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India is Sterling’s A rewilding

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MAKE IT, KEEP IT, SPEND IT 23 JUNE 2023 | ISSUE 1161

Money for nothing

Would a universal basic income work?
Page 14

BRITAIN’S BEST-SELLING FINANCIAL MAGAZINE MONEYWEEK.COM

 23 June 2023 | Issue 1161 Britain’s best-selling financial magazine

From the editor...

Stand too close to keeping unviable firms alive)
an Impressionist could now be on the cards.
painting and the Signs of impending deflation
brushstrokes (the producer-price index has
become been negative for seven months
overwhelming. Step back, and and consumer prices are rising

©Todor Dimitrov, National Museum of History, Bulgaria

once you have dug someone’s by just 0.1% year on year); the
selfie-stick out of your ribs, newly shrinking population;
you will see the overall picture. and India (see page 6) eclipsing
Dealing with the financial news China’s overall population
is similar. Daily market reports intensify the whiff of decay.
and news are noise; detach The past fortnight has
yourself from them and track the brought further reminders that
big trends that could affect your The ancient metal of kings: artefacts from the British Museum’s inflation is likely to stay too
portfolio over the long term. exhibition Luxury and Power: Persia to Greece high for too long (see pages 6
This week, for instance, we and 13) – and it will prove even
had a further stark illustration “It is starting to look as though China more stubborn if the clamour
of Europe’s underperformance for state relief for overstretched
over the past few years. The
could indeed get old before it gets rich” mortgage holders spurs the
European Council on Foreign Relations of steam. Analysts have long wondered if government into action (see page 16). That
notes that in 2008 the EU’s economy was the Middle Kingdom might get old before brings us to one of the longest financial
worth $16.2trn, while US output totalled it gets rich, and the evidence is mounting trends of all: gold as a safe haven and store
just $14.7trn. In 2022, America’s GDP was that it very well might. When an economy of value, which has endured for millennia.
worth $25trn while Britain and the EU develops an enormous debt load (see Gold bugs often talk in hushed tones
could only muster $19.8trn between them. page 7), the process of growth comes to of the “ancient metal of kings”. It would
resemble running up a down-escalator. be used by monarchs to flaunt wealth and
Europe lacks an Apple or Amazon Everything becomes that much harder, privilege – a key reason it developed its
The eurozone crisis lingered for years as more and more money goes towards cachet among investors in the first place.
in the periphery, while the absence of servicing debt rather than investing in James II famously wrote a letter to the
technology champions to spearhead output new production. Momentum slows. This Grand Vizier of the Ottoman Empire in
hasn’t helped either: there is no European gradually undermines the credit bubble, gold in order to highlight his power. A new
equivalent of Apple and Amazon. It will be which eventually begins to hiss so much air exhibition at the British Museum, Luxury
hard for Europe to close the gap as it has that rattled borrowers deleverage, lowering and Power: Persia to Greece, which I can
barely begun to issue common debt, while growth and asset prices further. thoroughly recommend, examines these
the US, with the world’s reserve currency, The apparent end of China’s debt binge themes in the context of the aftermath of
can fund its plans easily without unnerving is evoking comparisons with Japan in the Greco-Persian wars. Catch it if you can.
the markets, as Gideon Rachman notes in the 1980s and 1990s after its property
the Financial Times. bubble burst. A Japan-style slow-motion
Another long-term trend that appears zombification of the economy (with Andrew Van Sickle
to be crystallising is China running out debt restructuring endlessly postponed, editor@moneyweek.com

Good week for:

A welcome period of silence British tennis players Andy Murray (pictured) and Katie Boulter have won
“The F***king their respective singles titles at the Wimbledon warm-up tennis tournament,
Grifters… That’s the the Nottingham Open. Boulter was awarded £27,239 and Murray £16,823.
podcast we should The prize money differs because the men’s and women’s tournaments
have launched with form part of different global tours.
[the Duke and
Duchess of Sussex],” Marta Fascina, the 33-year-old girlfriend of former Italian prime
Bill Simmon, head of minister Silvio Berlusconi, who died earlier this month at the age of
podcast innovation 86, could be in line for as much as €100m from his €6.2bn fortune.
and monetisation at The will was recently modified in Facina’s favour, according to the
Spotify, said on his Italian press. She may also inherit “one or two” of the late
own podcast, using leader’s properties, says The Times.
the US slang term for
con artists. The music and podcast-streaming
Cover illustration: Adam Stower. Photos: Getty Images; Charlie Burrell

Bad week for:

platform has ended its $20m deal with Harry and
Meghan, signed in 2020, after they produced just
13 hour-long episodes of their Archetypes
podcast series. That deal gave the Sussexes over
£1m an hour, says Kevin Maher in The Sunday
Times. They also “snagged” £81m for producing,
so far, six hours of Harry & Meghan for Netflix (the
film and TV-streaming service is not renewing its
deal with the couple), implying that their media
rate is “roughly £142,000 a minute”. And Meghan
was reportedly paid £2,958 per word for her 169-
word children’s book The Bench– “better than
©Getty Images
DC Studios’ superhero film The Flash grossed an estimated
$55.1m in its first weekend in North America – well short of the
projected $70m-$75m, says the Los Angeles Times. Its marketing
campaign has been “marred by legal scandals and disturbing
allegations surrounding its star, Ezra Miller”, while DC Studios has
been “in a state of turmoil” since its parent Warner Bros. merged with
Discovery last year.
Japan is in the grip of a crime wave aimed at relieving collectors of their
valuable Pokémon trading cards, says The Wall Street Journal. Last
month, 600 cards worth about ¥6.5m (£36,000) were stolen from one
shop on the southern island of Kyushu. Pokémon cards, first released

most Times journalists”. “These two players are in Japan in 1996, have fetched high prices recently. One featuring
not f***ing grifters at all. They’re... geniuses!” Charizard, a dragon-like monster, sold for $336,000.

moneyweek.com 23 June 2023

6 Markets

The new global economic heavyweight

Alex Rankine
Markets editor

“I really feel that India is at a tipping point,”

says Apple’s CEO Tim Cook. “There are a
lot of people coming into the middle class...
the dynamism in the market. The vibrancy
is unbelievable.” Apple’s CEO isn’t the only
corporate leader feeling enthusiastic about
India, says Una Galani for Breakingviews.
Foreign firms used to complain about
New Delhi’s “fondness for import tariffs”
and complex taxation of multinationals.
Now they are piling in as they seek an
alternative to China. JPMorgan forecasts
that within two years one in four iPhones
will be made in India. With a GDP per
capita still less than a fifth of China’s, there
is immense scope for catch-up growth.

