Britain “desperately hilarity or contempt” up and down the position into the 2030s. needs” clear policy and a prime minister country. “Archetypal Tories are falling out it trusts. In private, most of the cabinet of love with the party that has been their This “casual boast” will have filled his are “scathing” about Johnson’s “morals, natural home.” But “shorn of Johnson, critics with horror, says Rafael Behr in policies and personal working style”. England (at least) might be persuaded The Guardian. “No one who cherishes Yet they are “reluctant to move against” to give a hearing, however wary, to a British democracy wants to see how it him out of fear, because they enjoy their Conservative with a sign ‘under new might weather a decade of Johnson time.” jobs or because they want his job and “fear management’ above the door of No 10”. One of the reasons he survives is that it is looking disloyal or becoming divisive”. It exhausting trying to hold him to account. Everyone is too busy “worrying what fresh hell might be in tomorrow’s headlines”. The chaos suits Johnson because it forces people to look at him as the “only fixed point”. This week he threw some more “red meat” to his core vote with a “string of policies” including a two-year extension of steel tariffs, which will benefit “Red Wall” constituencies, and the Northern Ireland Protocol Bill, which ditched parts of the Brexit deal, says Hugo Gye in The i. Both are likely to be in breach of international law. He also promised a “crackdown on benefits claimants”. Beyond this, the government, at a time of high inflation, low growth and widespread industrial action, seems “tired Israel’s eight-party coalition fractures Netanyahu plots ©Getty Images Benjamin Netanyahu, the re-extend Israeli law to Jewish Palestinian peace process. He a return to power 72-year-old former Israeli prime settlers living in the West also “burned personal minister, is “plotting” a return Bank”. The parties might have relationships” with the leaders 1 July 2022 to power following Monday’s been united by their hatred of of other parties and is currently dissolution of the government Netanyahu, who was ousted fighting corruption charges in a by Naftali Bennett just a year last year and who has governed long-running trial, says Dov after it was formed, says Neri Israel for 15 of the past 26 years, Lieber in The Wall Street Ziber in Foreign Policy. The says James Shotter in the Journal. Nonetheless, polls demise of the eight-party Financial Times; but as George indicate he remains Israel’s coalition means that the Birnbaum, a campaign “most popular politician”. country will be heading to the strategist who has advised polls again in October for the both Netanyahu and Bennett Polls also show that his fifth time in three years. put it, the “day after [you have Likud and allied parties are formed a government] you have unlikely to win an outright The internal contradictions of to govern”. majority. Yair Lapid, who heads the ruling coalition, which the centrist Yesh Atid party and brought together right-wing Under Netanyahu, Israel who now takes over as ultranationalists and pro-peace grew richer and more powerful caretaker prime minister, is the leftists, Jewish nationalists and, militarily, but he “pushed a “clear top challenger”, but he for the first time, Arab Islamists, no-holds-barred foreign policy” “has no clear path to a majority ultimately proved its undoing. that drove relations with the coalition either”. Whatever the The “final straw” was its US to “bitter lows” and led to a outcome in October, this is “inability to pass a routine bill to decade-long stagnation of the Netanyahu’s last chance. moneyweek.com

Politics & economics 9 G7 pulls in opposite directions World leaders can’t please voters and tackle long-term problems as well. Jasper Spires reports It’s tempting to dismiss (BRI) of investments in gatherings such as the G7 trade and infrastructure summit, which concluded in developing countries. in Bavaria this week, as This “struggled to get “talking shops with too off the ground” when much hot air and little in first proposed because the way of action”, says The “not enough G7 partners Telegraph. But on the face of contributed financially when it, this meeting had “greater it was unveiled a year ago”, substance and a more say Jenny Leonard, Alberto positive outcome than many Nardelli, and Jordan Fabian observers had anticipated”. on Bloomberg. Now the idea The meeting focused is back as the “Partnership on providing support for for Global Infrastructure Ukraine with money and and Investment”, a plan to arms to fight Russian siphon $600bn in funds to aggression. Nato troop low- and middle-income©Getty Images numbers are also planned to countries over the next five swell from 40,000 to more The talking shop fell short of what was needed years. Of the sum, the US alone would contribute $200bn, consisting than 300,000 to deter further advances David M. Herszenhorn in Politico. They mostly of private-sector investments, by Moscow. Such promises will be hard to are “powerless to stop Russia’s war or stop with some funding coming from the US honour, though, as energy prices soar and prices from racing out of control… or even Development Finance Corporation and energy supplies from Russia dwindle in the to end the blockade of millions of tons of Export-Import Bank. coming months. “A tough communiqué is Ukrainian grain vitally needed to feed the one thing, but fulfilling its promises amid developing world”. And on longer-term The US should play to its strengths domestic political pressure to force a peace issues, our leaders appeared “daunted and deal on Ukraine is quite another.” distracted by immediate imperatives”. As a counter to the BRI, however, these US- The focus on the Ukrainian war also The solutions that they proposed led plans are still lacking. Indeed, America drew attention away from other critical at the summit are “self-defeating and is “notoriously bad at investing in and issues such as the climate, food and contradictory” across the board – they maintaining its own physical infrastructure, debt crises, says Patrick Wintour in The seek to lower the prices of oil and gas, for so it never made sense for it to try to build Guardian. With what time remained to example, while simultaneously restating infrastructure projects abroad”, say Charles them, G7 leaders pledged to decarbonise their aim to end the use of fossil fuels. They Kenny and Scott Morris for Foreign Affairs. the road and power-generation sectors and want to end the war, but not fight in it. They If it wants to compete with China, the US offered £3.7bn to help with food scarcity want to promote rules-based capitalism, shouldn’t act through the G7 but play to issues (shy of the UN target). Neither while imposing price controls on energy (see its strengths – “leveraging its unparalleled policies accomplish enough. “Instead of below). The conflict stems from the desire to system of higher education” and improving doing what is needed, the G7 are leaving please voters at home while trying to resolve aid channels through established millions to starve and cooking the planet.” problems that will extend far beyond their multilateral institutions such as the World election cycle. The result is self-sabotage. Bank. “Rather than trying to beat China Tinkering at the margins The most notable development at its own game, the US needs to recommit The world’s most powerful leaders seemed beyond aid for Ukraine was the Biden to a vision of planetary prosperity through to be “tinkering at the margins and failing administration’s plans for a counterweight global cooperation, openness, transparency, on all fronts”, say Karl Mathiesen and to China’s flagship Belt and Road Initiative and equal opportunity.” Global energy price cap won’t rein in Putin Putin: his war chest remains full But that battle has already obvious how it would work, But the result could well be ©Getty Images been lost, at least for this year, ExxonMobil CEO Darren Woods the opposite of that intended, The G7 stopped short of its says Mark Mozur of S&P Global told the Financial Times. The says Pierre Briançon on mooted global price cap on oil Commodity Insights. Russia’s approaches being considered Breakingviews. To work, the and gas, and has instead said it finance ministry has “already include a possible “prohibition idea would “need global buy- will explore the idea further, cleared expected oil and gas of all services” that enable the in”, notably from countries like says Nicholas Earl in City AM. revenues for this year based on transportation of Russian India and China that have been Soaring energy prices have last year’s budget projections seaborne oil, unless it is priced snapping up Russian oil as the “taken the sting” out of Western and to date is reporting gross at or below a cap at a level to be EU cut its imports. There would efforts to curb Russian energy revenues of $190bn, of which determined. The cap would be be nothing to prevent them imports. The hope is that a cap $153bn is attributable to oil and enforced by limiting the continuing to buy at prices would limit the funds flowing gas”. Russia’s behaviour in availability of European above the cap. Nor would Putin into Vladimir Putin’s war chest. reducing gas flows to Europe shipping insurance for Russian necessarily keep exporting oil should be seen in this context: it shipments, as well as shipping at a discount, and refusal to do moneyweek.com “can do just fine without the services and US finance. Caps so could cause oil prices to additional income”. Besides, on the price of gas flows are spike. Besides, financial the complexities involved and also being considered. The sanctions mean that Putin likely unintended measures could kill two birds already finds it hard to spend consequences should give with one stone, says Patrick whatever it is he pulls in. policymakers pause. Wintour in The Guardian, by “Setting up an effective oil putting a lid on rising inflation price cap may prove an It would be a “complicated for Western consumers, too. unnecessary effort.” challenge” and it’s far from 1 July 2022

10 News Richmond Virginia younger models and fruity 2018 for that stake, valuing Juul flavours, despite a recent at $38bn. Since then, Altria has Juul told to quit: Electronic cigarettes survey reporting a drop in written down that investment, maker Juul has successfully delayed a the teenage vaping rate and the value of Juul most government ban that would have forced and a shift away from recently stood at $1.6bn. Juul’s its vaping products off the US market Juul’s products. loss may be British American with immediate effect, says Associated Tobacco (BAT) and Philip Press. The regulator, The Food and Juul has slipped from Morris’s gain, as some of BAT’s Vuse Drug Administration (FDA), has sought Altria’s crown, says Andrea vape models have already been approved to bring greater scientific scrutiny to Felsted on Bloomberg. The Virginia- by the FDA and the regulator is soon to the multibillion-dollar vaping industry based tobacco giant behind Marlboro decide on its main product Vuse Alto. following years of regulatory delays. Juul in holds a 35% stake in Juul, as part of its “Unfortunately for Altria, there may be no particular, one of the leading brands in the drive to diversify its brands portfolio away smoke without fire.” US, had been accused of targeting teenagers from tobacco products. It paid $12.8bn in through its mix of advertising featuring San Francisco Zendesk’s about turn: Software-as-a-service (SaaS) firm Zendesk’s decision to allow itself to be bought for $10.2bn by private investors “is a little odd” given the board’s insistence on 9 June, as part of its strategic review, that the company should remain public, says Simon Sharwood on The Register. It spoke to 16 potential strategic partners and ten financial sponsors, including investors who had never expressed interest in acquiring it. There were “no willing takers” at the time of Zendesk’s review, so it should “be grateful”. The company “would have certainly landed a lower price even if everything… was going well”. Cloud stocks have fallen massively over the last few months as rising interest rates and broader economic concerns push investors towards “safer havens”. The final offer of $77.50 a share for Zendesk is 40% below the $127 to $132 a share that the same consortium of private-equity buyers put forward in February, which was rejected by the board at the time. “The company did plenty to earn the discount.” Five months ago, Zendesk was valued at seven times estimated 2023 revenues, says Robert Cyran on Breakingviews. “Yet the new deal isn’t an obvious bargain either.” It’s possible markets have corrected and the buyers are getting a good deal should Zendesk continue to grow – “but they will need rapid expansion to justify the price”. Milan €19.8bn last year. Del Vecchio also held stakes Italy’s biggest insurance Fashion founder dies: group, Generali, and Milan-based Leonardo Del Vecchio investment bank Mediobanca as (pictured), the billionaire he sought to overhaul the country’s founder of luxury eyewear “sleepy” financial institutions – a group Luxottica, has died battle his successors will continue. at the age of 87, says Silvia Sciorilli Borrelli in the Del Vecchio has left “investors guessing” Financial Times. Del Vecchio about the future of the business empire, says Lisa Jucca on Breakingviews. In the had risen from a childhood absence of a publicly anointed heir, it will spent in an orphange to become be up to Francesco Milleri, appointed CEO Italy’s second-richest man after he last year, to reassure shareholders. As to founded Ray Ban-owner Luxottica in the 1960s. whether Milleri can run the eyewear giant He rode the decade’s economic boom, and guided without Del Vecchio’s support, only time the company to its current success, culminating will tell. “For now, the tycoon has left behind in a €50bn merger with lens maker Essilor in unfinished business.” 2018. Today, EssilorLuxottica employs 80,000 people around the world, generating revenues of The way we live now... luxury glamping at Glasto Thousands of Glastonbury and yurts”. Dotted around the iconic festivalgoers “queued for hours to paddock are tents that make the use lavatories and have cold usual mucky camping experience showers after a night hoping the look positively plebeian. rain would keep out of their tents”, says Charlie Parker in The Times. Gone are the low-ceiling tents, Perched on a hill overlooking them the noise, and the rivers of mud. were others having a very different There are now 22 off-site camping experience. The traditionally spots bordering the festival, bohemian festival has been rocked specialising in offering the much- by steady development of its luxury loved music without the hassle and camping spots. Facials, massages, poor hygiene of bandstand haircuts and private parties are bacchanalia. The most expensive is available to guests at Pennard Hill the Tenthouse Suite pop-up hotel, Farm, “some of whom have paid up which goes so far as to offer a to £24,000 for luxury bell tents, tipis restaurant and pool, while everyone else scrabbles about in the dirt. ©The Content Creators ©Getty Images No soggy tents here 1 July 2022 moneyweek.com

News 11 ©Getty Images Barclays has found its niche London Barclays buys specialist lender: Despite the end of the cheap- money era and the cooling property market, there was fierce competition to buy specialist lender Kensington Mortgages, says Lex in the Financial Times. Barclays will pay a “hefty” £2.3bn for its prize. Kensington lends to the self-employed, contractors and buy-to-let landlords. It insists its borrowers aren’t especially risky, but merely “complex to assess”. It was a subprime lender in the 2000s, before the struggling business was sold to South African bank Investec for £283m in 2007. Private-equity firms Blackstone and Sixth Street bought it for around a third less in 2015, thereafter almost quadrupling Kensington’s mortgage origination. The bank is paying a premium on its £2bn loan portfolio, but Kensington’s credit record is good. “Barclays clearly values Kensington’s… ability to assess the quality of borrowers overlooked by high-street lenders.” As the market for mainstream mortgages turns “intensely competitive”, lenders must seek out lucrative niches. Tokyo Board drama: Japanese conglomerate Toshiba, the “scandal-tainted industrial giant”, appeared to descend into even greater chaos on Tuesday, following an annual shareholder meeting at which representatives of two activist funds were voted onto the board, say Takashi Mochizuki and Yuki Furukawa on Nikkei Asia. The election of the 13 director appointees, including Eijiro Imai of Farallon Capital and Nabeel Bhanji of Elliott Management, brings it a “step closer” to privatisation. Shortly after the fraught meeting, former judge Mariko Watahiki, who had publicly opposed the appointment of Mochizuki and Eijiro, resigned from the board. The 146-year-old company says it has received “eight bids to privatise the firm and two offers to form business alliances”. Toshiba’s shares have risen 20% this year, partly as a result of its “plans to review privatisation bids”. The new directors may help “quiet the company’s bitter and long-standing fracas with shareholders, who have accused management of ignoring their interests”. Foreign investors own 53% of the company. US private-equity firm KKR has reportedly decided to pull out of a “potential $22bn bidding war”, says Antoni Slodkowski in the Financial Times. That leaves rival Bain Capital in “pole position to pull off Japan’s biggest take-private deal”. Gurgaon Singapore Zomato buys Blinkit: Listed Indian food-delivery Crypto default: Three Arrows Capital (3AC), one of the most firm Zomato is buying the 91% of fast-delivery prominent hedge funds in the cryptocurrency market, has start-up Blinkit it didn’t already own for 44.5bn defaulted on a loan worth $673m, say MacKenzie Sigalos and rupees (£461m) in a cash-and-stock deal, says Arjun Kharpal for CNBC. The loan was made up of $350m in Una Galani on Breakingviews. Blinkit delivers the US dollar-pegged “stablecoin” USDC and 15,250 in bitcoin, groceries to “well-heeled” Indians in less than worth around $323m at current prices. Digital asset brokerage 15 minutes, using a network of 400 “dark Voyager Digital, to whom the money was owed, said its platform stores”. Last year, Zomato’s boss Deepinder continued to operate as normal and that it would pursue 3AC for recovery of the funds – probably an attempt “to contain fear of Goyal (pictured) gave up on trying to build a similar contagion through the wider crypto” sector. business in a market already crowded with well-funded rivals, but he still sees “quick commerce” as the hook with The value of the overall cryptocurrency market has fallen which to sell higher-margin goods from make-up to electronics. It’s from a $3trn peak in November 2021 to around $950bn. the right move, but markets fear it possibly comes at the wrong time, Voyager said it had $137m in dollars and crypto assets and says Megha Mandavia in The Wall Street Journal. Zomato, which access to a $200m cash and USDC revolving credit line, as well is backed by China’s Ant Group, is acquiring a business that has as a 15,000-bitcoin ($318m) credit line from Alameda Ventures. struggled to fund itself when investors have lost their appetite for cash- Alameda is the quantitative trading firm owned by Sam hungry businesses. The deal puts Blinkit’s enterprise value at a “rich” Bankman-Fried, the founder of exchange FTX. The 30-year-old eight times revenue when May’s numbers are annualised. It will also Bankman-Fried has coughed up $750m to help two firms (lender lengthen Zomato’s path to profitability. But the sector is expected to BlockFi is the other) pummelled by the collapse in prices, says grow to $5.5bn by 2025. Markets may be jittery, but Zomato is taking Liam Proud on Breakingviews. And yet his interventions inspire a long-term view. “Sometimes that is what management needs to do.” little confidence that the sector’s carnage is nearing an end. moneyweek.com 1 July 2022

