ESG & COVID-19 – Did the long term add value in the short term?
- Whilst Environmental, Social and Governance (ESG) policies take time to impact investment returns, we present evidence that ESG policies added value in the volatile first half of 2020
- Companies with better ESG credentials fell by less when the market dropped in the first quarter of 2020 and kept up with the market when it rallied in the second quarter of 2020
- Companies with lower ESG credentials dropped more in the first quarter, recovered less in the second quarter and underperformed the market over the first half of 2020.
Harbour Market Survey: Cautious optimism
In our inaugural Harbour Market Survey, we asked almost 80 investment consultants, investors, brokers and banks some key market questions. Most respondents felt it was a good time to fix your New Zealand mortgage and that NZDUSD was likely to appreciate over the next three months, but they only marginally favoured adding riskier assets to portfolios – implying some weakening in the recent strong relationship between NZDUSD and risk assets. NZDAUD views were mixed.READ MORE
‘Blame it on Rio’
- Rio to leave, another Think Big Project bites the dust
- Rio Tinto has announced the closure of the New Zealand Aluminium Smelter (NZAS) from August 2021.
- Short term, the biggest impact on earnings will be felt by Contact Energy and Meridian Energy with stranded generation in the lower half of the South Island.
- Is it time to move forward and focus on transmission investment and de-carbonisation?
Harbour Outlook: Stimulus trumps rise in infections
- Equities continued to bounce back with the S&P/NZX 50 Index returning 5.3%, S&P/ASX 200 Index (in AUD) up 2.6% and the MSCI ACWI Index up 3.0%.
- US employment growth has continued to surprise to the upside, with the improving economic data providing a stark contrast to the worsening COVID case numbers.
- Global COVID-19 containment measures have eased in aggregate, allowing a partial recovery in economic activity. The average lockdown stringency for the world’s 10 largest economies, based on the Oxford University measure, reduced to 60 from 70 in May (where 100 is equivalent to Alert Level 4 and 0 is no restrictions).
- In New Zealand, higher frequency economic indicators are showing a sharp recovery in many sectors.
Lifting the bonnet: Electric vehicle adoption, or a lack thereof?
- Electric vehicle (EV) adoption, among larger NZX-listed corporates, was assessed through a quantitative and behavioural survey
- There is low EV penetration in company fleets, on average, with significant dispersion between industry sectors
- Reputation benefits are ranked as the most important driver of EV transition
- A lack of suitable EV models is rated as the largest barrier to adoption, even above cost
- A majority of the companies surveyed had immediate plans to invest in more EVs, however this has likely changed in light of COVID-19
Harbour Funds Update: Fees Decrease
We are delighted to confirm that from July 1st, we are reducing the fees on four more of our funds, following the fees decrease on the Harbour Corporate Bond Fund and Advanced Beta Fund last year. This time around, the Harbour Long Short Fund, Harbour Australasian Equity Focus Fund, T Rowe Price Global Equity Growth Fund, and the Harbour Australasian Equity Fund will all benefit from the fee changes. Please see below for detai...READ MORE
A bold bounce
- Many economies, including New Zealand, are re-opening and recovering faster than expected
- High growth rates are normal after such a large contraction in activity and the recovery, so far, is partial
- Ongoing policy stimulus is expected, given the residual uncertainty
Harbour Outlook: Beating expectations
- Equities continued to bounce back with the S&P/NZX 50 returning 3.3%, S&P/ASX 200 (in AUD) up 4.4% and the MSCI ACWI Index up 4.1%.
- Government bond yields settled in a low range, as the Reserve Bank’s bond buying (QE) programme offset the pressure that would otherwise have come from increased issuance.
- Australian and New Zealand earnings season so far, on balance, has delivered more upside than downside surprises relative to expectations.
- Budget 2020 in New Zealand overwhelmed on spending but underwhelmed on detail.
Negative rates – An option for the RBNZ, but not its preference
- The RBNZ continues to entertain the idea of a negative Official Cash Rate (OCR) to provide additional economic stimulus
- There is global precedent but the associated lower policy efficacy and financial stability risks cause much debate
- A negative OCR cannot be ruled out and keeping the option open is likely helping to anchor short-term interest rates and the NZD
- The RBNZ’s revealed preference for QE, however, is clear and an expanded Large Scale Asset Purchase (LSAP) programme remains most likely if further stimulus is needed
Large Fiscal Spending Promises
- Budget 2020 revealed larger-than-expected potential spending in response to COVID-19.
- However, detail was lacking on many spending priorities.
- The accompanying larger bond issuance programme may prove difficult for the market to digest, placing upward pressure on government bond yields.