Exposure to Indian growth doesn’t come
cheap. Local shares are trading on nearly
20 times forward earnings, compared
with an emerging-market average of 12.
Investors don’t have many alternatives,
Yosuke Mimaki of Sumitomo Mitsui DS
Asset Management tells Nikkei Asia. With
China slowing and a cloud hanging over US
tech, “India is one of the few markets where
investors can buy equities based on growth
potential”. India’s economy expanded by
6.1% in the first quarter on a year before.
The benchmark BSE Sensex index
has hit a record high, says Hinako Sato
in the same publication. Accusations
of wrongdoing at infrastructure
conglomerate Adani hit local stocks earlier
this year, but the Sensex has since bounced.
Valued at $3.4trn, India’s stockmarket is
already the world’s fourth-largest behind
the US, China and Japan.
Cook is right about Indian “dynamism”,
says Bloomberg. Two-thirds of India’s
1.4 billion people are of working age; the
Indian GDP is expected to overtake Germany’s and Japan’s by 2028
median age is just 28 (compared to 38 in
China). Whether the country can harness
that demographic dividend will depend on
prime minister Narendra Modi, whom
polls suggest is on course to win again in
general elections next year. India needs
to build enough infrastructure and to
create enough jobs to keep growth ahead
of the expanding workforce. If not, mass
unemployment looms.
Can the boom last?
Continued dynamism isn’t a given, says
S Venkat Narayan in The Island, a
Sri Lankan newspaper. India has
competition. The likes of Microsoft and
Samsung have been making their biggest
manufacturing investments in Vietnam,
which has lower import tariffs and a
“plethora of free-trade agreements”. If it
wants to “leverage global corporations’
©Getty Images
China Plus-One strategy”, it “will need...
more than cheap labour” to persuade them.
“There is no shortage of sceptics” about
India, says The Economist. “Some point
to cronyism and protectionism... others
complain that dodgy statistics exaggerate
its growth.” Westerners worry about
“Modi’s erosion of democratic norms”;
Chinese officials, meanwhile, think that
this multilingual, decentralised democracy
is “not authoritarian enough” to follow in
their footsteps.
Yet India doesn’t need “miraculous
improvement”. It is already the world’s
fifth-largest economy and could overtake
Germany and Japan by 2028. Provided
it keeps “growing at roughly its present
pace”, it will soon become a global
economic heavyweight, joining America,
China and the EU as a central “pillar of the
world economy”.

Inflation set to stay too high for too long

“The great post-Covid No such luck in the
inflation scare appears” to eurozone, which dipped into a
have entered “its final stage”, technical recession earlier this
says Isabelle Lee on year, says Mehreen Khan in
Bloomberg. In America, at The Times. Annual inflation in
least. Annual US consumer- the single-currency bloc fell to
price inflation fell to 4% in 6.1% in May, down from 7% the
May, the lowest reading previous month.
since March 2021 and down Last week the European
from 4.9% the previous month. Central Bank (ECB) raised
The fall was driven by a rates by 0.25%, taking the
drop in fuel prices as last deposit rate to 3.5%, a
year’s energy-price spike fell 22-year high. Unlike the
©Getty Images

out of the annual comparison.
Yet annual core inflation,
which strips out volatile food
and energy prices, remains too
high for comfort at 5.3%.
Last week, the US Federal
Reserve left interest rates
unchanged between 5%
and 5.25%, its first “pause”
after 15 months of continuous
hikes. “The end of the Fed’s
The European Central bank has hiked its
key interest rate to a 22-year high
tightening campaign now
seems in sight, if it hasn’t
already arrived,” says
Justin Lahart in The Wall
Street Journal.
Fed officials still say that
they expect to raise rates again
before the end of the year, but
Fed, it is not talking of
pausing for now. “The
ECB began tightening
“if the next inflation report monetary policy much later”
shows signs of further cooling, than the US or UK central
even that could be in doubt”. banks. Record-low
So far, the Fed seems to be just unemployment is driving
about managing the tricky wage gains in the eurozone,
task of bringing inflation down prompting the ECB to warn
without sinking the wider that inflation is poised to stay
economy into recession. “too high for too long”.

23 June 2023 moneyweek.com


China challenges
the US dollar
Foreign investors can now buy
major stocks listed in Hong
Kong in Chinese yuan as well as
Hong Kong dollars (HKD). The
city’s exchange has launched
the “HKD-RMB Dual Counter
Model”, with 24 firms (including
Tencent and Alibaba) now
available in both currencies.
Hong Kong hopes that the
move will “help revive its
flagging stockmarket”, says
Jeanny Yu on Bloomberg. The
Hang Seng index is down by
2.5% so far this year and trading
volume is at a four-year low.
Markets 7
Reshoring to the rescue
“Mexican stocks are on fire,”
says Alex Harring on CNBC.
The benchmark IPC stock index
has gained 13% since 1 January
and 65% since March 2020.
The rally has added roughly
$220bn to the value of the
Mexican market over the last
three years, says Bloomberg.
The “near-monopolies”
that dominate the index are
attractive to investors seeking a
“defensive play”. Yet stocks have
begun to look expensive: local