12 Briefing The day the machine spoke back An uncannily human response from an artificial intelligence program sparked a minor panic last month. But just how powerful are machines getting? And should we be worried? Simon Wilson reports Why is AI in the news? The machines haven’t become self-aware yet ©Alamy In mid-June a Google employee named Blake Lemoine, a senior software engineer in its “Responsible AI” division, was suspended after claiming that one of Google’s artificial-intelligence programs called LaMDA (“Language Models for Dialogue Applications”) had become “sentient” – a historic moment in the development of AI. In a series of eerily plausible responses to Lemoine’s questions, LaMDA expressed strong opinions and fears about its own rights and identity. Indeed, at one point it told Lemoine: “I’ve never said this out loud before, but there’s a very deep fear of being turned off”. The machine’s words clearly spooked its creator. “If I didn’t know exactly what it was, which is this computer program we built recently, I’d think it was a seven-year-old, eight-year- old kid that happens to know physics,” Lemoine told The Washington Post. So the machine is sentient? Are computers getting more powerful? in the US overall productivity (output per No, it’s simply a machine that regurgitates Massively so. The most powerful built worker hour) has increased by 1% a year what it has been fed: an interactive chatbot- so far is Frontier, at the US government’s since 2020. That’s a long way short of the come-autocorrect on steroids. It might be Oak Ridge National Laboratory in gains during the last sustained period of impressive, but the claim to sentience is Tennessee. The $600m machine, made improvement, from 1996 to 2004, when “nonsense on stilts”, says Gary Marcus, up of 74 truck-sized cabinets, is the first productivity grew more than 3% a year. an AI entrepreneur and author. Moreover, “exascale” supercomputer, meaning that It’s even further short of the long postwar the question of whether computers it’s capable of a billion billion operations (an boom in the US from 1948 to 1972, when a will ever achieve sentience is itself an “exaflop”) per second. Graphcore, a British 3.8% average annual gain drove America’s “anthropomorphic” question, and therefore chip designer, is working on a “Good prosperity. Some economists believe that a reductive and potentially misleading one, computer” (named after Alan Turing’s AI productivity gains will increase as new says The Economist. AIs are created by fellow codebreaker Jack Good) that will be technologies spread and people work out humans, but they ten times faster than how to apply them. For example, says Steve are not subject to “Venture investments in Frontier. But it’s not Lohr in The New York Times, the electric Darwinian selection. AI start-ups worldwide rose just that computers motor was introduced in the 1880s – but “There is no reason are getting more only generated discernible productivity to believe that human by more than 80% last year” powerful. In tandem, gains from the 1920s, when the mass- production assembly line reorganised intelligence – with consciousness, emotions AI developers are getting better at deploying work around the technology. Similarly, the and animalistic drives such as reproduction, that power. Whereas earlier generations of personal computer revolution took off in the aggression and self-preservation – is the AI systems were good for only one purpose, 1980s. But consequent productivity gains only form possible.” often a pretty specific one, new systems only took off in the late 1990s, as those – known as “foundation models” – can machines became “cheaper, more powerful What can we take from the episode? be adapted to new applications relatively and connected to the internet”. Even if computer programs have not easily. This means AI is not just restricted to acquired sentience, the pace of change in the machine learning, but is also increasingly at So revolution – but not yet? AI sector means it is worth taking seriously work in “many more specific, invisible and the ethical concerns raised by Lemoine productive ways across industry and in the A lot of money thinks so. A report from and other Google researchers sacked last hard sciences”, says Thornhill. AI is already Stanford highlights the “industrialisation” year, says John Thornhill in the Financial a powerful practical tool used to optimise of AI, whereby the once-speculative Times. LaMDA is one of a family of large search engines, accelerate drug research, technology becomes more affordable and language models. Others include GPT-3, invent new materials and improve weather mainstream. Venture investment in AI a similar model developed by OpenAI, a prediction, and is fuelling advances in fields start-ups worldwide increased more than San Francisco-based firm. That company including mathematics, biology, chemistry 80% last year to $115bn, according to has also developed Codex, which generates and physics. Its future potential is vast and PitchBook data. The number of AI computer code (rather than human-like will “profoundly affect us all”. patents has surged 30-fold since 2015. language), and DALL-E, which turns text Eric Schmidt, former head of Google, predicts that we will soon see AI-enabled into photorealistic images. Google’s PaLM Is AI boosting productivity? robots that can not only figure problems out can explain jokes. All this makes the ethical To date, argues Robert Gordon, an according to instructions, but also possess and practical questions around AI ever economist at Northwestern University, “general intelligence” – meaning they can more pressing; namely: is it acceptable that the productivity gains associated with AI learn from each other and respond to new private corporations have exclusive control have been notably disappointing – its feats problems they’ve not been asked to handle. over such powerful technological tools? “impressive but not transformational” in That may still not be sentience exactly. And how can we ensure that these models’ the way that electricity and the internal But it will be another major breakthrough. outputs are aligned with human goals? combustion engine were. For example, moneyweek.com 1 July 2022



14 City view Dalio’s shrewd $10bn bet A big hedge fund is putting its years to come, hitting exports to Russia, ©Getty Images Dalio: an impressive record for getting it right money on a collapse in European and more importantly Europe is going to its declining competitiveness. That deficit equities. It’s likely to pay off have to find a way of living without Russian will subtract from growth and at the same oil and gas. That might be just about time put pressure on a currency that has Matthew Lynn possible, but it will be expensive (the reason already fallen close to parity with the dollar, City columnist we imported it from Russia was because it but can still go down a lot more. From here was relatively cheap). on, trade is going to subtract from growth Bridgewater is one of the biggest money rather than help it – and that is a big change. managers in the world, and its founder Ray In Germany, some form of energy Dalio has been proved right more often rationing now looks a certainty over the Winning the ugly contest than not. It managed to call the sub-prime coming winter, and if that includes factory crisis correctly slightly over a decade ago closures or shortened working weeks, it will True, the British, American and Japanese and it has consistently outperformed the tip the country into recession. Worse, the economies are hardly in great shape either. market since then. Even in the ruthlessly major European economies will all have to Inflation is still dangerously high, political competitive world of hedge funds it is a raise defence spending, as well as paying for leaders don’t have the will to control it, and class act, with a long record of success. the arms they are shipping to Ukraine, and central banks are still trying to work out sooner or later pay for reconstruction as what level of interest rates will be needed When it takes a major position, most well. It will take a huge toll on the economy. to stop it running out of control. There of its rivals quite rightly take notice. In will be recessions in most of the major the past couple of weeks it has emerged Next, inflation is about to reopen the economies. The only real question is how that Bridgewater is targeting a collapse in fault lines in the single currency. We already deep they will be. But Bridgewater is right: European equities. Earlier in the month, it knew from the crisis of 2011 and 2012 that Europe is the weakest of all the major was revealed it had taken a $6.7bn short the euro was dysfunctional and open to regions, and its economy is heading into a position against the continent’s largest speculative attacks. European Central Bank steep downturn – and its huge bet against businesses and only a week later that had chief Mario Draghi just about managed to Europe will prove very shrewd. grown to more than $10bn. paper over the cracks with printed money. But now? The reality is that the euro has Fault lines reopen never faced serious inflation before and is heading into a crisis as the ECB has That is a lot of money to wager on a fall in to choose between controlling prices or the market, especially as the major indices bankrupting Italy and Greece. There have have already corrected sharply since the already been sharp rises in bond yields in start of the year. Germany’s Dax has fallen the peripheral countries, and the ECB has by 17% since January, France’s CAC by promised to come up with a mysterious 16%, and the Euro Stoxx 50 that covers sounding “stabilisation tool” to control the continent’s biggest companies by 18% those, although there is not much detail on (although the FTSE 100 is only off by 2%, how it will work yet. The real test will come mainly because it is so dull). Most people when interest rates start to rise next month might well think it is time that equity prices – what happens then is anyone’s guess. bounced back. There are three big reasons why Bridgewater’s bet is going to pay off. Finally, Europe’s trade deficit is soaring. Whatever their other problems, the major First, Russia’s invasion of Ukraine is EU economies always managed to run a turning into a long, brutal war of attrition. big trade surplus. That has now switched. There is no sign it is ending any time soon. The eurozone countries recorded a deficit Sanctions will remain in place for many of €16bn in March, and that is rising all the time. In part that reflects the cost of importing more energy. But it also reflects City talk l Frasers Group, the retail investments in retail” – he firms do not serve Britain’s January 2021, rather than dabbled in put options on interest, as shown by Advent’s now”, says Alistair Osborne in business controlled by Mike Tesco in 2014 – but Hugo Boss prior takeover and break-up of The Times. Instead, CEO Tim Ashley, is calling its €900m has a closer relationship with Cobham. Yes, the UK will have Steiner and CFO Stephen exposure to Hugo Boss a Frasers, which is one of its top some undertakings designed Daintith have waited for a tech “strategic investment”, says ten wholesale accounts. So to to protect national security, but rout before doing a placing at Lex in the Financial Times. some extent, the “vote of that “takes no account of the 795p. But the need to come to Normally that means owning confidence” from Frasers’ big ruinous impact of loading up the market for more capital is shares, but “Frasers’ exposure exposure “should be welcome Ultra with debt… or the “a familiar theme at a group involves a thumping great for Hugo Boss… yet the solidity uncaring, short-term behaviour that’s spent 22 years failing to derivatives position”. The firm of the tie-in is questionable”. displayed by Advent in the deliver positive cash flows”. has upped its direct holding in Key details – such as when the past”. BAE Systems and Rolls- Ocado says the placing will the “plodding German fashion options expire – are not clear. Royce are safe under golden- fund ten warehouses for group” to 4.9%, but it also has “Hugo Boss… might wish for share arrangements, but the international clients that will a nominal exposure of 26% greater public disclosure.” rest of the sector at risk from make it cash flow positive in through selling put options on overseas marauders. “They four to six years, so it won’t Hugo Boss shares. (This means l “The decision of business should be firmly repelled.” need any further financing. that somebody else – maybe a Seeing will be believing for big investment bank – has secretary Kwasi Kwarteng to l “Even Ocado’s most stupid investors who stumped up bought the right to sell Hugo wave through the sale of Ultra £657m at £19.60 in June 2020. Boss shares to Frasers at a Electronics to private equity robots would grasp this: that it “But at least it has some fixed price and a fixed time in ghouls Advent is a betrayal”, makes far more sense to be (pricey) fresh cash to invest. Or, the future, if it wants to do so.) says Alex Brummer in the Daily raising £575m when the shares on past form, burn.” “Ashley enjoys side Mail. Takeovers of defence stand at £28, as they did in 1 July 2022 moneyweek.com

