As the COP26 conference winds down, it has seen some interesting wins for countries in the developed markets, and saw the US and China put aside their differences long enough to agree on an accord that will help trim global pollution.
The overarching goal of the conference is to put measures in place to limit the global temperature increase to less than 1.5 degrees Celsius by reaching “net zero” by 2050. As a result, by the second half of the century, we should be producing less carbon than we consume from the atmosphere.
According to Analytics Consulting, this ambitious target will have far-reaching implications for investment strategies “as trillions of dollars of capital will be re-allocated to enable (and benefit) from this structural change in the way in which energy will be generated in decades to come. There are, however, 50 shades of green, and investors will do well to discern between investments that make a significant contribution towards a net zero target and those that are green-washed merely to attract capital.”
One of the findings of a recent Ninety One survey says there is such a large push towards zero that 32% of investors are happy for their money to be used to reduce carbon emissions, regardless of return.
South Africa, a test case for the region, will receive $8.5 billion from US and European powers to move away from using coal. This money will be parcelled out over a three-to-five-year period and is expected to attract additional debt investment from other sources.
By 2030, South Africa aims to decommission 34GW of coal-fired power capacity and is predicted to account for roughly 40% of all new solar generation commissioned on the continent. The funds from the United States, France, Germany, and the UK will work alongside the country’s Renewable Energy IPP Procurement Programme.
Noteworthy, however, is that South Africa has not signed the pledge to move away from coal consumption that was established on the side-lines of the COP26 climate crisis negotiations held in Glasgow, Scotland.
“Banks, pension funds and asset managers have to show where they are in the transition to net zero. And people are voting with their money. That is creating the type of investment we’re going to need to get to net zero.”
– Mark Carney, UN Special Envoy on Climate Action and Finance
- US equities have had a really strong year – reaching record highs on Monday as the US S&P 500 has returned an impressive 26.7% year-to-date, with the Nasdaq up 24.7% – but fell slightly on Tuesday and Wednesday, largely on the back of the US inflation numbers. Interestingly, the US ten-year bond yield strengthened during the week, indicating that these market participants are not overly concerned about the trajectory of interest rates.
- Although the US Federal Reserve kept rates unchanged, it announced the tapering of quantitative easing by $15 billion per month. The announcement was largely in-line with expectations and was interpreted by the market as a “dovish taper” since Fed Chairman Jerome Powell suggested the FOMC are not considering hiking rates any time soon.
- In terms of the job market, the US added what is being seen as an impressive 531,000 jobs in October, while the unemployment rate fell to 4.6%, wages rose by 4.9% year-on-year, and there was a sharp upward revision to prior two months of 235,000 jobs. If the US labour market sustains the current momentum, interest rate hikes could occur sooner than the market is currently anticipating.
- The US consumer price index rose 6.2% from a year ago – the fastest annual pace in more than 30 years, and well above the market expectation of 5.9%. On a monthly basis, prices rose 0.9%, also above the 0.6% estimate.
- This comes as the US Congress passed President Joe Biden’s $1.2 trillion infrastructure package on last week Friday (5 November). This is much smaller than the $2.25 trillion American Jobs Plan Biden proposed in March.
- In China, the producer price index rose 13.5% in October – the highest in 26 years – while CPI rose 1.5% year-on-year in October, up from 0.7% a month earlier. Both numbers were higher than market expectations.
- China and the US announced a surprise plan to work together on cutting greenhouse gas emissions in the crucial next decade, in a strong boost to the COP26 summit, as negotiators wrangled over a draft outcome. The world’s two biggest emitters traded insults last week, but on Wednesday evening unveiled a joint declaration that would see them cooperate closely on the emissions cuts scientists say are needed in the next ten years to stay within 1.5 degrees Celsius.
- The UK’s third climate change risk assessment report warns of a growing “adaptation gap” between the risks the country faces and the action it’s taking, while the Environment Agency states bluntly that the UK must “adapt or die”. A problem with climate adaptation is that conventional engineering solutions are rapidly becoming unaffordable and unsustainable. We can’t keep on building higher sea walls, extracting more groundwater from our land’s depleted resources to irrigate crops, or installing energy-guzzling air conditioning to fight heat.
- At the same time, it’s not enough for buildings to be net zero, according to the global design firm SOM; they should be net negative. In its vision “Urban Sequoia,” presented at the COP26 conference on Thursday, the firm proposed ideas for elevating materials, technologies and strategies that enable buildings to capture more carbon than they emit. The project imagines high rises and skyscrapers that absorb atmospheric carbon and generate biofuels using new technologies like direct air capture.