The scheme has so far only
been opened to international
buyers, but there are plans to
“extend it to mainland
investors”. That could “unleash
a new wave” of cash into
Hong Kong shares. Yuan-
denominated shares will allow
yuan-based Chinese investors
to trade Hong Kong shares
without the exchange-rate risks
of using a different currency.
Appetite from overseas
investors for the scheme is
likely to be limited, say Kenji
Kawase and Echo Wong in
Nikkei Asia. Few foreign
investors have big yuan
holdings, although use of the
yuan in oil trading is spreading
in the Middle East. The move is
part of a long-term plan to
“internationalise” China’s
currency. Beijing hopes that if
foreign investors see they can
invest their yuan profits in Hong
Kong they will be more willing
to conduct trade in yuan, not US
dollars. This is “chapter one” of
China’s plan to challenge the US
dollar’s dominance, says Alicia
Garcia Herrero of Natixis.
©Getty Images
shares cost 12 times forward
earnings, higher than the 9.4 Mexico’s trade deal with the US has boosted its economic momentum
rating in Chile or Brazil’s 7.3.
initial public offering in over five mean there should be much
Dodging a lost decade years” because of clunky stock more to come.
The Mexican market had exchange rules, adds Michael In March Tesla announced
been on course for a “lost O’Boyle on Bloomberg. plans for a new factory in
decade” after oil prices tumbled Yet investors’ gripes Monterrey, only its third outside
in 2014 (the country produces about Mexico are being the US, says El Financiero.
two million barrels of oil a day), forgiven because of the rise Last year, moreover, East
says El Financiero in the Mexico of a powerful new trend: Asian investors “moved 44
Daily Post. The election of left- “nearshoring”, say Pablo factories, production lines and
wing populist Andrés Manuel Riveroll and Andrew Rymer of distribution centres from Asia to
López Obrador (AMLO) as Schroders. This “reorientation relocate in 16 industrial parks”
president in 2018 did little to of global supply chains” across Mexico. Chinese firms
improve sentiment. AMLO has started when Donald Trump “gobbled up” 79.5% of the
scant regard for the property imposed tariffs on Chinese newly rented industrial space.
rights of overseas investors. manufacturers in 2018. Chinese furniture makers,
The Bolsa Mexicana de Pandemic-induced supply- car-parts producers and
Valores was fast becoming a chain disruptions further electronics firms are all
backwater amid a string of encouraged multinationals to muscling into Mexico, says
delistings, say Caroline Pulice start moving factories closer Peter Goodman in The
and Kylie Madry on Reuters. to final markets. Mexico has New York Times. Products
In the second quarter of 2022, slowly been developing a labelled “made in Mexico”
average daily trading volume “broad manufacturing can be transported into the US
on the Mexican exchange was base” over the past 20 years, duty-free. Despite geopolitical
$96m, barely one-sixth of and its trade deal with, and tensions, China’s manufacturers
the $5.64bn on the Brazilian geographical proximity to, the “have no intention of forsaking
exchange over the same period. US, coupled with “globally the American economy” or the
“Mexico has not had a major competitive labour costs”, deep pockets of US consumers.

Viewpoint n Will China follow Japan into deflation?

“Nvidia is now the fourth-most
commonly held stock in US
environmental, social and governance
[ESG] funds... [Nvidia] makes... top-end
AI [artificial intelligence] processors...
It’s all seen as green, as the virtual world
is low on emissions... except that many
experts... believe AI poses an existential
threat to mankind... ridding the world of
homo sapiens is the surest way of
reducing man-made carbon emissions.
But... who would collect the dividends?...
Debt as a share of GDP China’s investment-led growth
model is hitting its limits. For
Household, non-financial corporate years, borrowers in China have
and government borrowings “binged” on credit to fund
infrastructure projects and
300%
Households dubious property investments,
says Stella Yifan Xie in The Wall
Non-financial corporations
Street Journal. Unlike in the
250% Central government West, national public debt is
Local government modest. Rather, it’s households,
the private sector and local
200%
Source: The Wall Street Journal/Chinese Academy of Social Sciences

governments that are most in

A fifth of [one prominent] sustainability
fund is dedicated to companies that may
be green, but they put at risk the
sustainability of the humans who invest
in it by advancing the threat from AI...
One can always tell when something...
has run its course when it becomes a
parody of itself. Sustainable investing
has reached this point. It’s comic that...
companies which [might just] remove us
from the face of the Earth are included.”
Stuart Kirk, Financial Times
moneyweek.com
trouble. Total borrowing as a
share of GDP stands at 272%,
150% higher than the 257% figure for
the US or the eurozone.
Consumers are increasingly
100% prioritising paying down debt
rather than spending, causing
the reopening rally to stall.
50% Similar deleveraging after
Japan’s 1980s housing bubble
led to “a vicious cycle of
0% deflation and economic
stagnation” lasting decades.
2010 2015 2020
23 June 2023
8 Shares

UK’s mobile megamerger WE Soda’s London

flotation goes flat
WE Soda, one of the world’s
Vodafone and Three plan to tie the knot, forming Britain’s biggest operator. biggest manufacturers of
Regulators may require major concessions. Alex Rankine reports soda ash, has cancelled a
planned initial public
Vodafone and the owner of Three have agreed to offering (IPO) in London.
merge their British mobile networks, say Jasper The listing, at a targeted
Jolly and Mark Sweney in The Guardian. The valuation of $7.5bn, had
deal would see the pair, currently the third- and been poised to be London’s
fourth-biggest mobile operators in Britain, largest this year.
Management at the
leapfrog leaders EE and Virgin Media O2 to Turkish-owned company,
become the country’s largest, with more than 27 whose ingredients are
million subscribers. Vodafone would control 51% used in glass-making
of the new business. and the chemicals industry,
“Mega deals” rarely have such “obvious blamed the decision on
logic”, says Ben Marlow in The Telegraph. the “extreme... caution”
“One network is cheaper to run than two.” of investors in
Vodafone has long “been the anti-Midas of London’s stockmarket.
deal-making”. Its blockbuster takeover of That has revived
recurrent concerns about
Germany’s Mannesmann in 2000 remains “one the declining attractiveness
of the biggest examples of value destruction in of the City as a global
corporate history”. While management became listings venue, says Ian
“preoccupied with planting flags all over the King for Sky News. Yet
©Vodafone

