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COP26 in review, implications for investing

  • COP26 concludes with some progress made but not enough.
  • New Zealand updates emissions target and signs methane pledge.
  • International carbon credit trading supported through resolving technical provisions in Article 6 of the Paris Agreement.
  • Implications for corporates to address climate change risks given greater expected regulation and investor scrutiny in aligning with net zero targets and a 1.5-degree world.
Jorge Waayman | Posted on Nov 22, 2021

Harbour Outlook: Earnings surprises support equity returns

  • The MSCI All Country World (global shares) Index rose 5.0% in USD in October, lifting the 3-month return to +2.9%. Returns in NZD were more modest, up 1.3% for the month and 0.7% over the past three months.
  • October brought a strong earnings season in the US. At the time of writing, 440 companies in the S&P 500 had reported results with 360 companies (82%) beating earnings estimates, compared to a long-run quarterly average of 66% since 1994.
  • An emerging trend is that companies with pricing power that have been able to weather supply side constraints have been able to significantly grow profits, beating expectations. We think this trend will selectively continue.
  • Bond yields continued to rise through October; the New Zealand 10-year bond yield increased sharply by 0.54% to 2.63%, while the US 10-year bond yield climbed a more modest 0.06% to 1.55%. This contributed to declines for major New Zealand and global bond indices.
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Harbour Team | Posted on Nov 9, 2021

What to expect from COP26

  • Country level emissions reduction targets expected to take centre stage to ensure a 1.5 degrees scenario is within reach.
  • Carbon trading and ‘leakage’ likely to feature given the adjustment mechanism proposed by the EU.
  • Financing the transition will be an important focus, particularly for developing countries that require support.
Jorge Waayman | Posted on Oct 28, 2021

Harbour Outlook: Markets face a wall of worry

  • The MSCI All Country World (global shares) Index fell 4.3% (in USD) in September, though was down a more modest 1.4% over the quarter.
  • The news that one of China’s largest property developers, Evergrande, was facing imminent default caused jitters within the market, with many worried about potential contagion. Evergrande’s troubles came to the forefront following tighter restrictions on property developers’ balance sheets.
  • Broader Chinese economic momentum has continued to stall with Beijing prioritising structural reforms over growth.
  • Bond yields rose over the month, the New Zealand 10-year bond yield increased by 0.27% to 2.09%, while the US 10-year bond yield climbed 0.18% to 1.49%. This contributed to declines for major New Zealand and global bond indices.
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Harbour Team | Posted on Oct 8, 2021

Is there a COVID-19 endemic equilibrium for investors?

  • At some stage the world may learn to live with COVID-19 and, while that may be hard to believe in the middle of a local lockdown, this pandemic may eventually morph into an endemic.
  • From an investment perspective, we need to accept that this is likely and it will allow markets to continue to swing attention to other risks like climate change, inflation, interest rates, disruption, regulation, innovation and corporate earnings.
  • That path may not be straightforward but two data points are encouraging. First the US and European rate of new COVID-19 infections looks to have peaked and, secondly, by the end of this year close to 80% of the world’s adult population are expected to be fully vaccinated.
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Andrew Bascand, Hamish Pepper | Posted on Sep 23, 2021
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Implications of an Evergrande default

  • Some form of default looks inevitable for debt-laden Chinese property developer Evergrande  
  • We examine why markets don’t hold concerns that a default will put sand in the global financial cogs
  • However, concerns are spreading to other developers which could increase volatility
Simon Pannett
Simon Pannett | Posted on Sep 17, 2021
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Sustainability themes from reporting season

  • Climate change disclosure is increasingly prevalent
  • Diversity and inclusion considerations are growing wider in scope
  • The focus on human rights is rising with inaugural modern slavery statements
Jorge Waayman | Posted on Sep 14, 2021

Harbour Outlook: Delta fails to dampen equity markets

  • The MSCI All Country World (global shares) Index rose 2.4% (in USD) in August, buoyed by positive earnings momentum and a more dovish than expected US Federal Reserve.
  • The New Zealand earnings season was strong with beats outnumbering misses 2 to 1. This helped drive a strong 5% return for the S&P/NZX 50 index over the month.
  • Chinese economic momentum looks to have stalled in recent months. Both Caixin and broader PMIs missed consensus estimates during the month, with the non-manufacturing side of the economy particularly weak.
  • The outbreak of COVID-19 in the community scuppered the Reserve Bank of New Zealand’s (RBNZ) plans of a rate rise in August. The tone of the RBNZ remains hawkish which saw bond yields rise across all maturities during August. This caused market returns to be negative with the Bloomberg NZ Bond Composite 0+Yr Index returning -1.0% over the month.
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Harbour Team | Posted on Sep 8, 2021
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The Fed can taper without tantrum

  • As the US economy continues to improve, the US Federal Reserve (Fed) seems close to reducing its pace of bond purchases as part of its quantitative easing (QE) programme.
  • Different to the “taper tantrum” of 2013, however, a reduction in purchases is widely expected and is not being associated with imminent interest rate hikes.
  • US Treasury bond returns tend to be mixed prior to interest rate hikes but US equity markets generally fare much better.
  • That’s not to say it will necessarily be smooth sailing for financial markets. Risks exist in many directions, but a well broadcast tapering may not be the largest concern.
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Hamish Pepper | Posted on Sep 1, 2021

Keeping the lights on

  • Decarbonisation and keeping the lights on will need significant investment
  • Investment needs a stable policy environment
  • Policy risk may have lessened with reviews targeted at better information sharing
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Craig Stent | Posted on Aug 24, 2021