Five insights in five minutes
Equities and climate
Peaking around Cop26, the number of times ‘climate risk’ is being typed into Google has tripled in the past 12 months. Meanwhile, this week alone there have been 800 articles in global news publications that include the term ‘climate catastrophe’ – five times more than the average since January. Back in 2018 there were closer to 20. And yet despite ubiquitous warnings of our demise, the S&P500, Dow Jones, Nasdaq 100 and Russell 2000 have all hit record levels for two sessions running as Five in Five went to press – a show of vitality not seen for almost four years. Global equity indices are also making consecutive highs. Given markets discount far into the future, how to interpret the disconnect here? Perhaps investors believe climate change poses little or no threat to returns whatsoever – better to follow the Fed’s tapering announcement on Wednesday, for example. Hypothesis two is that climate change is already priced in. If that’s true, the mother (earth) of rallies awaits if Glasgow is a success. A third and final explanation is that investors have completely underestimated the existential threat to asset prices from climate change. Still, that’s two of three in support of stocks. Not bad odds.
Conversation starter for...global equities, US equities, real asset prices, emerging market equities
However you measure it, trillions of dollars are needed to fill the infrastructure funding gap around the world. As illustrated below, the shortfall is particularly critical in emerging markets, which don’t yet have the necessary financial and operating expertise. And with infrastructure being the main sector responsible for greenhouse gas emissions from human activities, solutions need to be sustainable. How to ensure this? Part of the answer might have been given at Cop26 this week, with the launch of the FAST-Infra initiative, a global public-private partnership aiming to ensure investment is swiftly channelled towards sustainable projects. The creation of a Sustainable Infrastructure label is the first step towards a deep and liquid asset class, and should give confidence in the environmental credentials and resilience of new projects. Investors who thought that sustainable infrastructure was an oxymoron now have trillions of reasons to change their minds.
Conversation starter for...ESG strategies, infrastructure debt and equity, alternatives
India’s net-zero pledge
Although it dissipates from the atmosphere relatively fast, methane traps 85 times more heat than carbon dioxide, hence the Cop26 commitment by a hundred countries to reduce emissions by a third by 2030, compared with 2020, is welcome news. Methane accounts for about 15 per cent of the greenhouse warming effect. So the cut means a five per cent improvement relative to baseline by the end of the decade. Take Prime Minister Modi’s ‘net-zero by 2070’ pledge this week for comparison. Carbon is responsible for three-quarters of warming and India was on trend to produce a tenth of global emissions by 2030. Even if these are halved in nine years, therefore, the benefit would be slightly less than the methane commitment. Longer term, of course, Modi’s pledge is more significant. And despite India’s per-capita emissions being less than half the world average, the nation has taken proactive steps to tilt its energy mix towards clean energy (see chart). Indeed, 40 per cent of power generation capacity installed this year has come from hydro and renewables. With 1.4 billion people, the opportunity for clean-tech investments is massive.
Conversation starter for...India equities, India bonds
Deforestation and natural capital
Cop26 made a promising start this week. More than a hundred world leaders vowed to end and reverse deforestation by 2030, backed by almost $20 billion of funding – a third of which is coming from private pockets. According to Greenpeace, deforestation accounts for one-fifth of global greenhouse gas emissions. And even during last year’s economic downturn, the loss of primary tropical forests rose by 12 per cent compared to 2019. Not good considering humanity’s dependence on nature, as shown in the chart below. Cambridge economist, Partha Dasgupta, reckons that degradation continues due to markets failing to assign an appropriate value to the services the natural world provides. Governments haven’t helped either: up to six trillion dollars per year of global subsidies end up damaging nature. Solutions such as biodiversity permits can help, and nature must become integral to economic and financial models. But funding is required immediately. Investors should seek out natural capital solutions, which in theory are underpinned by the biggest asset class on earth.
Conversation starter for...natural capital funds, climate change funds, ESG investing
Innovation and climate change
Technological innovation sparked the industrial revolution and ultimately the climate crisis. Technological innovation is needed to avert it. Step in prolific innovator, Bill Gates. At Cop26 this week he formalised a partnership with the European Union that aims to raise $1 billion towards clean tech projects. Unlike the early days of Windows, however, there is no monopoly risk. With annual venture capital funding for climate tech start-ups at $17 billion, more than quadruple five years ago, innovation is set to proliferate. According to McKinsey, five groups of technologies alone could abate 40 per cent of greenhouse gas emissions by 2050. Yet as can be seen below, the annual investment needed remains far beyond these numbers – and certainly out of reach of government budgets. The International Energy Agency estimates that 70 per cent of investment in climate solutions must come from the private sector. That is why the revelation on Wednesday that the Glasgow Financial Alliance for Net-Zero now has 450 members (including HSBC) controlling $130 trillion in assets couldn’t be better timed. Climate-tech couldn’t be, er, cooler right now.