world”, they left the UK business to wilt, “dogged The stakes are high for CEO Margherita Della Valle London investors are
by... IT failures, endless executive changes and simply being shrewd
uncompetitive pricing”. changed”, justifying only three major networks, after getting burned by
then it must “wring some hard concessions” out the likes of THG, Doc
Will regulators agree? of the pair. Della Valle’s talk of spending £11bn Martens and Deliveroo in
recent years.
“The financials look fine,” says Patrick Hosking in building out a “best-in-Europe” 5G network in WE Soda does have
in The Times, with the pair targeting £700m the UK sounds nice, but a “business plan... is not “enviable” growth
in synergies in five years. The hard part will the same thing as a binding undertaking”. prospects, but the owners
be convincing regulators Ofcom and the Vodafone’s strategy is to use “the deterioration wanted to list at a
Competition and Markets Authority (CMA) of Britain’s infrastructure as a bargaining chip” substantial premium to
to abandon their previous stance that Britain to persuade regulators to back the deal, says peers such as Belgian
should have at least four major mobile operators. Pamela Barbaglia on Breakingviews. Vodafone chemicals group Solvay.
Recently installed Vodafone boss Margherita says that consolidation is the only way that this The requested valuation
Della Valle says the firm needs extra scale to low-margin industry can find the cash to build was “too rich for the
market’s blood”.
compete with EE and O2. “The claim that the next-generation networks that Britain needs WE Soda was “trying to
poor little Voda” is the underdog “because it if it is to “become a tech hub”. But the CMA will list at a peak multiple off
has only 20% of the UK market scores highly be concerned that the deal will lead to higher peak earnings resulting
for chutzpah”. prices for consumers at a time when cost-of-living from peak prices for soda
“The plea of current poverty isn’t ridiculous”, pressures are uppermost in the mind. “The stakes ash”, agrees Craig Coben
says Nils Pratley in The Guardian. EE and Virgin are high for Della Valle”, whose predecessor Nick on FT Alphaville. “Investors
Media O2 enjoy returns that are comfortably Read stepped down in December after tanking were having none of it.”
above the sector’s roughly 9% cost of capital, the share price. If the deal “results in a lengthy Management also failed
while Vodafone and Three currently generate less and painful antitrust ordeal” then shareholder to consider that investors
might not be inclined to pay
than half that amount. But if the CMA does end pressure on Vodafone management “to take more a premium for the “country
up agreeing “that the market has fundamentally radical actions, like asset sales, will build”. risk associated with having
all current production

AstraZeneca’s Plan B in China

assets in Turkey”.
If investors “have
learnt one lesson from the
Pharmaceutical giant country is also a major market [IPO] class of 2021” then it is
AstraZeneca is considering for “leading-edge cancer “not to head lemming-like
carving out its Chinese division drugs”. But harnessing those into exorbitant new listings”,
and listing it separately in Hong opportunities “requires a cosy says Alistair Osborne in
Kong or Shanghai, says the relationship with Beijing”. A The Times.
Financial Times. A separation separate listing for the local The proposed deal was
“might not ultimately take unit would allow investors to all the less appealing
place” but is understood to gauge “how much of any China because Turkish billionaire
©Getty Images

have been discussed with
bankers. AstraZeneca would
retain control of any separately
listed Chinese unit. A legal split
and listing on a Chinese market
would make the unit “a more
plausibly domestic Chinese
business”, potentially
insulating it if Beijing ever
launches a “crackdown on
foreign companies”.
AstraZeneca is “the largest
overseas pharmaceutical
company in China by sales”.
risk-reward balance they are
willing to hold”.
Unlike “political football,
China accounted for 13% of HSBC”, AstraZeneca is not “so
AstraZeneca’s worldwide sales embedded in China that it
last year, says Alex Lawson in would be spinning off the
The Guardian, bringing in $6bn. biggest part of the group”, adds
That is about one-third of the Alistair Osborne in The Times.
figure for the US, the firm’s But Western firms with
largest market. substantial China operations
AstraZeneca sees big need to “have a plan B”. As
“opportunities for acquisitions Russia has shown, when
in China’s innovative biotech geopolitics turns nasty, “assets
sector”, says Lex in the FT. The can swiftly become worthless”.
Turgay Ciner was only
offering City investors a
10% minority stake.
The upshot? The failure
to secure this listing is not
a blow to London:
“nothing ruins the IPO
market faster than a big,
overpriced float”. Still,
the listing’s cancellation
is certainly “a first of sorts: a
white powder too pricey for
even City of London buyers”.

23 June 2023 moneyweek.com

 Shares 9

MoneyWeek’s comprehensive guide to this week’s share tips

Four to buy

B.P. Marsh
The Mail on Sunday
This Aim-listed private-equity
firm invests in specialist
insurers. It takes a stake in
“early stage” firms across
multiple markets, supporting
their growth and turning a
profit when they are eventually
acquired by bigger companies.
The strategy has generated
£93m in proceeds on £27m in
investments over the past six
years, with more in the pipeline.
Shareholders enjoy special
dividends when the firm makes
a big sale. The “astute team” has
“decades of experience” in this
specialised niche and the shares
trade on a discount to the value
of the firm’s assets. 376p
Fuller, Smith & Turner
The Telegraph
This pub and hotels group has
raised its annual dividend by
30%, suggesting “no lack of
confidence in the boardroom”
despite a bumpy period for
trading amid rail strikes and
higher energy costs. A solid
balance sheet gives the firm a
degree of resilience in case of
further macroeconomic upsets.
Investors can enjoy the “near-
3%” dividend yield while they
“buy another round” of the
shares. 598p
Inspiration Healthcare
The Sunday Times
Shares in this medical
technology-equipment
distributor have slipped by 50%
over the past year amid worries
that they became overvalued
during Covid because of
unusually high demand for
ventilators. Yet demand for
the firm’s core neonatal
expertise should grow over
the long term as more babies are
born prematurely worldwide.
On 9.6 times 2023 earnings, the
shares could have room for
a rebound. 46p
Whitbread
Shares
Revenue, earnings and
dividends are all “well above”
their pre-pandemic levels at this
budget-travel play, which owns
the Premier Inn hotel chain. The
stock, 20% short of its February
2020 level, has yet to catch up.
Leisure travel is back in force
and corporate travel budgets are
“surprisingly robust”: Zoom
won’t wholly replace in-person
meetings. Management is
considering disposing of parts of
the underperforming food and
beverage division, which could
spark a rerating. 3,300p