Investment strategy 15 How to boost your income Guru watch Dividends are back in fashion. But Howard Marks, how do you go about building an founder and income-generating portfolio? co-chair, Oaktree John Stepek Capital Executive editor Management Dividend investing fell out of fashion during the It’s time to snap growth stock boom of recent years. It’s not too up “bargains”, much of an exaggeration to say that investors Oaktree Capital didn’t want to hear about companies who Management CEO Howard couldn’t think of anything better to do with their Marks tells the Financial money than to give it back to shareholders. With Times. The market-wide sell- interest rates at ultra-low levels and inflation off means that “everything near zero, investors wanted to see growth rather we deal in is significantly than cash returns. But that’s changed since cheaper than it was six or 12 inflation became a major worry. Suddenly the Rio Tinto: high-yielding miner months ago... I am starting idea of receiving a regular and sometimes even to behave aggressively.” inflation-beating payout from the stocks you own of different industries. For example, chances are has become much more appealing. So if you’re that if one housebuilder has to cut its dividends, its Oaktree, which has looking to boost the income portion of your peers will come under similar pressures. So don’t $164bn of assets under portfolio, what should you be looking out for? look to get all your income from one source. management, specialises in If you’d rather have someone else build your “distressed debt” investing, Digging for dividends income portfolio for you, one where investors target “A high dividend sensible option is to look at securities whose issuers are The good news is that there’s no yield is often a in financial trouble or even at shortage of appealing-looking investment trusts. In the year to risk of bankruptcy, reaping a dividends out there. The likes of March, trusts paid out £5.5bn profit when these securities both mining giant Rio Tinto and warning sign” in dividends according to fund rally when and if the issuer’s problems are resolved. housebuilder Persimmon offer double-digit yields administrator Link. That’s the highest amount right now while many other stocks have payouts since Link started tracking the data in 2010. Among the sorts of assets in the high single-digits. The bad news is that Just be aware that much of this came from Oaktree looks at are junk there’s more to dividend investing than looking trusts investing in “alternative assets” and that bonds – loans to companies down a list of the highest-yielding stocks in the equity income trusts are expected to grow their FTSE 100 and picking the top 10. A high yield is payouts more slowly than corporate dividends with low credit ratings. The often a warning sign – markets don’t like to hand this year, as they “rebuild” reserves that were main index used to measure out free money, and if a yield is much higher than depleted by maintaining dividends during the the performance of this debt the market average, it often signifies scepticism pandemic. Law Debenture (LSE: LWDB) is has fallen in value by 13% about a company’s ability to pay it. So make sure one equity income trust which we hold in the this year, the biggest drop that the level of dividend cover (see below) is MoneyWeek model portfolio. It currently yields since the 2008 financial reasonable compared to the sector average. about 3.7%. crisis. Junk bond yields are On that score, perhaps the most important For more on picking dividend stocks, see my now above 8.5%, having point of all is to diversify. Make sure that your colleague Rupert Hargreaves’ article online at started the year below 4.5%. dividend-paying stocks are selected from a range moneyweek.com/best-dividend-stocks. Prices (which move inversely to yields) could fall still I wish I knew what dividend cover was, it’s worth looking at dividend further, says Marks. But but I’m too embarrassed to ask cover as a guide of how likely “waiting for the bottom is a it is that the dividend will terrible idea”. If assets fall ©Getty Images Companies pay dividends to out a lower percentage of their remain stable or rise in the further, “we’ll buy more”. shareholders out of their profits than more mature firms, future. Dividend cover simply profits. A dividend is entirely because they prefer to invest all measures how many times Oaktree has most recently discretionary – unlike the or most of their profits in over the dividend payout is been active in China, where interest payment on a bond, it opportunities for future growth. covered by the profits it seized two real-estate doesn’t have to be paid and it available to pay for it. projects from property can be cut or even scrapped If a company’s dividend yield developer Evergrande altogether if deemed necessary. (the dividend per share To take a very simple (pictured) after it defaulted Directors decide what expressed as a percentage of example: a firm that makes on $1bn of loans from the proportion of profits they will the share price) looks £20m in profit and allocates group. The sites have not yet distribute: the amount varies particularly high, then that can £2m for dividends has a been sold, says Marks, but depending on how well the be a warning sign. For example, cover of ten, while a firm that “the process is going as it company has done (ie, on how if a company is paying a makes £50m but pays out should. We’re in control of much the directors feel it can dividend of 10p a share, and the £25m in dividends has a the assets and we’re very afford to pay out), but also on share-price is £1, that’s a yield cover of two. The higher the optimistic.” He also warns of other, less tangible factors. of 10%. If the average for the dividend cover is, the more the impact of the Chinese index is much lower than that, sustainable the payout. The government’s zero-Covid For example, directors tend then it suggests investors are “payout ratio” is simply the policy. “You can’t put the not to be keen on cutting highly sceptical that the inverse of the dividend cover economy into a coma and dividends because the market dividend will end up being paid. ratio – so in this example, the expect vigorous activity.” reaction is typically bad. Also, first company has a payout fast-growing firms tend to pay So when assessing the ratio of 10%, while the 1 July 2022 MoneyWeek financial health of a company, second is on 50%. moneyweek.com

16 Best of the financial columnists The timing of Xi Jinping banning party officials from owning significant Money talks China hauls assets overseas suggested he had taken note of the “Western pursuit of “My genuine Russian oligarchs’ assets” and might be planning an imminent war against ambition was to get dirty money Taiwan, says Nate Sibley. But the edict also highlighted the fact that, like through Russia, China is a “full-blown kleptocracy” whose ruling elites stash their to the live shows and back home ill-gotten gains overseas. The “prevailing form of corruption” in China last at least involves “cosy” relationships between tycoons and party bureaucrats one week. Nate Sibley dishing out “lucrative permits and state-backed credit”, a model which is That was The Wall Street Journal not only poisoning its own financial system, but has also been exported it, because I knew that I’d earn abroad via its Belt and Road initiative. Xi says he is fighting corruption probably ten to twenty ahead of the 20th Party Congress, making it a timely moment for grand doing a few gigs in Washington to publish its study on Chinese global money laundering and some sh*tty club. Maybe “accelerate implementation”of various anti-corruption measures. “Dirty enough money to fix my money undermines the integrity of America’s financial system, weakens its car and move out. Don’t national security, and is an affront to its values.” It is unconscionable that get me wrong. Of course I Chinese elites who “support genocide… the crackdown in Hong Kong, and wanted to go on there and threats against Taiwan can bury their stolen wealth in our backyard”. be massive, but I never Britain’s The return of the triple lock for pensions “makes it clear where real political expected that.” gilded power lies in Britain”, says David Willetts. Pensioners will get an inflation- TV presenter Rylan Clark- pensioners linked increase of 10% next year while basic pay is rising at just 4%. Such has been the effect of the triple lock (which guarantees that the state Neal (pictured) on his David Willetts pension will increase by inflation or the average rise in earnings or 2.5%, hopes upon entering The Sunday Times whichever is highest) that benefit changes since 2010 have cut the incomes The X Factor talent contest, of working households with children by an average of £375 a year, while quoted in The Big Issue pensions have enjoyed an average gain of £510. More generally, healthcare and pensions, the two biggest welfare costs, are set to balloon. Ultimately, “Those teenager scribblers that means money being taken from the young to spend on the old. In in all the money pages addition, total household wealth has jumped from four to eight times national income since the early 1980s, with much of that wealth tied up in are obsessed with giving property (again owned by older people) and generous company pensions us tips on how to save (ditto). This is not generational war – old people care about their offspring money, which is a laugh – but we need to find ways to redress the balance. Aside from financial support, making it easier for young, often mobile, people to get on the because we all know they electoral register would help. Politicians would then have to listen to them. haven’t got any. It’s oldies like me who have all the Rethink It is a “terrible irony” that some of the richest farmland in America is where the way it is hardest to buy nutritious food, says Rana Foroohar. Nearly a century money, fact. Just look we farm on from the Great Depression we are still trying to produce cheap calories under my bed, stashed for the masses, using huge amounts of fossil fuels, instead of “providing with £50 notes, which Rana Foroohar better nutrition for an overfed yet undernourished population in ways that make a perfect mattress.” Financial Times might support the planet and local communities”. Input costs such as fuel Author Hunter Davies, and fertiliser are now rising even faster than commodity prices. Nitrogen is up a “whopping” 139% since 2021; corn just 4.84%. Grain trading giants quoted in such as Cargill may be “getting rich”, but many farmers, despite hedging The Sunday Times and hoarding, are “barely in the black”. In short, the model “no longer works” and it carries costs for our planet, our health and even our politics. “My father encouraged One might think Democrats campaigning on a message of corporate greed me to follow my dreams might appeal in a state such as Missouri, but it voted for Donald Trump at rather than think about the last election, “in part because the failed industrial farming model” has created a “disenchanted population” ripe for his brand of populism. Biden money.There was no is right to “go after concentration” (four companies control 85% of the pressure to aim for a meat market), but ultimately we need to rethink the “entire way we farm”. respected profession. This was because he felt Revitalise “Lockdowns, staycations and ‘work from home’ have seen an influx of lucky to be alive, which our ghost newcomers” in Britain’s beauty spots, sending local property prices soaring affected his attitude to towns 20% in the past two years, says Simon Jenkins. Brighton has now banned both money and work.” new building for non-primary residents; others are certain to follow. Great British Sewing Bee Simon Jenkins I myself own a “modest” home in a Welsh valley where 80% of houses are presenter Esme Young, The Guardian now unoccupied out of season. There is no longer a school, doctor’s surgery quoted in The Telegraph or police station. I am aware of local dismay. But second homers are not going to vanish. Doubling council tax merely ensures they have to be very “I was meant to go on ©Getty Images rich. The truth is that many sad, declining places would “give their eye teeth tour, and everything to have St Ives’ problem”. In Europe, villages are being abandoned. You got cancelled [due to can buy a house in the Sicilian mountains for one euro. No one has a “legal right” for their offspring to live near them, as many demand, nor can locals lockdown]. I wasn’t sure be denied the market value of their properties. However, councils should how I was going to pay find ways to prevent beauty spots becoming ghost towns out of season, and the bills.Then I got an to forge bonds between full-time residents and second homers, perhaps email saying: ‘Luisa, you’re getting the latter to pledge to use local shops and support local charities. due £10,000 because Lenor Ultimately, it is better to make “peace with the invaders”. has decided to play your 1 July 2022 advert again.’” Comedian Luisa Omielan on whether she had ever been paid “silly money”, quoted in The Mail on Sunday “I was spending £50,000 a month [on a credit card]. After six months, dad went…‘You’ve gone too crazy. Card needs to go.’” Fashion designer Scott Henshall, quoted in The Sunday Times moneyweek.com

Best of the blogs 17 The booming market in trash spikeartmagazine.com desirable.” After scrolling tasteless aesthetic phenomenon are “fully aware of how bad The contemporary economy through endless images, “you in history (so far)”, and this it is, and don’t care at all” – is all about manufacturing only want to want”. very fact makes them worthy of they “simply understand the demand, says Dean Kissick. Call consideration, not least because enduring appeal of trash on it the Netflix model. First create A mockery of the present billions of dollars are being spent the internet and are able to a lot of hype around an exciting on them. effortlessly produce worse new product on social media. That the art underlying all this images than anything art has Then put the product out on a is tasteless rubbish is part of the A comic of a crestfallen come up with for decades”. digital platform. No one but the point. The kind of images that monkey in a propeller beanie providers knows whether the dominate, such as the Bored sold for $3.4m at Sotheby’s. Now the art market is filling product lived up to the hype, so Ape series, are not art in the old That “feels like a mockery up with even worse trash made “nobody can see the lies”. But sense of the term and “nor do of the present and a suitably by artificial intelligence. We’re the truth will out: in the case of their creators want them to be”. depressive, absurdist response on a “downward spiral”, being Netflix, subscriptions are falling They do, however, ushered in to our “bright new and the shares plummeting. represent “a to our culture”. The creators technological future”. new strand of The Netflix model is at visual culture, work in the art world. Art and the most non-fungible token (NFT) speculators and auction houses run algorithms to predict the next big thing. (NFTs are digital tokens that represent art works or some other asset.) Then comes the auction hysteria and the endlessly scrolling social media. “Manufacturing desire has grown more important than creating something beautiful or even The economics of war Will start-ups save Britain? rusi.org The effort to arm, feed and supply the armies involved in the war in Ukraine is a “monumental task”, bankunderground.co.uk says Alex Vershinin. Ammunition resupply is “particularly onerous” and the rate of consumption can Recessions typically discourage only be sustained by a large-scale industrial base. This reality should be a wake-up call to Western entrepreneurs, but the Covid-19 countries that have scaled down military industrial capacity and “sacrificed scale and effectiveness for pandemic inspired those stuck efficiency”. Wars between near-peer powers will be decided on which side has the strongest industrial at home to start new businesses, base. Currently, the West looks weak. Indeed, the US is still decreasing its artillery ammunition say Saleem Bahaj and stockpiles. In a recent war game involving US, UK and French forces, UK forces exhausted national co-authors. Before the stockpiles of critical ammunition after eight days. It’s a similar story when you consider other critical pandemic there were roughly materiel. The West’s assumptions have been that precision-guided missiles reduce the amount needed 50,000 monthly registrations; (the war in Ukraine is challenging this assumption) and that industry can be turned on and off at this increased to 60,000 after the will (the present challenges over global supply chains demonstrate the fallacy of such thinking). “If first lockdown in March 2020. competition between autocracies and democracies has really entered a military phase, then the arsenal The online retail sector of democracy must radically improve its approach to the production of materiel in wartime.” contributed disproportionately to this rise, and it was driven by ©Alamy Thrift can spending is banned, and doing One family in England paid single individuals who were not beat inflation regular audits of spending to off their mortgage ten years already business owners. see where costs can be shaved. early and retired 15 years ahead Encouragingly for growth wsj.com Such tips may become more of schedule by saving every prospects, the data suggests With high inflation pushing popular: more than 80% of US penny rescued by switching to that these new businesses were up living costs, a small but consumers say they plan to cut cheaper insurance deals and also twice as likely to post job enthusiastic group of “already back on spending by buying so on. One thrifty shopper in vacancies as new firms created super-frugal people” are taking cheaper or fewer goods. Michigan uses a bike trailer before the pandemic. their saving strategies further, The good life needn’t cost the earth she got for free on a “buy says Clare Ansberry. Tactics nothing” Facebook group to The worry is that firms include buying reduced price ride to her food salvage store created during the pandemic goods in damaged packaging, and recently picked up a case may not have staying power. buying in bulk and eating whole of tofu for $1.50. “The average The data suggests they were foods, growing one’s own person might not be like: ‘Ooh, twice as likely to have exited the food, designating no-spend a case of tofu,’ but to me it’s a market within the first year of months when all non-essential treasure,” she says. “Inflation their existence than those born moneyweek.com doesn’t matter as much if you pre-crisis. Firms created by solo don’t spend money.” entrepreneurs are also more likely to dissolve than other types of ownership structure. The long-term implications are not yet clear, but these factors could “negate the impact of the Covid-19 surge in firm creation”. 1 July 2022