Conversation starter for...Climate tech and climate change funds
For Professional Clients and intermediaries within countries and territories set out below; and for Institutional Investors and Financial Advisors in Canada and the US. This document should not be distributed to or relied upon by Retail clients/investors.
The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.
The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Global Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. Foreign and emerging markets. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. This commentary is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.
We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.
HSBC Global Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. (HSBC Group). HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed by the following entities:
- In Argentina by HSBC Global Asset Management Argentina S.A., Sociedad Gerente de Fondos Comunes de Inversión, Agente de administración de productos de inversión colectiva de FCI N°1;
- In Australia, this document is issued by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL 232595, for HSBC Global Asset Management (Hong Kong) Limited ARBN 132 834 149 and HSBC Global Asset Management (UK) Limited ARBN 633 929 718. This document is for institutional investors only, and is not available for distribution to retail clients (as defined under the Corporations Act). HSBC Global Asset Management (Hong Kong) Limited and HSBC Global Asset Management (UK) Limited are exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services they provide. HSBC Global Asset Management (Hong Kong) Limited is regulated by the Securities and Futures Commission of Hong Kong under the Hong Kong laws, which differ from Australian laws. HSBC Global Asset Management (UK) Limited is regulated by the Financial Conduct Authority of the United Kingdom and, for the avoidance of doubt, includes the Financial Services Authority of the United Kingdom as it was previously known before 1 April 2013, under the laws of the United Kingdom, which differ from Australian laws.
- in Austria by HSBC Global Asset Management (Österreich) GmbH which is regulated by the Financial Market Supervision in Austria (FMA);
- in Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 37 Front Street, Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority;
- in Canada by HSBC Global Asset Management (Canada) Limited which provides its services as a dealer in all provinces of Canada except Prince Edward Island and also provides services in Northwest Territories. HSBC Global Asset Management (Canada) Limited provides its services as an advisor in all provinces of Canada except Prince Edward Island;
- in Chile: Operations by HSBC's headquarters or other offices of this bank located abroad are not subject to Chilean inspections or regulations and are not covered by warranty of the Chilean state. Further information may be obtained about the state guarantee to deposits at your bank or on www.sbif.cl;
- in Colombia: HSBC Bank USA NA has an authorized representative by the Superintendencia Financiera de Colombia (SFC) whereby its activities conform to the General Legal Financial System. SFC has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Colombia and is not for public distribution;
- in Finland, Norway, Denmark and Sweden by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Stockholm branch of HSBC Global Asset Management (France), regulated by the Swedish Financial Supervisory Authority (Finansinspektionen);
- in France, Belgium, Netherlands, Luxembourg, Portugal, Greece by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026);
- in Germany by HSBC Global Asset Management (Deutschland) GmbH which is regulated by BaFin;
- in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission;
- in India by HSBC Asset Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India;
- in Italy and Spain by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Italian and Spanish branches of HSBC Global Asset Management (France), regulated respectively by Banca d’Italia and Commissione Nazionale per le Società e la Borsa (Consob) in Italy, and the Comisión Nacional del Mercado de Valores (CNMV) in Spain;
- in Mexico by HSBC Global Asset Management (Mexico), SA de CV, Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC which is regulated by Comisión Nacional Bancaria y de Valores;
- in the United Arab Emirates, Qatar, Bahrain & Kuwait by HSBC Bank Middle East Limited which are regulated by relevant local Central Banks for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority.
- in Oman by HSBC Bank Oman S.A.O.G regulated by Central Bank of Oman and Capital Market Authority of Oman;
- in Peru: HSBC Bank USA NA has an authorized representative by the Superintendencia de Banca y Seguros in Perú whereby its activities conform to the General Legal Financial System - Law No. 26702. Funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Perú and is not for public distribution;
- in Singapore by HSBC Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore;
- in Switzerland by HSBC Global Asset Management (Switzerland) AG whose activities are regulated in Switzerland and which activities are, where applicable, duly authorised by the Swiss Financial Market Supervisory Authority. Intended exclusively towards qualified investors in the meaning of Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA);
- in Taiwan by HSBC Global Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission R.O.C. (Taiwan);
- in the UK by HSBC Global Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority;
- and in the US by HSBC Global Asset Management (USA) Inc. which is an investment adviser registered with the US Securities and Exchange Commission.
- Are not a deposit or other obligation of the bank or any of its affiliates;
- Not FDIC insured or insured by any federal government agency of the United States;
- Not guaranteed by the bank or any of its affiliates; and
- Are subject to investment risk, including possible loss of principal invested.
Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided as an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively 'the MSCI Parties') expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)
Copyright © HSBC Global Asset Management Limited 2021. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Global Asset Management Limited.