Two to sell

Motorpoint
Investors’ Chronicle
This car dealer suffered an
8.2% decline in sales volumes
...and the rest
and fell to a small pre-tax loss
in the year to 31 March 2023.
“Plummeting” electric-vehicle
(EV) prices, “constrained”
stock levels and weakening
demand from squeezed
households have all darkened
the outlook for the car industry.
The company notes that annual
UK sales of vehicles aged
between zero and four years
“have now fallen from a pre-
pandemic high of 2.45 million
to 1.55 million”. An improving
net debt position is a positive
sign for investors, but it doesn’t
outweigh the grim trading
outlook, so sell. 123p
Robert Walters
The Times
“Rampant wage inflation”
had left recruiters daring to
hope that the job market would
be spared economic trouble.
Not so fast. This international
recruitment agency has served
up a profit warning. Net fee
income dropped by 10% over
April and May compared with a
year before (excluding currency
effects). The post-Covid hiring
boom appears to be over, and
a period of subdued job-
hopping can only weigh on the
company’s profits. Given “poor
visibility” over when things will
improve, the shares are best
avoided. 407p

Investors’ Chronicle
Secure-payment solutions
business Eckoh’s work is key to
ensuring that top brands can
“safely manage personal data
from transactions and customer
enquiries” at call centres. On
18.9 times forward earnings,
the shares are reasonably priced
considering the loyal customer
base and a market-leading
position in its niche (40p).
The Telegraph
Shares in housebuilders have
been suffering a “demolition
job” as investors turn against
the property sector. Newcastle-
based Bellway has avoided the
sort of “nasty surprises” that
peers have served up in recent
results. While a bumpy road
lies ahead, interest rates
will eventually peak and
“house-building stocks will
come back into fashion”.
Keep buying (2,172p).
Shares
Electronics engineer DiscoverIE
has defied inflation to produce a
23% jump in profits in the year
to 31 March 2023. The firm’s
work in strategic areas such
as renewables, transportation
and medical technology should
keep the work flowing in. On
26 times earnings, the shares
are still reasonably priced. So
“keep buying... this excellent
company” (930p).
The Times
Investors should look past short-
term turbulence at GB Group
to see the big picture. This is a
“world leader” in establishing
identity and managing
fraud risk amid growing
“digitalisation” of the economy
and heightened concern about
online fraud. The firm could be
“a tempting” takeover target for
a fintech player. Buy (254p).

A German view IPO watch

Squeezed consumers are not in a mood to splash out at present,
but they seem to be making an exception for fast-fashion retailer
Zara, says WirtschaftsWoche. Other brands belonging to Spain’s
Inditex, such as Massimo Dutti, have also been doing well. The
group’s sales jumped by 15% in the first quarter to €7.6bn, easily
©Getty Images; Alamy; Bellway
The Indonesian stock exchange is gearing up for Asia’s biggest
initial public offering (IPO) this year outside mainland China,
says Mining. Amman Mineral International, which owns the
country’s second-largest gold and copper mine, will go public
on 5 July. It has raised about 10.7 trillion rupiah ($715m) by

negating rising costs and producing an increase of 43% in
operating profits to €1.5bn. The group is not resting on its laurels.
It is closing smaller outlets and continuing to focus on larger
stores in prime locations. In addition to a thriving business,
Inditex boast a robust balance sheet, with a net cash position of
€10bn. It also yields 4%.
selling 6.3 billion shares. The boom in renewable energy and
electric vehicles has spurred interest in Indonesia’s deposits of
industrial metals, notably copper, among both domestic and
global investors. The group’s net income trebled to $1.09bn in
2022. Indonesian flotations have raised $2.2bn so far this year,
up 77% on the same period in 2022.

moneyweek.com 23 June 2023

10 Politics & economics

Searching for stability

America and China are trying to repair relations, but disagreements run deep. Emily Hohler reports
US president Joe Biden has reignited
tensions with China in the wake of US
secretary of state Antony Blinken’s visit by
referring to Xi Jinping as a “dictator” while
talking about Xi’s embarrassment after
an alleged Chinese spy balloon was blown
off course in US airspace earlier this year.
Beijing condemned the remarks, calling
them “extremely absurd and irresponsible”.
A mere 24 hours earlier, Chinese
president Xi Jinping told Blinken that it
was “very good” that the US and China
had made “progress” towards stabilising
bilateral relations during his two-day visit.
Speaking in the Great Hall of the People
on Monday, Xi said Sino-US relations had
a “bearing on the future and destiny of