- Alphabet’s Google lost an appeal against a €2.42 billion antitrust decision on Wednesday, a major win for Europe’s competition chief in the first of three court rulings central to the EU push to regulate big tech. Google was fined in 2017 over the use of its own price comparison shopping service to gain an unfair advantage over smaller European rivals.
- Amazon-backed EV maker Rivian Automotive was set to fetch a valuation of nearly $107 billion on Wednesday as its shares opened more than 60% above their offer price on the Nasdaq. The mammoth valuation would make Rivian bigger than Fiat maker Stellantis, and backers Ford and General Motors.
- Elon Musk yesterday sold almost $690 million in Tesla shares due to tax considerations, this only days after he and his trust sold roughly $5 billion of the stock. For months, Musk has mused out loud about the need to sell some of his Tesla shares. About a quarter of his more than $300 billion fortune consists of Tesla stock options that he is free to exercise at any time.
- Covid-19’s effects on mortality saw life expectancy dip in most places last year, shaving 28.1 million years off the cumulative longevity in 31 countries. But residents of a handful of places that successfully kept Covid-19 at bay – including New Zealand and Taiwan – lived longer. This is according to a study of 37 countries and territories in the journal BMJ, which found the pandemic was a killing field in most places.
- This comes as a coalition of ten states sued the US Federal Government on Wednesday to try to block a Covid-19 vaccine requirement for healthcare workers, marking a new front in the resistance by Republican-led states to the pandemic policies of President Biden’s administration. The lawsuit contends that the vaccine requirement threatens the jobs of millions of healthcare workers and could “exacerbate an alarming shortage” in healthcare fields, particularly in rural areas where some healthcare workers have been hesitant to get the shots.
- In market news, the rand weakened to an eight-month low on Wednesday, driven by the high US inflation numbers, although the currency firmed more than 1.5% to R15.24 per dollar following the Medium-Term Budget Policy Statement. This is, as economists pointed out, despite the sheer quantum of debt that is still projected to climb further – 2024/25’s R5.5 trillion is double 2018/19’s R2.8 trillion, while the country’s credit risk (the perceived risk of default) has slightly moderated.
- The US’s high inflation figures also resulted in a spike upwards in Analytics Consulting’s estimate of fair value for the ZAR/USD exchange rate, which is now at R15.22. Its work on currencies suggests that the pressure over the last 12 months from the US dollar on emerging market currencies, in aggregate, is slowly easing. Dynasty is continuing to externalise client funds at current levels as, at best, we consider the country to be high risk.
- The weaker rand nudged the JSE ALSI 3% higher for the week, while gold was up 2.2% in rand terms for the week so far.
- At home, used car prices have soared in the past year while new car price inflation has slowed because of increased consumer demand for used vehicles. The demand is being driven by consumers trading down, and by the stock scarcity of new vehicles due to the global computer chip shortage.
- Following recent local government elections, newly installed finance minister Enoch Godongwana presented his Medium-Term Budget Policy statement, which came across as looking great on paper, with all the right things having been said. However, the budget ultimately lacks credibility on a three-year view because of the huge implementation risks tied to South Africa’s political cycle. Nobody doubts the Treasury’s resolve, but it hasn’t been enough in the past to prevent debt from climbing relentlessly. Nothing suggests that this is about to change.
- In a radically worded article, RW Johnson has argued that most of South Africa has been rendered ungovernable, again, following the municipal elections. “As we all know, South Africa went into this election with many of its municipalities on their last legs and with the ANC desperately trying to postpone the elections. If one tries to imagine the 2021 elections in historical context it is surely more likely that they will be remembered for quite different reasons.”
- Financial Mail says it is too soon to write the ANC’s obituary, or to describe it as a party of the former Bantustans and rural areas. It remains the biggest party in 161 municipalities. Far from storming the gates, the major opposition parties have failed to capitalise on the ANC’s vulnerability.
- In company news, Shoprite has joined a growing number of South African companies who are investing in solar and renewable power as the Eskom grid becomes increasingly unreliable and electricity prices soar. Shoprite aims to power 25% of its operations with renewable energy by 2025 and added 22 new solar photovoltaic sites between February and September, more than doubling its solar capacity this year.
- Domestic airline Mango has been grounded once again due to a lack of funds. This after the airline suspended all flights at the end of July and was voluntarily placed into business rescue. Mango was scheduled to resume flying in December.
Sources: Dynasty, Daily Maverick, Bloomberg, BusinessLive, Washington Post, The Guardian, Ninety One, etc.