18 Funds Not yet time to buy this fallen star Scottish Mortgage was hit by the tech crash. New investors should wait for the headwinds to ease David Stevenson A big bet on Chinese tech such as Tencent has been costly ©Getty Images choosing to sit tight. The current Investment columnist portfolio is still unique. Unlike these companies weren’t hit cuts of anything between many global equity funds, At one point Scottish as hard as the price of quoted 10% and 30%. there’s diversification between Mortgage (LSE: SMT) was stocks. That’s about to change. both public and private assets, the UK’s biggest investment The current round of haircuts Still, not all of SMT’s pain while maintaining a continuing trust by market capitalisation. to valuations will be only the is external. Management has focus on global businesses that It championed a generation beginning of a long and painful made some poor decisions, of can grow as technology disrupts of disruptors, ranging from process for many late-stage which the big strategic mistake more and more sectors. Amazon to Tesla. But if you look venture capital investments. was a focus on Chinese internet at the investor bulletin boards, it platforms. One didn’t need a Lower-risk alternatives is now the subject of much scorn To be fair to SMT, there crystal ball to predict Tencent and vitriol. is a robust valuation system and Alibaba were in trouble If you think the driving forces in place for these private with the Chinese government. around technology and The most recent trading companies. They are valued That said, on pure valuation disruption are set to reverse, update showed that net asset on a rolling three-month cycle terms, firms such as Tencent are SMT is not for you. However, value (NAV) total returns for the (ie, roughly a third revalued now some of the cheapest tech if you think otherwise, the year to 31 March were -13.1%, every month), except for the stocks on the planet (perhaps for situation calls for patience. compared with a 12.8% gain half-year and full-year-end of a good reason). I would argue that as we face a for the FTSE All World index. the fund, or where there is a more inflationary world, with The share price currently trades trigger event that indicates the So the rap sheet against more on-shoring of production at 692p, a 55% decline from fair value of the holding has SMT’s record is long and and tighter supply chains, large- its 1,543p peak. It’s now on a changed, such as a funding detailed. I can’t see the share cap businesses with intellectual wide 16% discount to NAV (the round. I estimate we have at price improving much this year. property assets and an ability to average discount over the past least another six months of On paper this means I should pass on extra costs to consumers year is 1.3%). sell my own holding, but I’m will continue to thrive. In other words, the tech-enabled global The struggle isn’t over brand platforms are precisely the businesses that might flourish in The headwinds facing SMT this new world. are unlikely to abate soon. The fund bet big on technology. Still, if you are yet to invest, Now, rising interest rates have perhaps you should wait for the triggered a sell-off in those discount to push out to 20%. growth stocks. There’s also the Meanwhile, invest in a fund that question of venture capital-style actively benefits from market investments and what these volatility, such as BH Macro or are worth in today’s markets. the Ruffer Investment Company, At first, SMT found itself and move back into SMT once somewhat insulated from the the mood shifts. If the fund’s growth stock sell-off because focus on private, unlisted firms a large part of its portfolio was and its Chinese exposure still in unlisted private investments. feels troubling, look at sister Unquoted holdings represented fund Edinburgh Worldwide, 24.6% of the portfolio at 31 which has a more explicit mid- March, up from 20.2% a year to small-cap tech and healthcare ago. Initially, valuations for focus and is currently trading at a 13% discount to NAV. Activist watch Short positions... the side effects of EM ETFs Activist investor Nelson Peltz, who n “The explosive growth of index-tracking n There’s no question that fund has recently taken on Unilever and exchange traded funds [ETFs] has destabilised investors are worried about the outlook Janus Henderson, has become the emerging economies [EMs], increasing their for markets, says Morningstar. UK-based target of an activist attack himself, vulnerability to global shocks,” says the funds had their worst month for says the Financial Times. Investors in Financial Times. Research by economists at the outflows since the start of the pandemic his UK-listed Trian Investors 1 fund Italian central bank has found investment funds in March 2020, with net redemptions of are asking for a shake-up of the board are far more likely to withdraw money from £4.3bn. “Funds can blame inflation, to “improve governance and restore developing countries during global shocks than increasing interest rates and a trust”. The group of investors, which other investors, such as banks, insurance worsening economic outlook for includes Janus Henderson, is asking companies and pension funds. Flows in and out wreaking havoc on the markets and… for the removal of three board of emerging-market passive funds are more causing withdrawals.” Equity funds members and the nomination of two volatile than active funds and emerging market- suffered the most, shedding £3.4bn, and new ones. They are arguing that focused ETFs are even more sensitive to global active funds struggled much more than investment policy changes set out last financial conditions than similar traditional passive ones. Investors continued to pull year benefit the manager instead of index funds, “rendering ETF money the least money from quality- and growth- shareholders, adding these should reliable of all forms of funding”. Asset sales by focused funds, many of which have have been agreed with them first. investment funds were the main driver behind underperformed recently. Most notably, Janus Henderson’s involvement puts the “sudden stops” in investment experienced the £24bn Fundsmith Equity, which is the fund in a “delicate” position, given by EMs in 2020. What’s more, the “flakiness of down by around 15% so far this year, Peltz’s push for sweeping changes at portfolio flows” was not restricted to the onset saw net redemptions of £622m – the the company in February. of the pandemic, but has “become the norm”. largest outflow in its history. 1 July 2022 moneyweek.com



20 Cover story The most important metal in the world As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert Hargreaves analyses the sector Worldwide spending on the shift to low-carbon most of the world’s easy-to-access copper deposits have ©Alamy energy rose by 27% to $755bn in 2021, according to already been mined, Glencore reckons the price of the a new report from research group BloombergNEF. metal will have to hit $15,000 a tonne to justify further This illustrates just how strong investor appetite was investment. That’s around 67% above current levels. becoming for cleaner and greener technologies, even before Russia’s invasion of Ukraine turned global The challenge for producers (and indeed the world) energy markets upside down and pushed some of is that it’s not terribly easy to set up a new copper the world’s largest consumers of fossil fuels to think mine. It takes about three years to expand a mine and seriously about renewable energy options. eight years to start a new one. Nor are there many alternatives to copper. Aluminium is one, but it has Despite the shift in sentiment, even the most upbeat only 61% of the conductivity and is less durable (the forecasts do not expect a big move away from oil, gas aluminium market also has its own supply issues). and coal any time soon. Oil cartel Opec believes that oil Freeport-McMoRan’s CEO summed up the state of and gas demand will rise steadily to around 106 million the industry in 2021 when he said, “the price of copper barrels a day in 2030, before starting to decline in 2035. could double overnight… and we couldn’t add new This partly reflects the fact that demand for electricity production of significance for a number of years”. is growing faster than renewable capacity can keep up. According to the International Energy Agency, global Legacy of the boom-bust cycle electricity needs rose 5% last year, with fossil fuels generating 45% of the extra demand. New renewables To understand how the copper market has reached this capacity is expected to cover only about half the extra stage, we need to go back to 2011. The price of copper demand this year. surged by nearly 500% from mid-1993 to February 2011, and miners rushed headlong into the market. As Tesla boss Elon Musk noted on the group’s They capitalised on crisis-era central bank policies first-quarter 2021 earnings call, “if all transport goes to borrow huge sums to invest in ramping up copper electric” the world will need to double its current output. Unfortunately, just as these projects started electricity output. Based on today’s trends, there’s no to come online, copper’s value slumped. By 2015, the way we will be able to build enough renewable capacity copper price had crashed more than 50% from its peak. fast enough to meet this demand (barring a giant leap forward in technology). These figures illustrate the In 2015, analysts at Morgan Stanley estimated challenges policymakers face in trying to drive the that between 2005 and 2014 the sector’s three largest green agenda forward – but they also show just how big operators, Rio Tinto, BHP and Anglo American, had the opportunity is for businesses with exposure to the spent $246bn on capital projects, overloading global sector. One commodity will benefit, no matter how the commodity markets with supply. They lost nearly energy mix changes in the next 15 years: copper. $50bn between 2011 and 2014 in the resulting crash. “The copper Global copper demand is soaring After these losses, miners revisited their spending price needs to plans. Rather than chasing extravagant “growth- In April last year, the commodities team at Goldman at-any-price” projects, managers began focusing on rise sharply Sachs published a report on the state of the global cutting costs and improving efficiency. Output growth to encourage copper market titled Green Metals: Copper is the suddenly became very “uncool”. As a result of this new New Oil. The title says it all. Not only is copper a key operating model, the number of new copper projects supply” component in all clean energy technologies, but it’s under development and in the design stages has plunged also an essential part of today’s digital economy. From by 60%. Although some new projects are slated to come skyscraper-sized wind turbines to the circuits in wireless on stream over the next few years, they’re not going to headphones, every piece of equipment that uses or be sufficient to meet exploding demand. produces power requires copper. World’s largest producer As Goldman notes, green technologies might be better for the environment in some respects, but they The most important region in the world for the copper are far more copper-hungry than older technology. industry is Chile. More copper is mined in the South Electric vehicles require four times more copper than American country than in any other nation on earth. internal combustion engines. A three megawatt (MW) Six of the top ten largest copper mines in the world wind turbine can contain up to four tonnes of copper are located in Chile and its state miner, Codelco, is the (and the most powerful turbines can produce up to world’s largest producer of the commodity. Codelco 14MW of power). The bank’s analysts predict that produced 1.7 million tonnes of fine copper from its own copper demand from electric vehicles alone could hit as operations and joint ventures in 2021. much as 3.2 million tonnes (mt) by 2030. Overall, it’s forecasting an extra 5mt of demand by 2029, equivalent However, output growth is being hampered by to 16% of global production today. another issue: water scarcity. In April, Chile announced an unprecedented plan to ration water as the country’s Goldman isn’t alone in this view. Last year, Gary drought entered its 13th year. It now has some of the Nagle, the head of Glencore, one of the world’s largest worst levels of water scarcity in the world. As you might commodity companies, told the Financial Times that imagine, producing copper requires a huge amount of the copper supply would need to rise by an extra million water. In 2019, it was estimated that Chile’s mining tonnes a year by 2050 to meet green energy targets. As industry consumes around 500 million litres of water a year. With access to water limited, the supply picture 1 July 2022 moneyweek.com

Chile is the copper heartland the world has as much insight into global commodity “Chile’s for copper becomes a lot more uncertain. Codelco markets as the trading giant. drought has plans to build desalination plants to solve its makes finding water issues, but this will take time and money. The This year the trading house has been capitalising on new copper company is looking for funding partners on 34 new what it is calling “pricing differentials” in disrupted supplies projects across the country, its first such move into energy markets. As a result of these “differentials” the harder” joint exploration. Still, even if Chile can find the water, company expects half-year adjusted earnings before money and partners it needs, it’s going to take years to interest and tax (EBIT) of $3.2bn for its marketing bring new copper to the market. and trading arm this year. That’s at the top end of management’s long-term EBIT guidance band. Biggest “green metal” producers However, Glencore does not provide granular Besides Codelco, the largest producers of copper are information on how this side of the business operates. Freeport, BHP and Glencore. BHP and Glencore have In fact, it’s a bit of a black box. Trading commodities an advantage over the Chilean and American miners requires access to huge amounts of short-term capital as they’re well diversified. Copper is only part of BHP’s to fund purchases. This money is paid back when the portfolio, alongside iron ore, nickel and coal. Glencore commodity is delivered to a client, and to make sure also produces copper and coal, but its mines also draw it doesn’t lose out on the deal, Glencore also relies zinc, lead, cobalt, nickel, gold and silver. According on derivative contracts to guarantee a fixed price on to Rystad Energy, global nickel demand is expected delivery. On a day-to-day basis the corporation may to outstrip supply by 2024 as it is a key component in have tens of billions of dollars of short-term loans both steel production and batteries for electric vehicles. outstanding with billions more in derivative contracts. Battery demand also accounts for around two-thirds of So in some regards Glencore is an investment bank as global demand for cobalt. well as a mining group. In some respects then, Glencore and BHP are some BHP does not have the same financial exposure. of the best ways to invest in the green energy boom. Not Unlike Glencore its primary business model is and has only do they provide exposure to the metal itself but always been producing commodities. Over the past five also other key components of the battery supply chain. years, BHP has undergone a significant transformation. Still, there are some drawbacks to investing in these It has cut costs and dramatically improved efficiency, businesses. As well as producing commodities, Glencore putting it in the perfect place to capitalise on the current trades commodities around the world through its commodity price boom. Last year the group generated marketing arm. This business can be highly profitable operating cash flow of $11.5bn and free cash flow of and it’s also pretty difficult to get into, which gives the group a competitive advantage. No other company in Continued on page 22 moneyweek.com 1 July 2022

22 Cover story Continued from page 21 $8.5bn. BHP is a lot easier to understand than Glencore primarily because it does not have a trading business. Strong cash flows have allowed the group to reduce net debt to $6.1bn (from $11.8bn in 2020) and distribute record amounts of cash to investors. Over the 18 months to the end of December, BHP returned $22bn (£18.3bn) to shareholders. To put that into perspective, there are only 26 companies in the FTSE 100 with a market capitalisation greater than £18.3bn. BHP was kicked out of the FTSE 100 earlier this year when the company consolidated its dual UK-Australia listing, but UK investors can still buy the shares on the London Stock Exchange. Investors cannot ignore the environment ©Getty Images Copper has an important role to play in the 21st century Cobalt processing, Democratic Republic of Congo “Taxes are economy but the environmental issues facing the operation. The region’s questionable labour laws have another tool industry need to be considered. As the world becomes resulted in some difficult questions for the miner. policymakers increasingly aware of the environmental cost of global use to force development, governments are bringing in new rules New environmental rules and regulations could companies to that increase the cost for producers. Consumers are increase the cost of doing business for these companies. change” also becoming more aware of where goods and services While rising copper prices might offset some of the come from. In this environment, corporations need to extra cost, it is something to bear in mind, especially be thinking about their environmental impact. as the world becomes more aware of its impact on the environment. Miners could also be hit with large fines In most regions around the world, policymakers if they breach environmental standards, which would are developing instruments to encourage businesses to almost certainly have an effect on shareholder returns, think about their impact on the environment. These and their reputation in the mining community. range from measures as simple as banning plastic bags to those as complex as carbon emission trading Still, there’s no denying that these businesses have a schemes. Taxes are another tool policymakers use to vital role to play in helping the world clean up its act. If force companies to change their ways. Chile is working policymakers are serious about getting emissions under towards introducing a mining royalty bill, which will control, they will have to work with miners to find a dramatically increase royalty taxes on mining groups solution to these issues. A balance will need to be struck extracting copper and lithium. Support for the bill between all stakeholders. Meanwhile, we look at how has grown as corporations such as BHP are seen to be you can get exposure in the box below. raking in billions of dollars in profits while the country rations its most essential resource: water. Meanwhile, 70% of the world’s cobalt comes from the Democratic Republic of Congo, where Glencore has a large How to invest in the long-term copper boom A good place to start looking for the best Three other options are London-listed Teck Resources (NYSE: TECK) opportunities in the copper business is Antofagasta (LSE: ANTO), Freeport- with a look at the copper production cost McMoRan (NYSE: FCX) and Teck Share price in US dollars curve. For the bulk of the industry, the Resources (NYSE: TECK). Both Antofagasta 45 average production cost for one pound of and Freeport sit at the higher end of the 40 copper is in the region of $1.20, although copper cost curve, with an average cash 35 for some producers the cost can be as high cost of production of $1.87/lb and $1.29/lb 30 as $3 per pound. respectively, even though they are some of 25 the largest pure-play copper producers on 20 Australian mining company OZ the market. 15 Minerals (ASX: OZL) is one of the lowest- 10 cost producers of copper in the world. Its Teck’s cash cost sits in the middle of this cash cost per pound of copper last year range, but it’s the company’s growth 2017 2018 2019 2020 2021 2022 was just $0.64, well below the sector prospects over the next couple of years average. While the firm is much smaller that are really exciting. $1.8bn in the first quarter, up from $196m than some of the sector’s larger players in the same period last year. (last year it produced 125,000 tonnes of The group is undertaking a major copper compared with BHP’s 1.5mt) its expansion of its Quebrada Blanca project, For broad exposure to the sector the low-cost model is incredibly appealing. which will roughly double copper Global X Copper Miners ETF (LSE: COPX) production when it comes online in the holds Teck and Glencore as two of its top Canadian miner Lundin (TSE: LUN) is second half of the year, at an average cash three positions. The BlackRock World another low-cost producer, with an cost of $1.24/lb. Mining Trust (LSE: BRWM) is my favourite average cash cost of below $1 per pound. investment trust pick in the sector. The The group is roughly twice the size of OZ On top of this project, Teck has five largest single stock holding is Glencore and recently paid $483m to acquire other mines in development. Management and 20% of the portfolio is allocated to Josemaria Resources, owner of the pegged the value of these projects at $3bn copper stocks, with 41% in diversified Josemaria project in Argentina. While still in 2017, when the price of copper was miners (including firms with exposure to at an early stage, projections suggest it significantly below current levels. copper production). The trust also comes could increase Lundin’s copper output by a with a dividend yield of 6%, an attractive third for a cost of $4bn. That’s a big bill, but The group has the cash to fund these level of income in today’s interest-rate with $700m of net cash at the end of March projects, mainly as a result of surging coal environment (see page 15). The trust is and copper prices rising, the business prices. Coking coal for steel-making trading roughly in line with its net asset should be able to afford it. currently accounts for approximately two- value, reflecting the sector’s popularity. thirds of Teck’s output, and thanks to rising prices, gross profit from this division hit 1 July 2022 moneyweek.com