mankind” and that the two countries had a
duty to handle them responsibly.
It’s hard to be optimistic, says The Times.
Both sides have a “list of accumulated
resentments” and there is “little personal
warmth” between officials. The two
countries are “at odds” over issues from
Taiwan and Russia’s invasion of Ukraine to
trade, microchips and human rights.
Beijing’s increasing “belligerence” over
Taiwan overshadows other disagreements,
but these are “no less serious”. America’s
efforts to limit Chinese access to Western
artificial intelligence technology, its
restrictions on the export of computer chips
and adherence to Trump administration
trade tariffs are all “based on rational
security concerns”. But China’s accusation
that Washington is “weaponising” trade is
making people nervous.
A diplomatic coup
That Blinken was allowed to meet Xi
at all was a “diplomatic coup”, says
Amy Hawkins in The Guardian. The
meeting may have only lasted 35 minutes,
compared to the “seven-and-a-half hour
Blinken and Xi: a positive meeting, but little warmth
marathon encounter” with his Chinese
counterpart Qin Gang, but agreeing to
meet a US envoy of a lower ranking is a
positive sign, according to Wen-Ti Sung, a
political scientist at the Australian National
University. It is a sign that China is in a
“gracious mood, and it gives Chinese
bureaucrats political cover to extend
an olive branch and make occasional
compromises necessary to repair relations”.
In a readout of the Blinken-Xi meeting,
Xi said that “China respects the interests
of the US” and would “not challenge or
replace” the Western superpower. He called
on the US to reciprocate and “not harm
China’s legitimate rights and interests”.
Still, the meeting placed the US “in the
position of supplicant”, says Ivor Roberts
in The Telegraph. Failure to schedule a
face-to-face meeting ahead of Blinken’s
visit was a “serious snub” and breaks with
precedent. It was publicly announced
just an hour before it went ahead, even
though a few days earlier Xi had been
©Getty Images
quite happy to meet his “old friend” Bill
Gates. Nor do Blinken’s exchanges with
Qin and China’s top diplomat Wang Yi
qualify as a success. Although the meeting
with Qin was described by both sides as
“constructive”, Blinken was subjected
to an “uncompromisingly stern lecture”
from Wang, who is seen as embodying the
aggressive “wolf warrior” approach to
diplomacy. Wang said Washington wrongly
blamed China for the decline in relations,
demanded that the US stop “suppressing”
China’s technological development, said
there was “no room for compromise”
over Taiwan and that the US must “clearly
oppose” independence for the island.
“Ultimately, China’s brinkmanship over
the meeting, and Blinken’s dressing-down
by Wang, are all of a piece with China’s
growing self-confidence and assertiveness.
The Middle Kingdom’s message to the
West is clear: You need us, we can get along
without you. If we’re going to get along
together, it’s on our terms.”

Modi gets warm welcome in Washington

Joe Biden will “roll out the
glitziest of welcomes” for
India’s prime minister Narendra
Modi this week in what critics
say is a “prioritisation” of
geopolitics over human rights,
say Jonathan Lemire and Nahal
Toosi in Politico. Although Modi
heads the world’s largest
democracy, he is an “autocratic-
leaning Hindu nationalist”
whose government has been
oppressing and marginalising
its 220-million Muslim minority.
Biden has been criticised not
just for hosting Modi, but for
throwing him a state dinner and
allowing him to address a joint
meeting of the House or
Representatives and the
©Getty Images
dignitaries, says Patricia
Zengerle in The Washington
Post. Some 75 Democratic
senators and representatives
signed a letter this week urging
Biden to raise human rights
issues with Modi.
Modi plays up his
“democratic bona fides” and
likes to highlight his role in
turning India into a key global
player, but his Bharatiya Janata
Party (BJP) has been stoking
“hatred and intercommunal
tensions” for years, says Rana
Ayyub in the same paper. Modi
himself was praising an
“extremely Islamophobic new
film” at a recent election rally.
“In private, White House
Lemire and Toosi. India is the
world’s most populous nation,
its economy is booming and it
will host the world’s leaders at
the G20 this autumn. Crucially,
it is seen as a bulwark against
China. The US has “elevated”
India to the Quad alliance to
“reinforce” democracy in the
region and wants New Delhi to
act as a “buffer” against Xi’s
ambitions, as well as push back
against Russian aggression.
For his part, Modi
encourages the view that he is
an “irreplaceable global leader
who holds the key to world
peace”, says Ayyub. “It’s
unconscionable that the
international community

Modi plays up his status as an

Senate, one of the highest officials concede they are remains silent in the face of
“irreplaceable global leader”
honours afforded to foreign bound by realpolitik,” say what is going on.”

23 June 2023 moneyweek.com

12
Magdeburg
Germany powers up:
US semiconductor giant
Intel will spend around
€30bn to develop two
chip-making facilities
in Magdeburg in return
for state subsidies worth
almost €10bn, up from
the €6.8bn Germany
had originally offered and
subject to European Commission
approval, says Reuters. It is Intel’s third
News
big spending deal in days, following
announcements to build a $4.6bn chip
factory in Poland and a $25bn facility in
Israel. Under boss Pat Gelsinger (pictured),
Intel has invested billions worldwide to
keep up with rivals AMD, Nvidia and
Samsung, while US and Europe have vied
with one another to lure big industrial
players with subsidies and favourable
legislation. Germany, in particular, has
been concerned with the fragility of its
supply chains, dependence on Asia and
losing its appeal as a place to invest. The
government is in talks with Taiwan’s chip
giant TSMC and Swedish electric vehicle
(EV) battery maker Northvolt about
setting up production in Germany. US
EV maker Tesla says it will build its first
“gigafactory” there. It’s all a far cry from
Britain’s recently announced, but long-
delayed, £1bn semiconductor strategy to be
spread over ten years, says Matthew Field
in The Telegraph. One industry executive
described it as “frankly quite flaccid”.

Saint Paul
3M comes unstuck: Minnesota-based 3M, the industrial conglomerate that gave the
world Scotch Tape, is today contending with thousands of lawsuits, say Bob Tita and
John Keilman in The Wall Street Journal. Fighting the cases in court would take years,
so 3M is looking to settle. But that comes with a “steep price tag that would potentially
reshape the company”. The first cases relate to allegations that
long-lasting chemicals developed by the company decades ago
have contaminated the soil and water supply, and caused
illnesses. Analysts put the cost of settling at around
$10bn. The second come from 250,000 armed forces
veterans who accuse 3M of having manufactured foam
earplugs insufficient at protecting against hearing loss while on
duty. Settling that civil injury case, the biggest in US history, could
cost $10bn-$15bn. Together, they put 3M’s dividend, worth $6 a
share last year, costing $3.4bn, under scrutiny. Traditionally, 3M
has been seen by investors as a “prodigious cash generator”. But
maintaining the dividend could be difficult, not least because 3M
is set to become a “smaller company with a heavier debt load” if it
follows through on plans to spin off its healthcare business – its best-
performing unit. 3M is “a dividend aristocrat”, says Deane Dray, an
analyst at RBC Capital. “We think that [probably] comes to an end.”