Analysis 23 The income investor’s dilemma Pay attention to dividend growth as well as initial yield when picking income trusts, says Max King Is a bird in the hand really worth two in the bush? ©SSE In the income sector, the choice is between a high income now, but little, if any, growth and moderate Pitlochry Dam is part of Scottish & Southern’s renewables network income with steady growth. In the former camp is the ©Alamy Merchants Trust (LSE: MRCH), the best-performing “STS has James Harries, the trust’s manager, emphasises UK income trust over one year and second best over made a the importance of “investing in exceptional, resilient three and five. In the latter camp are the Troy trusts, strong start companies that grow the dividend, backed by Troy Income & Growth (LSE: TIGT) and Securities under Troy, genuinely surplus cash flow”. He concentrates the Trust of Scotland (LSE: STS), whose management Troy returning portfolio on favoured sectors, such as consumer took over in September 2020. 17% in the goods, healthcare and business software, while year to avoiding those that are “structurally disrupted”, such The theory is straightforward. A portfolio that 30 April” as retailers, telecoms and life insurance – areas that yields 2.5% with income growing at 10% per annum many investors would traditionally have gone to for will yield 5% on cost after seven years. A portfolio income. “We also view mining, energy, and aerospace that yields 5% is likely to have far less growth and defence as unattractive, despite their being because its companies will have less to invest without currently favoured by investors,” he says. “These borrowing. After seven years, it might still yield 5% areas are capital intensive, cyclical or both. Resource on cost and is likely to have generated little capital companies are dependent on a commodity price over return. The second portfolio will have generated a which they have very little control and defence stocks third less income, but should have doubled in value. are in the arms of government. Long-term returns on capital employed are low and volatile.” MRCH has defied the theory, returning 14% over one year, 32% over three years and 43% over There is third way, followed by JPM Global Growth five compared with FTSE All-Share returns of 9%, & Income (LSE: JGGI). It invests to maximise total 15% and 26% respectively. The shares trade at a tiny returns, paying most of its 3.3% yield out of capital. premium to net asset value, so the historic dividend This has produced index-beating returns of 60% over yield of 4.8% reflects the portfolio yield and is nearly three years and 77% over five, and so it also trades at all covered by earnings. Low costs (just 0.55% of net a small premium to net asset value. However, many assets) have helped, as have borrowings equivalent to income investors will be unhappy about dividends 12% of net assets, but the dividend has been far from being paid out of capital. static, having been increased annually for 40 years. Despite its strong record, MRCH’s portfolio The portfolio has 50 holdings, of which 58% is does not inspire confidence, nor does its UK focus. in the FTSE 100 index, 29% is in the FTSE 250, The portfolio may change, but a radical shift looks 5% in small caps and 8% in overseas holdings or unlikely. JGGI still look attractive, while STS’s long cash. The largest holding at 5% is GSK, while 4.1% sojourn in the wilderness appears to be over. each is held in the tobacco stocks BAT and Imperial 1 July 2022 Brands, although Imperial’s yield of 8.3% looks unsustainable despite a 33% dividend cut in 2020. Shell (3.9%) has been in the government’s firing line while Drax and Scottish & Southern (3.3% each) may have escaped the windfall tax. BAE Systems had 24 years of plodding performance until the share price jumped 30% on news of the Russian invasion of Ukraine. Starting to turn around TIGT may have a lower yield of just 2.6%, but its total return – 5% over one year, 8% over three and 17% over five – has failed to compensate as one would have hoped. However, STS has made a good start under Troy’s management, returning 17% in the year to 30 April, 11% ahead of the MSCI World index. Its shares yield 2.4% and trade at a small premium to net asset value. Borrowings are 6% of net assets. The 33-stock portfolio has 30% invested in the UK, including four of the top ten. The largest of these is British American Tobacco – like MRCH, it is keen on the tobacco sector. However, US-listed Philip Morris (5.4%), its second-biggest holding, is less financially challenged than Imperial. Other UK stocks include Diageo, Reckitt Benckiser, Unilever and Relx. North America is 54% of the portfolio, Europe 11% and just 2% in Japan (Nintendo). moneyweek.com

24 Analysis Energy transition is easier said than done We are on a path to “net zero”, says Edward Chancellor, but fossil fuels will be with us for some time yet Modern civilisation is built on fossil fuels. Oil, natural ©Getty Images gas and coal still account for around 85% of the world’s primary energy inputs. While these represent “Despite Chinese solar panels: made with electricity generated by coal a small fraction of reported global GDP, they support concern over zinc for wind turbines, and copper for everything. But all other economic activities. Ending our dependence climate change, some of these materials are in short supply, and it’s not on hydrocarbons was always going to be a tough call. clear there are sufficient deposits of copper and nickel to The ongoing process of deglobalisation makes it even the use of meet projected demand (see page 20). Lithium is a key harder. In his new book, Grand Transitions, Canadian fossil fuels has material for electric cars. This element is not rare, but scientist Vaclav Smil describes how the modern carbon- increased by extraction is a messy business and new mines often face based energy system supplies fuels for transportation, around 20% opposition. If Tesla reaches its projected demand for and inputs for what he calls the “four pillars” of since the turn lithium-ion batteries in 2030, it would consume 75% of our economy: iron, cement, plastics and ammonia. of the century” the world’s current nickel production and four times the Currently there are no readily available mass-scale current supply of lithium. Over the past year, the cost of alternatives for the use of petrochemicals in feedstocks lithium has risen sharply, pushing up battery prices. or fuel for bulk shipping and air travel. Despite growing concern over the risks posed by climate change, the use Russia’s invasion of Ukraine further complicates of fossil fuels has increased by around 20% since the matters. Not only is Russia a major producer of oil and turn of the century. natural gas, but its raw materials – zinc, copper, nickel and so forth – are also essential inputs for the next To date we have taken only tiny steps away from generation of motor vehicles. The country is the world’s hydrocarbons. Electric vehicles accounted for 5% of largest producer of platinum group metals that are global car sales last year. Wind and solar power still used in hybrid and hydrogen-powered vehicles. Norilsk only account for a small share of electricity generation. Nickel, the Russian mining giant, is the leading supplier If history is any guide, the transition is likely to be of the battery-quality chemical for lithium-ion batteries. painfully slow. It took more than a century for crude oil, Ostracised by the West, Russia could be driven into which was first extracted in the US, Canada and Russia China’s arms. If the latter gets favoured access to in the 1850s, to overtake coal as the world’s largest Russian fossil fuels and raw materials, its own energy energy source. “Large energy transitions,” writes Smil, transition could accelerate. But if tensions between “have always been gradual, prolonged affairs unfolding China and the US escalate, the West will find it trickier across generations, and the shift from carbon to non- to switch. China controls more than half of the world’s carbon energies will be no exception.” current supply of lithium-ion batteries, lithium mining capacity, cobalt and zinc, says Sean Maher of Entext. Targets are too ambitious It makes most of the world’s solar panels. The country is also the main supplier of so-called “rare earths”. Nevertheless, governments around the world have committed to cutting carbon emissions in the coming We face some tough choices decades. Smil doubts whether the timescale is feasible. Every historical transition has been facilitated by In short, the world will remain dependent on fossil fuels using the previously dominant fuel. Early British coal for the foreseeable future. In the past, oil companies mines used lumber for their pit shafts and props, while responded to rising prices by boosting investment. But coal was transported from mines in wooden carts on that’s not happening this time. The global rig count, wooden rails. In the 19th century, steel, produced with currently at around 1,600, is less than half its level of coke, was required to construct oil rigs and pipelines. ten years ago, says oil-services company Baker Hughes. Likewise, the transition to clean energy will require Policymakers now face some hard choices. Will they lots of fossil fuels. Chinese solar panels are made with ease the cost of living crisis by boosting the supply of electricity generated by coal. The trouble is that the oil fossil fuels, or will they continue on their current path market is in tight supply. As energy prices rise, the cost to zero emissions? The West must soon choose between of investing in renewables is rising in tandem. decarbonisation and deglobalisation: it can’t have both. Thanks to recent technological advances, the price of moneyweek.com electricity generated from renewables has reached parity with power from fossil fuels. Sometimes it’s cheaper. But ease of storage has always been a key factor in successful energy transitions. Currently there’s no cost- effective method of storing electricity produced by wind and solar, whose supply is intermittent. Owing to the vagaries of the weather, renewables in Europe operate at only 20% of potential capacity, according to Andy Lees of MacroStrategy. As the contribution from renewables increases, the intermittency of their supply is causing severe problems for electricity grids across the world. Decarbonisation will spur demand for clean energy materials. We’ll need more lithium, nickel, cobalt and manganese for electric vehicles, vanadium for energy storage, silver and polysilicon for solar panels, iron and 1 July 2022

Companies 25 Strong growth and rising dividends Spirax-Sarco is a world-leading engineer making consistent progress in three niche markets Dr Michael Tubbs Spirax’s businesses include electrical heating ©Getty Images by the 60% of total revenue Investment columnist coming from industries such Electrical heating is typically propose projects to improve as biopharmaceuticals, food The UK has several high- used for temperatures up to productivity, energy efficiency and beverages, healthcare, and quality engineering 1,000˚C and powers up to and safety. Customers value water and wastewater. companies with strong 1MW, while steam heating is the company’s wide range of positions in their market niches used in the temperature range trusted products (1,700-plus Steady growth and long records of increasing 100˚C to 250˚C with powers of core products) and its regional dividends. For example, Spirax- 1MW to 30MW. manufacturing from 32 sites. Spirax grows both through Sarco (LSE: SPX) is a FTSE 100 bolt-on acquisitions and company with a wide moat Direct relationships Fully 85% of Spirax’s organically. The most against competitors, recurring revenue comes from the recent bolt-on acquisition revenue amounting to 50% of Spirax has a direct sales operating budgets of its was Cotopaxi, purchased sales and a 54-year record of business model where over 110,000 customers, with only for £12.8m last January to increasing dividends. 70% of sales are made direct 15% from capital expenditure accelerate Spirax’s digital to end users, contractors budgets. Of this 85%, 50% strategy. Cotopaxi provides Spirax is a multinational, and original equipment is recurring maintenance consulting, digital connectivity with manufacturing sites in manufacturers, and just under and 35% represents the and monitoring of energy- 14 countries and sales in 68 30% sold via distributors who improvement projects that intensive processes including countries, and three business supply the products needed engineers agree with customers steam through a proprietary divisions. The largest is Steam for routine maintenance and to improve productivity and customised software Specialities, which amounts to repair. Spirax’s over 2,000 and efficiency. This weight platform that helps its 56% of sales. This comprises sales and service engineers towards recurring maintenance industrial customers to reduce the control and management have in-depth applications spending and incremental waste and manage energy use of industrial steam systems knowledge and build long-term investment gives in-built more effectively. for heating, curing, cleaning, relationships with end users, resilience to revenue. Further sterilisation, space heating walk around factories and defensive strength is provided Meanwhile, organic growth and humidification. is driven by steady investment in research and development Next is Watson-Marlow, investment (£13m in 2021 and which makes niche peristaltic £10m in 2020); by applications pumps and associated fluid engineers initiating new path technologies (30%). improvement projects with It has supplied over one customers; and by expanding million pumps to a wide the company’s global presence range of industries, including by entering new countries biopharmaceuticals, food and and expanding existing beverages, paints and mining. country teams. There are still substantial opportunities The smallest business is to continue its increasing Electric Thermal Solutions market share. Spirax is market (14%). Spirax’s electric process leader in both steam systems heating and temperature and peristaltic pumps, but management solutions are used management reckons that its for critical industrial processes, share of the total market is still freeze protection for pipes and only around 12% so there is valves and component heating. room to grow this significantly. Another solid start to the year Spirax-Sarco (LSE: SPX) Spirax coped well in the highs, despite the upbeat, with the firm pandemic. It reported challenging external expecting sales growth Share price in pence revenue of £1.24bn in environment of Covid- well ahead of global 2019 and this dipped by 19 and Russia’s invasion industrial production 17,500 only 4% to £1.19bn in of Ukraine, according to growth and a profit 2020. The latest results, the latest trading update margin that is 15,000 to December 2021, show at the annual general comfortably ahead of revenue rebounding to a meeting on 11 May. The pre-pandemic levels. 12,500 record £1.34bn in 2021. steam-specialities Operating profits also factory in Shanghai is Spirax has grown 10,000 hit a record of £340.3m, running at reduced dividends at an average as did operating-profit capacity because of of 11% per year over the 7,500 margin (25.3%). local lockdowns, but past 54 years of Strong free cash flow of sales are expected to continuous increases. 5,0002017 2018 2019 2020 2021 2022 £194.5m enabled net recover over the rest of The 2021 dividend is debt to be reduced to the year as lockdowns 136p, with dividend on a forward price/ exceeding supply, a £130.5m, despite higher are relaxed. Watson- cover of 2.5 times. At earnings (p/e) ratio of 26. reasonable valuation capital expenditure. Marlow’s biopharma Monday’s closing price and a strong balance sector sales were up of 9,772p, this gives a In summary, Spirax- sheet. Yet the shares The first four months 20% in the first four yield of 1.4%. Analysts’ Sarco has a record of are now around 45% of 2022 have seen order months of 2022. Full consensus forecasts for consistent sales and below the high they books for all three year guidance remains earnings next year are dividend growth, high reached last November. businesses at all-time 377p, putting the share recurring revenue, First-half results are due current demand for its in August. trusted products moneyweek.com 1 July 2022

26 Personal finance How to deal with delays Banks pass on the interest rate rise Staff shortages, pent-up demand and strikes have caused chaos for travellers. Check if you are entitled to compensation Last week the Bank of England raised the base rate for the fifth time, taking it from 0.1% in December to 1.25% today. Ruth Jackson-Kirby The rate is now at a 13-year high. Money columnist “The back-to-back rate rises are fuelling the mortgage market,” says Trying to travel in, or out Rachel Springall from comparison of, the UK at the moment service Moneyfacts. “Borrowers who is chaos. Staff shortages mean lock into a fixed deal can protect airports and airlines have been themselves from future rate rises, but struggling to cope with demand those building a deposit may not be able in recent months, leading to to afford a mortgage as interest rates lengthy queues, delays and and living costs continue to climb.” cancellations. Now to add to the woe we’ve had the biggest rail Lenders were fast to pass on the rate strikes in decades, leading to rise to borrowers, with many increasing their standard variable rates (SVR). Fixed-rate deals are starting to look like a good idea, with the average two-year cancellations and warnings to fix at 3.25% compared to 4.91% for the avoid rail travel. Here’s what you You can get compensation for delays ©Alamy average SVR, according to Moneyfacts. can do to get your money back That means a difference of about £4,400 if you’ve been affected by the over two years on a £200,000 mortgage. travel carnage. Some banks have also passed the Let’s start with the railways. rise on to their savings customers. If your train is late, you can Yorkshire, Leeds, Skipton and Coventry claim compensation under the building societies have all increased “delay repay” scheme. Some rates on their variable savings accounts. operators will give you back 25% of your compensation on top of any refund or You can now get an interest rate of 1.56% on the best buy instant access fare if your train is between 15 and 29 sweetener your airline or tour operator account from Virgin Money, although minutes late. However, most start at a offers you. The amount you get depends on you need to have a linked current delay of 30 minutes, at which point you get how far you were meant to travel. It ranges account. The best rate on a standalone 50% of your fare back. If your train is over from £220 per person for short flights up easy access account is 1.52% from UBL an hour late into your destination, you can to £520 per passenger for long-haul trips. Raisin UK. There have also been get a full refund. You can also get a refund improvements in the fixed savings if you choose not to travel, but this only Delays can also mean payouts. If your market in recent weeks. Atom Bank is applies if your journey has been cancelled, flight is delayed by more than three hours, offering 2.6% on its one-year fix. But delayed or rescheduled, according to you can apply for compensation from your longer-term fixes don’t yet offer enough airline. Short flights up to 1,500km result of a reward to lock your money away. National Rail Enquiries. To claim money in payouts of up to £210 per person. Mid- You can get a best rate of 3.25% for five back for a delay, you need to write to the range flights are worth up to £340. If you years or 3% for two years. train operator or apply online. Include a are flying long haul (over 3,500km) and There are still no accounts available photo of your ticket alongside the details of your flight is delayed three to four hours that will beat inflation and that’s unlikely the train journey. you can claim up to £250 per passenger. to change. The base rate is expected to For long-haul delays of over four hours the hit 2.5% before the end of the year, but You can also get money back if you compensation goes up to £500. inflation is forecast to reach 11%. have a season ticket. Under normal circumstances, with an annual season ticket, you get 1/464th of the cost of your Pocket money... a convincing scam pass back for every single journey eligible for full compensation. Monthly season ticket holders get 1/40th of the price and weekly passes 1/10th. It’s also worth l Watch out for a new Post- aimed at giving a better in The Daily Telegraph. The Office delivery scam that deal for millions of renters average taxpayer now noting that season ticket holders can claim uses ”one of the most in England,” says Patrick works for 159 days, or until 100% delay repay compensation if they convincing clone websites Butler in The Guardian. 7 June, in order to earn chose not to travel on strike days, even if we’ve seen”, says Which. No-fault evictions will be enough to cover their their train wasn’t cancelled. If you would The scammers send texts outlawed, and laws will be annual tax bill, according to like a refund on your entire season ticket asking you to reschedule a brought in to force the Adam Smith Institute, a you can apply with the original retailer, delivery. Clicking on the link landlords to “improve the think tank. That is a week who will charge you an admin fee of no takes you to a copy of the quality of damp, dirty and longer than in 2021. more than £10. Post Office website that unfit homes where asks you to enter details conditions put the health of The amount of time that we work to clear our tax bill Flight cancellation chaos such as your name, tenants at risk”. is expected to hit 24 June by 2026, “the latest since at address, email, date of birth In addition, there are Now for flights. Last week Gatwick and mobile number (which also plans to outlaw blanket least the early 1960s” . Airport announced that it was limiting can be used for identity bans on tenants on benefits Taxpayers will pay around daily flights in July and August due to fraud), before asking you to and landlords will not be £870bn in income tax and staff shortages. This means around 4,000 put in your card details. able to “unreasonably National Insurance, as well flights out of the airport will be cancelled. refuse” requests by tenants as indirect taxes such as Tui, easyJet and KLM have already l “Measures to tackle to keep a pet. VAT, to the Treasury this announced thousands of cancellations, unscrupulous private year. This totals around leaving many of us with holiday plans landlords who evict tenants l“Workers now toil for a 43% of net national income. hanging in the balance. without giving a reason or week longer to earn the The tax burden, or the who let unsafe homes will equivalent of their annual amount of tax paid as a If your flight is cancelled within 14 be introduced under tax bill than they did a year proportion of GDP, is at its days of departure, you are entitled to government proposals ago,” says Harry Brennan highest point for 70 years. 1 July 2022 moneyweek.com

Small business 27 Beware of Facebook ad scams Fraudsters could be using your money to advertise their products online David Prosser email address linked to their Business columnist device updated. This can allow customers to recover their Running targeted ad account more quickly. It is campaigns on Facebook possible to report questionable can be a great way to drive content and accounts by tapping customers to your business. But the three dots above posts, or while the social media giant’s by reporting an account directly enormous reach means it has from its profile. become an important part of many business’s customer In addition, Facebook says recruitment strategies, Facebook it never sends small businesses also attracts unsavoury users. A direct messages; instead, it uses growing number of businesses email. Therefore businesses have had their ad accounts should never respond to a hacked, and found themselves Facebook says it never sends small businesses direct messages ©Alamy message sent by an account claiming to be Facebook – it is with a whacking bill run up by likely to be a scam. their attackers. As with most online fraud, The more people in the The story is depressingly there is no single vulnerability business with access to the ad Securing your account familiar. Businesses that have that enables fraudsters to attack account, the greater the risk of set up legitimate advertising Facebook ad accounts. Your a compromise. Each user with However, despite taking careful campaigns on Facebook – the business could be targeted in admin rights to the account precautions businesses do run cost of which depends on the many different ways. Certainly, becomes a potential target for into problems. One difficulty number of views each advert phishing attempts remain fraudsters. It therefore makes is that getting support from gets – suddenly notice a jump rampant – where fraudsters sense only to grant such rights to Facebook can be difficult. in what they are being charged. send out emails purporting to be those who genuinely need them The company is heavily Sometimes, the bill goes over the from Facebook in order to send – and to delete privileges as soon dependent on user guides and maximum spending limit they you to a fake website aimed at as they are no longer required. help pages on its websites, and have set on their accounts; it stealing your login credentials. Facebook says some basic so finding a way to speak to may run into tens of thousands If you use the same login details cyber-hygiene will offer a good someone at Facebook either of pounds. for multiple sites, the problem level of protection. It urges ad by email or on the phone is The explanation is that their may also lie with a breach account users to set up two- not straightforward. account has of security factor authentication. This been hacked. “Each user with elsewhere. requires users to provide both Some simple steps will help. If Fraudsters However a unique code and a password you know which admin account are using the admin rights becomes fraudsters are to log into the account, and is being used to compromise business’s a potential target” also becoming sends out an alert each time your business, you can remove account to run more someone tries to log in from its access privileges via your ads of their own. They may also creative. One common scam an unrecognised device. Small settings pages. You can also have access to the business’s sees fraudsters posing as business owners can also enable use these pages to secure your settings, enabling them to customers so they can send “login request”, asking them account, even if passwords have change spending limits and over documents to make an to approve or deny request for been changed. Facebook’s Help other controls. This can also order. The document includes access following these alerts. services also give you a means make it difficult to put a stop to malware that installs on your The social media giant through which to report a the fraud, even after the business computer and compromises also advises businesses to problem and to request support. has spotted the problem. your security. keep the phone number and This may be necessary to avoid being stung for charges or to get a refund if you’ve already paid out for ads that weren’t yours. A costly problem Petty cash... equity funding on the rise Facebook won’t say how l Small and medium-sized enterprises (SMEs) & Customs has announced plans to contact frequently this happens, but looking to raise money for growth and more than 220,000 businesses to remind them the number of small businesses expansion are increasingly turning to equity to sign up for the service ahead of the 30 reporting problems appears investors such as private equity and venture September deadline. The new system applies to to be growing. And while the capital firms rather than taking on debt. New any business importing goods from overseas. social media giant doesn’t data from the British Business Bank reveals that necessarily demand payment equity investments in UK SMEs rose 88% in 2021 l Could your small business do with a financial when ad spending is run up by to reach £18bn. That momentum appears to be boost? Price comparison service Simply fraudsters, it won’t guarantee continuing in 2022, with SMEs announcing Business has just opened its annual small all losses are refunded. Besides, equity investments totalling £7.6bn during the business grant competition, offering £25,000 of the true cost of fraud for a first three months of the year, the highest cash to a business that has an inspiring story business dependent on its quarterly total ever recorded. about why it deserves the award. The only Facebook advertising activities criteria for entry are that businesses must not may go way beyond the bill run l Businesses that fail to register for the have an annual turnover of more than £500,000 up by the fraudster. It may be government’s Customs Declaration Service by and must not have received more than £50,000 impossible to continue running September could see their activities significantly in private funding in the past two years. Judges genuine campaigns while trying disrupted – but hundreds of thousands may are on the look out for a good story, social to fix the issue. have failed to do so, officials warn. HM Revenue impact, innovation and a thought-out plan. moneyweek.com 1 July 2022

28 Personal view If only you’d invested in… Three Sharia-compliant Go-Ahead (LSE: GOG) growth companies Share price in pence A professional investor tells us where he’d put his 1,600 money. Scott Klimo, Saturna Al-Kawthar Global 1,500 Focused Equity ETF, tips three Sharia-compliant stocks 1,400 1,300 1,200 ON D J FMAMJ J 1 ,10 0 2021 2022 1,000 900 800 700 600 500J A S We try to invest according to the tenets Securing the food of the future of Islam, sometimes referred to as Sharia Russia’s recent invasion of Ukraine has law. A core part of this is not investing in stressed agricultural markets, which were Shares in bus operator Go-Ahead’s (LSE: companies engaged in prohibited activities already upended by the pandemic. Together, GOG) jumped after it accepted a £650m or products, including gambling, alcohol, Russia and Ukraine account for around takeover bid from Australian bus pork, and weaponry. However, a lesser- 30% of wheat exports. Longer term, operator Kinetic, says the Financial known core element entails the avoidance climate change will pressure crop yields, Times. Go-Ahead has received four of conventional financial activities, such as requiring an evolution in farming practices previous approaches and the shares are banking, due to the prohibition on interest and technologies. Enter Corteva (NYSE: now trading above Kinetic’s 1,500p offer (sometimes called usury). CTVA), a global player in crop protection in expectation of a bidding war. Kelsian, An added element is a limit on the and seeds. another Australian firm, has said it may amount of debt a company may carry for it Led by innovation, Corteva spends make an offer and urged shareholders to be investable. Finally, Islamic investing around 8% of revenues on R&D, driving not to accept the Kinetic bid. Go-Ahead is just that – investing. It condones neither gross margins above 41%. For instance, is one of a string of UK transport active trading nor speculation. We invest its integrated rice seed and training companies to become targets of for the long term, viewing ourselves as programme allows farmers to raise yields takeover interest as they emerge from partners in the companies with which we without flooding fields, saving water while the pandemic. Shares in the company invest. These three cutting methane are up 32% over the last 12 months. stocks exemplify “Islamic investing condones emissions. Regardless Be glad you didn’t buy… how Islamic neither active trading of developments in easyJet (LSE: EZJ) guidelines translate nor speculation” Ukraine, our food- into a portfolio. system challenges will Share price in pence Inventing life-saving procedures remain and Corteva 800 Edwards Lifesciences (NYSE: EW) will be central to food security. 750 demonstrates the importance of investing 700 rather than speculating. The shares are A video-game sector staple 650 Family-friendly video-game maker 600 volatile, but the long-term returns greatly Nintendo (Tokyo: 7974) has produced some 550 exceed broad indices. Despite its $58bn of the most-beloved characters, games, 500 ON D J FMAMJ J 450 2021 2022 JAS market capitalisation, its debt totals only and consoles. Nintendo has seen its share $595m. It aggressively invests in research of peaks and valleys, but despite that it and development (R&D), allocating 17% of has rewarded shareholders over the last easyJet (LSE: EZJ) has been forced to revenue last year. decade. Business uncertainty drives prudent scrap £200m worth of flights over the EW leads the world in transcatheter balance-sheet management, with zero debt summer due to operational problems, aortic valve replacement (TAVR), a and 24% of its market capitalisation held in says The Times. Staff shortages have technology that treats severe aortic stenosis cash and short-term investments. caused delays processing arrivals at without open heart surgery. Instead, a Aiming to reduce revenue volatility, airports, which has had a knock-on valve is inserted in a vein at the top of the video-game makers have introduced effect on cancellations. The airline thigh and threaded to the heart. Originally new in-game monetisation strategies and announced it is cutting capacity for June designed for older patients, the pool has subscriptions. Nintendo, initially hesitant to around 87% of pre-pandemic levels, widened to include younger, moderate- about using such tactics, now embraces down from a previously forecast 90%. risk patients as TAVR has demonstrated the opportunity. The company benefits The budget carrier’s latest swathe of its durability. The procedure has clearly from increasing levels of recurring revenue, cancellations comes after Gatwick, its shown benefits in terms of length of time in higher gross margins and a platform on UK base, said it would cap flight and hospital, surgical risk and cost. which to release future entertainment. passenger numbers in the summer. Shares in the company are down by 47% over the past 12 months. ©The Telegraph 2022 1 July 2022 moneyweek.com