San Francisco
Rebellion at Reddit: Online forums platform the valuable data on which
“Reddit is used to brawls between its 57 million they hone their own AI
daily users”, says Anita Ramaswamy on products. “Huffman’s
Breakingviews. That ire is now being directed plan would shut
at its CEO, Steve Huffman (pictured). From off that free-data
next month, Reddit will start charging third- spigot.” The trouble
party developers to access its data. That includes is, moderators are
Apollo, a popular app among “Redditors” that unpaid, “which makes
provides an alternate interface to the official them an odd hybrid of
platform. Apollo says the charges would amount employees, customers
to $20m a year and that it cannot continue its and suppliers”. One option
service. In response to the changes, community would be to pay them or reward
moderators have locked out Reddit’s users by them in some other way, which will involve
setting their pages to “private”. “Huffman “higher costs, and a more tortuous path
deserves credit for thinking like an investor.” to profitability”. But until then, Huffman
Some third-party users make money off the still- would be “unwise” to press ahead with
unprofitable Reddit, and Reddit wants its cut. a long-awaited initial public offering.
A “bigger target” are the artificial intelligence Investors will want to see how reforms fare
(AI) companies that scrape Reddit’s forums for before “shelling out for the shares”.

The way we live now... no sex and drugs – just rock ‘n’ roll
“Festival organisers are increasingly
meeting the wants of ‘generation
sensible’, who are less likely than their
forebears to drink, take drugs or have
sex,” say Constance Kampfner and
Seren Hughes in The Times. Members
of the Association of Independent
Festivals (AIF) are “keener this year than
ever” to find out where they can source
non-alcoholic drinks for their events,
according to AIF boss John Rostron.
“Alcohol with younger groups isn’t
necessarily seen as cool,” he tells the
paper. Part of the reason is to do with
the rise of mobile phones and social
If you remember it, you were there
media. “What happens in a field… no
longer stays in that field.” So, by
staying sober, you can ensure you
don’t cause yourself any lasting
embarrassment. The rising cost of
living is another factor. Most festivals
limit how much alcohol festivalgoers
can bring with them, “and costly drinks
at the bar may be putting younger
people off buying more than a couple of
beers”. The upshot is that Sacha Lord,
co-founder of Parklife Festival and the
night-time economy adviser for Greater
Manchester, is offering three non-
alcoholic beers this year, he tells the i
newspaper. “Ten years ago… you’d go
to a festival to get absolutely wasted.”

23 June 2023 moneyweek.com

 News 13
Milan
Sinochem punctured: Italian prime minister Giorgia Meloni’s government
has “stripped” China’s state-owned chemicals and fertiliser conglomerate
Sinochem of influence as the largest shareholder in tyremaker Pirelli, say
Amy Kazmin and Silvia Sciorilli Borrelli in the Financial Times. The
government invoked national security concerns about the potential misuse
of Pirelli’s chip technology, as well as Chinese Communist Party interference,
in justifying the order. Sinochem, which owns a 37% stake in Pirelli, will not
be allowed to direct strategy or appoint the CEO. The government has
conferred that “indefinite right” on Camfin, the private investment vehicle of
Pirelli’s boss Marco Tronchetti Provera (which owns 14% of the firm), along
with a guaranteed four board seats. Sinochem’s seats on the board will also
be capped at eight. “Long-term Pirelli observers may find all this rather
ironic,” says Yawen Chen on Breakingviews. It was Tronchetti Provera who
engineered the €7bn takeover of Pirelli by ChemChina, now part of
Sinochem, in 2015, while “managing to maintain extensive restrictions to
keep the Chinese [company] mostly as a financial investor”. Now, he has
Meloni has blunted Sinochem’s influence
turned “geopolitical de-risking into an opportunity”.

Hangzhou
Alibaba reshuffle: Joe Tsai
(pictured), the executive
vice chairman and
right-hand man of
Alibaba’s founder Jack
Ma, will take over from
Daniel Zhang as chairman
of the Chinese e-commerce
conglomerate, while Eddie
Wu will take over as CEO, in
September, says Cissy Zhou on
Nikkei Asia. Zhang will instead focus
on the struggling cloud unit, which the group plans
to spin off with four others. The shake-up makes
sense, says Tim Culpan on Bloomberg. Tsai is a
company veteran, who will “steady the ship”, and
Wu will keep his role as chairman of the domestic
e-commerce division Taobao and Tmall. Taobao
accounts for 67% of group revenue and it is the
only one of the six divisions to make a profit, even
if revenue growth has slowed. After the split, it and
Tmall will largely make-up the parent
company, along with the group’s cash
and investments. “It’s now up to [Wu] to
reignite growth at Alibaba’s cash cow.”
Meanwhile, what looks like a demotion for
Zhang isn’t really – he is seen as “a lion at
the company”. If Zhang can turn around
Alibaba Cloud, he will be a hero. If he
can’t, then, like Wu’s, his future at the
company will be in doubt. That said, the
“signs look good”, but for Alibaba, the next
12 months will be crucial.