Profile 29 Zhao undaunted by crypto winter Changpeng Zhao, the founder of controversial cryptocurrency exchange Binance, has been severely battered by carnage in the sector. But the future is bright, he insists. Jasper Spires reports As cryptocurrencies plummet, he developed software for Binance’s co-founder and chief matching trade orders. After a executive Changpeng Zhao stint at Bloomberg Tradebook, remains undaunted. He’s Zhao moved to Shanghai to taking the crypto crash, which start his first business venture, started with the collapse of Fusion Systems, before the TerraUSD stablecoin, as launching a number of early an opportunity to “leverage cryptocurrency projects in 2013 to the max”, says Bloomberg. and becoming chief technology The cyptocurrency exchange is officer of OKCoin. In 2017, hiring and has a “healthy war Zhao started Binance with chest” for expansion even as OKCoin colleague Yi He. competitors go on the back foot. Zhao’s firm rose to Battling the headwinds prominence during the boom Binance was an immediate in digital currencies across the success. It raised nearly $15m last decade. Before the slump, in the “initial coin offering” it traded more of the popular for its own binance coin (BNB) bitcoin and ether currencies currency – essentially a token than its four largest competitors that powers the platform’s combined – $76bn worth each operations – the same year it was day, according to The Wall “The crypto crash is an opportunity founded. In its first eight months Street Journal – although not to leverage to the max” of operating, it rose to become without generating a fair share of the largest crypto exchange in the controversy along the way. checks. However, it remains an obvious world by trading volume. Within target for regulators who want to clamp six months it had three million users. Thriving in the Wild West down on what the FT calls “the porous It was, however, soon struggling Binance has drawn scrutiny from regulators border between the largely freewheeling against headwinds – China banned for years, partly because the five-year- crypto sector and the more tightly regulated cryptocurrencies that year and demanded old firm “is everywhere and yet based conventional financial market”. the return of funds to investors. Binance nowhere”, says the Financial Times. It is Zhao seems to be pursuing a Silicon complied, and in so doing earned the trust incorporated in the Cayman Islands, yet has Valley-style strategy of putting market of traders. It quickly expanded worldwide. no headquarters and does business through dominance ahead of profit and prudence. Following a recent funding round, its US a “constellation of affiliates” around the Despite what seems like a meteoric rise, arm alone was valued at $4.5bn, says world. Among other issues, it has been his success was a long time coming, says Barron’s. Bloomberg estimates that Zhao accused of lax money-laundering controls Forbes. He was born in 1977 in China’s was worth $95.8bn in 2021. His fortune that facilitate criminal transactions – a Jiangsu province. Shortly afterwards, his collapsed to $10.2bn in the wake of the report by Reuters accused the company of father was exiled for his “pro-bourgeois cryptocurrency meltdown (see box), but he processing $2.35bn in illicit funds over five intellect” and in the 1980s the family remains the richest man in crypto. years – and is banned by the UK regulator. moved to Canada. Arriving in Vancouver at Binance has also invested $200m in The company denies wrongdoing and says age 12, Zhao went on to major in computer Forbes, looking to exploit the media that it is helping to drive standards in the science at McGill University in Montreal, platform to promote the blockchain and industry higher: since 2021, users have then worked as an intern at a subcontractor bolster its network. Zhao, it seems, won’t be been subject to more stringent identity for the Tokyo Stock Exchange, where leaving the spotlight any time soon. Billionaires feel the pinch as the dream collapses ©Getty Images The craze for digital currencies FTX. His fortune is down 66% each as shares in their firm $8.5bn in November, according turned a handful of tech since it peaked at $26bn, tumbled 79% since the initial to Bloomberg. He remains evangelists into which could spoil his public offering. That’s an “epic unfazed, says Coindesk, and is billionaires several plans of giving it all fail”, says Charles Gasparino in expecting “the next crypto times over, says away to worthy the New York Post, yet one that’s cycle” to start later this year. Tom Maloney on causes. He has, for done little to humble the Bloomberg. “But example, pledged “voluble” Armstrong, who has Finally, the notorious as quickly as they $1bn to influence the grown rich off the back of the Winklevoss twins, Tyler and became the new 2024 US presidential rise of dogecoin (created by Cameron, “saw their fortunes faces of global election, says Greg Jackson Palmer and Billy Markus sag to $3bn each”, from as high wealth, they’re now Barker for UnHerd, as a prank) and “other weird as $5.9bn apiece, says seeing their fortunes high-flying tulips”. Armstrong Bloomberg. The founders of vanish at an astonishing rate.” seeking to heal the (pictured left) was forced into an crypto exchange Gemini, which Changpeng Zhao led the crypto “bipartisan divide”. Whether 18% reduction in headcount, announced this month that it billionaire rankings and still funds from a billionaire running announced to workers via a text would cut about 10% of its does, despite losing 89% of the an “unregulated casino”will message sent at 8am. workforce, are currently touring wealth he had amassed by help is another matter. with their rock band, Mars November last year (see above). Next on the list is Mike Junction. Appropriately, says Coinbase’s co-founders Novogratz, a former hedge-fund Uproxx, the “much-mocked The second biggest loser is Brian Armstrong and manager who made a comeback covers band” wows crowds with Samuel Bankman-Fried, the Fred Ehrsam, once worth a on the back of cryptos. His versions of Journey’s 1981 hit CEO of crypto-trading platform combined $18.1bn, have seen fortune has fallen to $2.1bn from Don’t Stop Believin’. their fortunes shrink to $2.1bn moneyweek.com 1 July 2022



Travel 31 Indulge your wild side Get up close to the animals at Port Lympne Hotel and Reserve, says Matthew Partridge As I ambled down the track ©Port Lympne Nosey neighbours at Lion Lodge in the twilight, making my However, larger groups way to the treehouse where I animals into the wild. This in effect giving you access to may enjoy some of the more was to spend the night, I could important work helps to rebuild your own private zoo, but it also specialised accommodation, hear the howling of wolves their numbers so that future allows you to experience the including the treehouse and the shrieking of primates. generations can enjoy them. delights of the restaurant and apartments, which not only However, the savannah on the rooms. offer stunning views of the either side of me was not This isn’t simply a case of nearby countryside, but also African, but was, like myself, taking the animals and letting Lounging with the beasts boast a range of amenities, located only a few miles from them loose, but involves them including two bedrooms and the towns of Folkestone and “being supervised as they learn There are several different a living room with cooking Hythe, around 90 minutes by to live on their own and deal types of accommodation, facilities. There is also a nearby train from London, in Port with everything from the local including hotel rooms in the clubhouse where you can enjoy Lympne Hotel and Reserve. wildlife, to pests and parasites”, Edwardian mansion originally a beer, toast marshmallows over commissioned by the 20th- a fire, or simply relax in a sofa Set up by conservationist says Nick Turk, century politician and arts with a good book. John Aspinall, Port Lympne deputy head patron Philip Sassoon. This For those who are even more combines several elements. mansion also hosts the garden adventurous, there is the option Firstly, like most zoos, you have to go “glamping” in luxury the animal enclosures, which Port Lympne is helping to tents, as well as the various hold 900 animals from 75 preserve rhino numbers lodges, which allow you to get species, ranging from European for future generations up close to the animals. Perhaps wolves to Asian tigers and the most exclusive of these is African rhinos and baboons. of the rhino section. restaurant that provides the Lion Lodge. Designed in Many of these enclosures are Indeed, in the two decades excellent food. During my true African safari-style by extremely large, allowing for Turk has been working at Port stay I enjoyed Port Lympne Victoria Aspinall, the hotel’s good views of the animals Lympne, he has been involved smoked salmon and grilled king creative director, the lodge in as close to their natural in the rewilding of six rhinos, prawns, with grilled vegetable has a glass wall, which allows environment as possible. which have in turn produced panzanella salad, garlic and you to view the lions from the over 30 babies. lemon butter. In the comfort of the living room, or Included in the price of day morning, I had an while lounging in the wood- admission is an hour-long truck Port Lympne can be enjoyed English breakfast, fired bath, with just a pane safari, which not only passes by as a day out, and the crowds of and took an some of the enclosures that are happy families I encountered afternoon of glass not accessible from the walking during the day demonstrate that tea in between trails, but also takes you to the many people do. However, if one of the you and the 100-acre safari park, where you really want to get the best drawing beasts of giraffes, antelopes and out of your experience, you rooms. the jungle. zebras roam freely. can stay overnight. Not only Matthew was You can upgrade does this let you experience the a guest of Port Lympne to a more reserve outside opening hours, Hotel and Reserve. personalised Treehouse from £499 extended safari in winter to £959 in where you peak summer season, are taken in a see aspinallfoundation. smaller jeep, org/port-lympne allowing you to get even closer to the animals, or to small group experiences where you can interact with the animals under the supervision of a ranger. Conservation work The rhino experience that I went on highlights another important part of Port Lympne, which is its commitment to conservation as well as adventure. Indeed, not only does it care for many species that are either endangered, or nearly extinct, helping preserve them, but it also works in conjunction with its partner charity, The Aspinall Foundation, on programmes designed to reintroduce these moneyweek.com 1 July 2022

32 Property This week: houses for around £500,000 – from an 18th-century property in Provence-Alpes-Côtes d’A St John Street, London EC1V. A first- Dowsers Cottage, Meysey Hampton, floor flat in a redevelopment of a period Gloucestershire. A period house in the building in Clerkenwell, just a short walk conservation area of a village in an Area of from Farringdon Station. It has high ceilings, Outstanding Natural Beauty. It has beamed large windows, shared use of communal ceilings, an inglenook fireplace with the gardens and an allocated parking space in a original bread oven, and a large walled gated underground garage. 1 bed, bath, recep, garden. 2 beds, bath, breakfast kitchen, recep. kitchen. £485,000 Savills 020-7253 2533. £495,000 Butler Sherborn 01285-883740. Castle Gate, Pengersick moneyweek.com Lane, Praa Sands, Penzance, Cornwall. A renovated, Grade II-listed house believed to be the original gatehouse to Pengerswick Castle. The house retains its exposed stonework and original granite fireplace and has beamed ceilings, wooden floors, and upper-level rear gardens with views over the castle and the sea. 3 beds, 2 baths, recep, dining kitchen, outbuilding. £500,000+ Savills 01872-243200. 1 July 2022

Property 33 Azure, France, to a one-bedroom apartment in a period building in London’s Clerkenwell Imdina, Modbury, Ivybridge, Devon. A Grade II-listed house in the centre of the town, just moments from the high street. The house has sash windows, high ceilings, a sitting room extending the width of the property with three large sash windows and a feature fireplace with a cast- iron log burner. It has a front garden and a back garden with raised flower beds. 4 beds, 3 baths, recep, study, dining kitchen, cloakroom, stores, outside stores. £525,000 Marchand Petit 01548-831163. Barbentane, Bouches- du-Rhône, Provence- Alpes-Côte d’Azur, France. A renovated, 18th- century house in the town centre with a courtyard with a half-sunken swimming pool. It has exposed beams, an open fireplace and newly fitted bathrooms and kitchen. 5 beds, 2 baths, recep, study. £506,565 Knight Frank 020-3830 8643. Ardmamurchan Natural History Centre, Glenmore, Acharacle, Argyll & Bute. A profitable business with a visitors’ centre, tearoom and detached house in a rural location. It has an upgraded 28-seater auditorium or cinema to the rear of the exhibition area and a commercial kitchen with a cold store larder and a deer larder. 2-bed house, exhibition centre with cafe and shop 2, cinema, outbuilding, garage, gardens. £495,000+ Bell Ingram 01631-566122. Blacksmiths Hill, Aynho, Turret End Cottage, Northamptonshire. A period cottage Hampton, Banbury, in a quiet village with front and rear Oxfordshire. A Grade II-listed, gardens and a dining terrace. The stone-built cottage in a small cottage has exposed beams, stone village with attractive gardens floors, an inglenook fireplace, a sitting and views over the surrounding room with a large bay window and countryside. The cottage has a dining kitchen in a new extension exposed stone work, beamed with a wall of glass doors leading onto ceilings, flagstone floors,a the garden. 3 beds, 2 baths, recep, spiral staircase and a sitting cloakroom/utility, store, gardens. room with a fireplace with £495,000 Hamptons 01869-640157. a wood-burning stove, and moneyweek.com French doors leading onto the terrace. 2 beds, bath, recep, breakfast kitchen, garden, summer house, shed. £475,000 Strutt & Parker 01295-676587. 1 July 2022

34 Cars A classy speed-rocket The Genesis GV60 is a sporty SUV that packs a punch. Jasper Spires reports “The Genesis GV60 delivers up and rear-wheel drive, the all-wheel drive helm of a rocket ship. But what about to 360kW of power and models have a motor on each axle when the road gets twisty? “Well, it would five-star specs in a compact and four-wheel drive, while appear that the GV60 is well covered in this wrapper,” says Georg the Sport model has 314bhp department, too,” says WhatCar. “It grips Kacher on Wheels. and the Sport Plus 429bhp. well and body lean is mostly minimal… “Please welcome the new That allows you to While the ride is on the firm side, it doesn’t brother in arms to the customise how you plan feel harsh, and the suspension is well- Hyundai Ioniq 5 and to use the vehicle, and controlled over bumps and potholes.” Kia EV6.” Hyundai- get the most out of the owned Genesis splits the model for your lifestyle, It’s as classy on the inside. “The cabin pair with its GV60, by says Murray Scullion for is pretty eye-catching. As with the other being more prestigious, Car magazine. That said, Genesises that have come before it, the better equipped, and Sports Plus is certainly the GV60 is upholstered with thick, quilted, more stylish inside and out. most exciting. “With boost premium materials,” says Will Dron in In short, the Genesis GV60 is mode engaged the acceleration The Sunday Times Driving. It’s this that another successful rollout of a car makes it stand out from the crowd, along using Hyundai’s Electric Global Modular is ravenous and from a standing start with its badge that is “more exclusive than Platform (E-GMP), says Richard Ingram the tyres chirrup as the road beneath you the usual German fare”. It delivers the in Auto Express. It drives well, charges is pummelled into relinquishing grip.” But, performance you would expect from a quickly, and feels every bit as luxurious as as with other electric vehicles (EVs), “the premium EV with the handling aplomb you its £47,000 base price suggests. straight line speed is ungodly”. The GV60 might not. “This is a really great addition will top out at a relatively tame 115mph, but to the electric mid-sized SUV segment.” Behind the wheel, the GV60 is an pushed to its limits, on the way it will take Genesis.com adaptable motor with plenty to offer the you from 0-62mph in four seconds, and driver. “There are three power outputs with 2,020kg of weight behind you it’s like “...the tyres chirrup as the to choose from. The 226 road... is pummelled into brake horsepower being at the relinquishing grip” (bhp) car has a single motor Wine of the week: a heavenly rosé 2021 Le Rêve Rosé, Côtes Matthew Jukes contemplation, and innovation You would have thought de Provence, France Wine columnist used in this project it is Le Dôme would have been owner incredible. And then to Le Jonathan Maltus’s dream, but no. £28.50, reduced to Le Rêve Rosé wears this monicker, £25 each by the Dôme. Designed by Foster and Jonathan, an international case of six bottles,  wine magnate of standing, has honestgrapes.co.uk   There is a mountain of money + Partners, this spaceship made just 500 cases of bottles and 600 magnums of this heavenly being spent in Bordeaux on winery landed in Saint- wine. This is his first foray into winery renovations, and some of Emilion a couple of yards rosé, and it is a fleshy, mid-way point between painfully thin the architecture is truly down the road from the Provençal wannabes and more structured rosés from Bandol. staggering. Château Troplong classically gaudy The quality of the strawberry fruit is second to none. Mondot’s exquisite winery and Château Angélus. Matthew Jukes is a winner of the restaurant rebuild links both Despite its thrilling International Wine & Spirit Competition’s Communicator of buildings with a vast subterranean modern design, it adds the Year (MatthewJukes.com). cellar and flying glass bridge. immeasurably to the moneyweek.com The wow factor is genuinely surrounding landscape. breathtaking. On the other side of I encourage you to the Gironde, Château Haut-Bailly search for images of has embedded a cathedral-sized, these three spectacular space-age winery in the turf flights of vinous adjacent to the stunning bijou imagination – they are château. There was so much taste, all incredible. 1 July 2022

Collectables 35 Boom times for watches Watchesgodigital Collectable timepieces are setting records at auction. Chris Carter reports For all the troubles in inaugural moon landing that Besler in the Robb Report. It ©Backes & Strauss financial markets, vintage year, along with Neil Armstrong brought in $30.3m in total at watches continued to tick along and Buzz Aldrin. Each of the its latest watch sale, the second nicely in June. A rare Rolex astronauts, along with president highest-ever amount for a US wristwatch given to Royal Richard Nixon and his deputy watch auction. It also concluded Navy divers in the 1970s sold Spiro Agnew, received one of a highly successful “white well above its high £120,000 the 28 timepieces made. It sold glove” spring season (meaning pre-sale estimate with for $765,000, while the 210 every lot found a buyer) for Bonhams in London to fetch lots in the Phillips’ watch department, £195,600, including buyer’s sale brought which made $127.2m overall. premium. The government- in almost issued Rolex 5513/5517 In the latest sale, five watches Military Submariner, known sold for over $1m, including Watchmakers in search of as a MilSub, is a more rugged the first platinum George new markets are embracing version of its civilian equivalent. Daniels Anniversary watch, unique digital artworks, Around 1,200 of the watches with serial number 00. It sold known as non-fungible are thought to have been tokens (NFT). Luxury British handed out during the decade, for $2.4m – again, well brand Backes & Strauss and many were damaged above its $1m estimate, to announced in May its through years of use. The set a record for a collaboration with Brazil and example that sold is British wristwatch. FC Barcelona footballer missing its bezel after Dani Alves (pictured) and the seller, the watch’s Some of the proceeds specialist consultancy second owner, recalled went to good causes. ColossalBit to produce a it dropping off during series of NFTs related to a dive in the 1990s. $3.4m New heights ©Heritage Auctions the 43 physical timepieces of But watches, being combined. the ​“Alves Trophy personal items, are Over in New Staying in New Collection”, celebrating the somewhat special York, auction house Phillips, York, rival 43 trophies won by Alves in among collectables in in association with Bacs & auction house his two-decade-long career, that a bit of wear and Russo, “can’t stop setting watch Christie’s broke says Jessica Bumpus in tear usually adds to a auction records”, notes Carol its own watch sales The New York Times. watch’s appeal. Every record, with its two- watch has a story to tell – day event bringing In a similar vein, Nima along with the time. in $21.8m in total. Behnoud, a former creative Almost 60% of lots director of retailers Jacob & A giant leap sold above their high Co and Tourneau, launched in pre-sale estimates. The April a collection of 1,810 Another wristwatch, a gold highlight of the sale series was digital watch NFTs. Called Omega Speedmaster No. “The Kairos Collection” of Nimany Club, the collection 19 (pictured), that had been 128 “extraordinary” modern is organised into various presented to astronaut Patek Philippe timepieces, levels, along the lines of a Michael Collins in around which together sold for a video game, with the rarest 1969, also “soared light-years combined $21.9m in Geneva, priced at 0.1 ether (the beyond pre-auction”, according Hong Kong and New York. cryptocurrency used on the to Texas-based Heritage The stand-out item in the digital ledger Ethereum), Auctions. Collins was one of New York sale was a Patek worth around $181, says the three crew members on the Philippe Ref. 5531R-012, an Bumpus. These could be “exceptional” 18-carat rose traded for Nimany-brand gold Grande Complication. watches via a lottery draw. It fetched a little over $2.2m. Meanwhile, Swiss maker Auctions Tag Heuer will give wearers Going… A portrait of Lucian Freud by fellow painter Gone… An original Leica camera from of its Connected Calibre E4 smartwatch the ability to Francis Bacon that formed the central panel in a ​​ 1923 set a new record-high price for a view their NFT artworks on the go, notes Laure Guilbault triptych was set to sell for around £35m with Sotheby’s camera with Vienna-based Leitz for Vogue Business. Users just need to connect their in London this week. The artwork, called Study for Photographica Auction last month, says “smart wallet” (which holds their NFTs) to their Portrait of Lucian Freud (pictured), was painted in the Metro. The handmade 0-Series, No. smartwatch via an update from Apple’s App Store and May 1964 and “shows Freud with his chest bare and 105 is one of only 12 known to exist, and it Google’s Play Store. “We think that the wrist is a great face monstrous and mangled, sitting on a hard bench had been owned by its designer, Oskar place to display your NFT – to have it close to you but also ©Sotheby’s with his arms outstretched and his fists clenched”, Barnack. He had spent years modifying as a way of authentication between members of the says The Guardian. It is based on a photograph that his prototype for the Leica A, which community, like a badge of honour,” Tag Heuer’s CEO was taken that year by their mutual revolutionised photography a year later Frédéric Arnault tells Vogue Business. The LVMH-owned friend, John Deakin, and “shines thanks to its portable size and the detailed brand began accepting cryptocurrency payments in light on a friendship and rivalry that 35mm photographs it produced. Barnack the US from May. was incredibly intense, but made the five-inch-wide 0-Series from 1 July 2022 ultimately incredibly bitter”. Bacon aluminium, as opposed to wood, which painted Freud repeatedly was more commonly used due to its throughout the 1960s using lighter weight. Hailed as “one of the major Deakin’s photographs, which historical milestones from the history of were found after Bacon’s death in photography”, it soared past the €2.4m 1992, torn, crumpled and fetched by a Leica 0-Series No. 122 in 2018 splattered with paint. to sell for €14.4m, with fees.



Crossword 37 Bridge by Andrew Robson Tim Moorey’s Quick Crossword No.1110 Rules schmools A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 11 July If a defender always played second-hand low on a low card, he 2022. By post: send to MoneyWeek’s Quick Crossword would be right about 80% of the time. It makes sense, therefore, for No.1110, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email: an experienced player to follow the practice. The more you play, scan or photograph completed solution and coupon and email to: crossword@ however, the less you must be a slave to such dicta – aim for a better moneyweek.com with MoneyWeek Crossword No.1110 in the subject field. success rate than 80%. Dealer South Neither side vulnerable ♣♥♠♦ 1AKQ 06K8353J 103 ???? ???? ??? ?? ?? ?? ???? W♣♥♠♠♦??JA888?NS6276Q?629 73E ????????????????????????????????????? ♠ J104 ♥2 ♦ 109742 ♣ J974 ♥ Q954 ♦ AK5 ♣ AKQ5 The bidding South West North East 1♥ pass 1♠ pass 2NT pass 3NT pass pass pass West kicked off with Ace, King, and Knave of Hearts driving out Across clues are mildly cryptic whereas down clues are straight South’s Queen (East discarding two Diamonds), in the hope of winning a later lead. Declarer could count seven top tricks, and ACROSS DOWN naturally turned to Spades to provide the extra (with a three-three Club split in reserve). At trick two, declarer led a low Spade. 7 I can handle holiday book about 1 Rip off (6) Crunch time. computers etc. (5, 2, 2, 2) 2 Spielberg movie (4) If West woodenly played second-hand low, declarer could duck the trick to East. He could win the ten of Diamonds return, finesse 8 Kid on time gets cups and saucers (3, 3) 3 Cowboy film (7) the Queen of Spades, cash the Ace (felling the King and Knave), and follow with the two long cards. Minor-suit top tricks would 9 Seasonal transport is murder, 4 Secret drug store (5) bring the trick total to ten. Game made (plus one). Can you spot the one’s heard (6) 5 Prediction (8) winning defence? 10 Rule of your setter certainly 6 Popular Jamaican West must rise with the King of Spades on the first round (key play). Now declarer cannot duck (West has two long Hearts to cash), takes one in (7) music (6) so must win dummy’s Ace. This renders the Spade suit (and the contract) dead for the lack of a side entry. 12 French composer’s journey not started (5) 11 Don Quixote for one (8) Opportunities for such second-hand high plays are quite frequent, 14 I laid out Greek epic (5) 13 Factory restaurant (7) when declarer is leading to a long suit in an otherwise entryless dummy. Watch out for them. 16 Talk by salesman on new model (7) 15 Exit computer 19 Self-regarding person, I get so spoiled (6) session (3, 3) 20 Refuse to accept hard cane (6) 17 A revolt (6) 22 I work for spinster (5, 6) 18 Figures (5) 21 Increased (4) For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com Name Address email ! Sudoku 1110 Solutions to 1108 Across 7 Paracetamol ace inside anagram 8 Front man deceptive 4 5 2 3 To complete MoneyWeek’s definition 9 Zest hidden 10 Latent LA tent 12 Honey deceptive Sudoku, fill in the squares definition 13 Ami deceptive definition 14 Manor homophone for 68 74 manner 16 Brogue B + rogue 18 Chit two definitions 19 Forwards in the grid so that every row for wards 21 Incontinent in continent. Down 1 Spar 2 Bronze 3 Scimitar 4 Stun 5 Amazon 6 Bless you 92 8 and column and each of the 11 Armchair 12 Hibernia 15 Notice 17 Okayed 19 Finn 20 Data. nine 3x3 squares contain all 1 74 the digits from one to nine. The answer to last week’s puzzle is below. 32 4 856914273 The winner of MoneyWeek Quick Crossword No.1108 is: 6 81 392687451 Mary Banks of Wembley 471532698 Tim Moorey is author of How To Crack Cryptic Crosswords, published 95 38 125876349 by HarperCollins, and runs crossword workshops (timmoorey.com) 51 6 7 649351827 738429516 Taylor’s is one of the oldest of the founding port houses, family run and entirely MoneyWeek is available to visually 987265134 dedicated to the production of the highest quality ports. Late Bottled Vintage impaired readers from RNIB National 513748962 is matured in wood for four to six years. The ageing process produces a Talking Newspapers and Magazines 264193785 high-quality, immediately drinkable wine with a long, elegant finish; ruby red in audio or etext. in colour, with a hint of morello cherries on the nose, and cassis, plums and For details, call 0303-123 9999, blackberry to taste. Try it with goat’s cheese or a chocolate fondant. or visit RNIB.org.uk. 1 July 2022 moneyweek.com

38 Last word The decision of the century Editor-in-chief: Merryn Somerset Webb The Fed can let the market do its work, or burn the house down. Which way will it go? Executive editor: John Stepek Editor: Andrew Van Sickle Bill Bonner Acting editor: Cris Sholto Heaton Columnist Markets editor: Alexander Rankine Comment editor: Stuart Watkins We got a shock when we filled Politics editor: Emily Hohler up our petrol tank recently, Wealth editor: Chris Carter but we’re starting to get used to Shares editor: Matthew Partridge big price increases. We saw them Funds editor: Nicole García Mérida coming years ago. Now they’re Digital editor: Ben Judge here. So are big price decreases Digital shares editor: – for cryptos, techs, junk bonds, Rupert Hargreaves and stocks in general. This week’s Web writer: Saloni Sardana cogitation is about when all this Contributors: Bill Bonner, price commotion will settle down. Ruth Jackson-Kirby, Max King, Not anytime soon, is our guess. Jane Lewis, Matthew Lynn, Mr Market is now taking matters David Prosser, Jasper Spires, into his own hands, deflating the ©Getty Images David Stevenson, Simon Wilson price of assets, correcting mistakes made by Yellen, Powell et al. As Will he have the courage to stay his hand? Art director: Kevin Cook-Fielding Picture editor: Natasha Langan the corrections go deeper, pressure times roll again. The Dow is now on asset-price deflation engenders a Chief sub-editor: Joanna Gibbs on the Fed to “do something about an upward trend once more. “poverty effect”. People have less it” will increase. Then cometh the Does this mark the crest of the to spend. Sales, profits, wages, tax Account director: Abdul Ahad decision of the century, when the inflation wave and the beginning of revenues – everything goes down. Group advertising director: Fed will have to either let a rebound in the stockmarket? The From assets to consumer prices, Caroline Fenner (020-3890 3841) Mr Market finish his house old-timers say that if a market can deflation seeps into everything. Chief customer officer: cleaning, or burn the house down bounce back and recover 50% of its And the main source of leakage Abi Spooner completely with loss, it is a sign is housing. The fall in stocks and Publisher: Denise Elliott more money- “Mr Market is like a cat. of a recovery. bonds leaves most people high and Chief financial officer printing. We think He plays with his food If the bounce dry. But when the housing market Penny Ladkin-Brand we know which fails to reach takes on water, almost everyone Non-executive chairman way it will go… before devouring it” the 50% market gets drenched. Households drown Richard Huntingford Chief executive Investors, though, seem confident – which would be Dow 33,000 or as mortgage payments rise. And as Zillah Byng-Thorne that the Powell-Yellen team will win so – the bear market will probably Bloomberg reports, “We’re already the battle with inflation, without continue. You can take that for seeing the stockmarket selloff spin Subscriptions ever having to draw blood. Big talk. what it is worth – which is not into the housing market”. Email: subscriptions@ Small rate hikes. Letting their bonds much. But remember, Mr Market is Yes, dear reader, left alone, moneyweek.co.uk “run off” without renewing them. in control now. He’s doing what he inflation will take care of itself. Web: MoneyWeek.com/ Piece of cake, right? Then, the Fed always does at the end of a bubble – Mr Market will get the job done. contact-us can get back to doing what it does bringing prices back down to earth. The economy will go into recession. Tel: 0330-333-9688 best – making Wall Street richer And like a cat, he plays with his People will have less to spend. Post: MoneyWeek while destroying the Main Street food before he devours it. Businesses will make less money. subscriptions, Rockwood economy. When prices settle down, So far, he has whacked asset Prices will fall. But will the Fed have House, Perrymount Road, in other words, it can “bring back prices. But just as asset-price the courage not to act? We’re as Haywards Heath, West the punchbowl” and let the good inflation produces a “wealth effect”, curious as you are. Sussex, RH16 3DH Subscription costs: £139.99 The bottom line grounds of Chequers, the men attempted to £541 The average a year (credit card/cheque/ country retreat for prime escape from a direct debit), £159.99 in €3m How much Prince ministers. The project, prison camp. cost of attending the Europe and ROW £179.99. which Johnson hoped wedding of a British Charles was given in cash would be financed by Tory 16.6m reais couple. With the lifting MoneyWeek magazine is an for his charity by Sheikh donor David Brownlow, of international unregulated product. Hamad bin Jassim bin was scrapped due to How much lockdowns and travel Information in the magazine Jaber Al Thani, the former security concerns. (£2.59m) cities in bans, couples are is for general information prime minister of Qatar. the Brazilian spending more than only and is not intended to The prince was given £155,000 The selling state of Mato ever on their nuptial be relied upon by individual bundles of €500 notes Grosso spent on readers in making (or not during three meetings price of a vintage Rolex concerts in 2022. celebrations, costing making) specific investment with the sheikh. The watch thought to have Prosecutors are friends and family a decisions. Appropriate payments, which were played a role in the events probing claims fortune as the independent advice should deposited in the accounts that inspired the that officials in be obtained before making of the Prince of Wales’s Hollywood film The Great dozens of number of any such decision. Charitable Fund, were Escape. The watch is said poor cities weddings in 2022 Future Publishing Limited legal, but critics said that to have been used by paid high is expected to and its staff do not accept Charles showed poor Flight Lieutenant Gerald fees to eclipse 350,000. liability for any loss suffered judgement in accepting Imeson, and to have been attract by readers as a result of any them in this manner. used to determine the artists for For bridesmaids investment decision. positions of German political and best men, £150,000 The cost of a guards as he and 77 other reasons. the cost is Editorial queries: Our staff even higher, are unable to respond to proposed treehouse for personal investment Boris Johnson’s son in the close to £850 queries as MoneyWeek on average. 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 1 July 2022 moneyweek.com



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