London
Inflation persists: The Bank of England came under renewed
pressure this week to raise interest rates further due to consumer-
price inflation readings that were higher than expected, leaving
Britain “looking increasingly like the global outlier and the
‘stagflation nation’”, says Paul Dales of Capital Economics. Annual
headline inflation remained stuck at 8.7% in May, thanks to cooling
food and energy prices. But it was the rise to 7.1% in the annual pace
of “core” inflation, which strips out both of these prices, in May,
from 6.8% in April, that caused the most concern. In the US and
the eurozone, it is slowing. Airfare inflation (from 12.6% to 31.4%)
contributed to the jump, although that could yet be reversed in June
if May’s extra bank holiday had played a part. The pace of rising
used-car prices also rose by 2.7 percentage points, to 3.7%. As for
services inflation, that rose to a new 31-year high of 7.4%. Average
annual utility bills are scheduled to fall from £2,500 to £2,074 on
1 July, so that should help to temper overall inflation in the months
ahead. Higher interest rates mean higher borrowing costs for the
government, whose borrowing rose by £20bn in May – £1.7bn more
©Getty Images
Tokyo
Son finds his mojo: SoftBank’s chairman and CEO Masayoshi
Son declared at the annual shareholders’ meeting that “the time
for launching a counteroffensive is getting nearer”, says Ryohtaroh
Satoh on Nikkei Asia. The company’s two tech-focused Vision
Funds had taken a “defensive stance”, slashing additional
investments to $3.1bn for the year that ended in March, compared
with $44.3bn in the prior year. Since then, things have improved.
SoftBank has sufficient lines of credit to cover the majority of its
¥6trn (£33.3bn) in outstanding bonds, while tech stocks have
rebounded. The Vision Fund did report a pre-tax ¥290bn loss
between January and March – its fifth straight quarter in the red
– but the losses are getting smaller. SoftBank’s share price rose to
a seven-month high ahead of the meeting. Son shied away from
naming names, but is “excited” about the evolution of artificial
intelligence (AI). AI, he said, would be powered by the chips
designed by Arm, the Cambridge-based firm 75% owned by
SoftBank. It is experiencing “explosive growth”. An initial public
offering in the US for Arm could come as soon as this autumn, says

than expected, says Mehreen Khan in The Times. Britain’s net debt Alexandra Scaggs for FT Alphaville. Otherwise, after a quiet year, it
is now above 100% of GDP for the first time since 1961. was good to see the return of Son and his hyperbolic presentations.
moneyweek.com 23 June 2023
14 Briefing

UK launches universal basic income

A trial of UBI will give a lucky few £1,600 every month with no strings attached. Why?
And when did the idea become fashionable among economists? Simon Wilson reports
What’s happened?
The first pilot programme trialling a
universal basic income (UBI) in England
has been announced, run by the thinktank
Autonomy. During the scheme, lucky
participants will be given £1,600 every
month for two years, with no strings
attached on what they do with the money –
other than to let researchers monitor their
spending and choices to understand how the
money affects their lives. Meanwhile a not-
so-lucky control sample has been recruited,
so researchers can compare the life
experiences of the two groups. Of course,
the basic income paid out to the lucky
participants isn’t really “universal”. Only
30 people will get the dosh – two groups of
participants from Jarrow, on Tyneside, and

©Getty Images
from East Finchley in north London.
Finland gave 2,000 people a basic income in 2017
Is £1,600 a month affordable?
The experiment itself will cost its sponsors What’s the thinking behind UBI? and individual liberties. The idea is that a
£1.15m in handouts over two years. But The idea of a basic income – giving all single universal payment can overcome the
any idea of a state-backed, genuinely UBI in citizens a guaranteed income to meet crippling complexities of modern welfare
the UK at this kind of level is pie in the sky, their basic needs – arguably has its roots states, and hack away all their perverse
since it would cost just shy of £1trn – or not in the writings of Sir Thomas More, who “benefits trap” disincentives to working
far off the government’s entire budget. In described something similar in his book and saving. This was the basis of Milton
the current financial year, 2023-2024, the Utopia (1516). In the late 18th century, Friedman’s support for what he styled a
Office for Budget Responsibility expects Thomas Paine argued that mass enclosures “negative income tax”. Friedman proposed
the UK government to spend £1,189bn, of common land meant a form of basic that households would either receive
equivalent to around £42,000 per income was needed. “The earth in its support from the government (the “negative
household or 46.2% of national natural uncultivated state,” wrote Paine, tax”) or pay personal taxes, but never both
income. Meanwhile £1,600 a month “is the common property of the human together – thereby radically simplifying
paid out to 52 million adults would be race.” Since private land ownership and fully integrating the tax and social-
£998.4bn a year. So if a government necessarily deprives others of their transfer systems, with the ultimate aim
really wanted to do that it would have “natural inheritance”, those others must be of transitioning to an ideal, transfer-free
less than £200bn to spend on everything compensated in the form of a permanent capitalist society.
else. Even if you assumed UBI at this level grant. The idea was developed in the 19th
would replace all working-age welfare, the century, notably by the utopian socialist Have any countries adopted UBI?
state pension and the income tax personal Charles Fourier, and in the 20th by mostly Arguments against the basic income boil
allowance, it would still involve a net cost left-leaning thinkers. down to this: either the sum involved is
of £600bn. not enough to live on, in which case the
So it’s a left-wing idea? universal payment exacerbates inequalities.
So what’s the point of the trial? Not always. Left-liberals who favour a Or it is enough to live on, in which case
The idea of a UBI is typically that it covers basic income emphasise its role in tackling it’s unaffordable for the state. There have
people’s basic needs, but this higher poverty and promoting equality. Left- been dozens of trial schemes attempting to
monthly figure is designed – according leaning economists (such as Paul Krugman) square this circle in countries including the
to Autonomy – to “Could a single payment end have argued that US, Canada, Brazil, Kenya, Iran, Germany,
help assess what the financial crisis Spain, the Netherlands, Namibia, India,
effect receiving a the crippling complexities of proved such a tipping South Africa, China and Japan. The
guaranteed sum each modern welfare states?” point in favour of pandemic boosted interest in the idea, and
month will have capital, and against prompted new trials, but the only large-
on recipients’ mental and physical health, labour, that a basic income is needed to scale nationwide randomised control trial
and on whether they choose to work or rebalance the scales. Similar arguments to date was in Finland – covering 2,000
not. “Our society is going to require some have been made about how to respond to people and running for two years from
form of basic income in the coming years, the rise of automation. However, “right- 2017. Recipients were unemployed at the
given the tumult of climate change, tech wing” economists such as Friedrich Hayek beginning of the trial, with no obligation
disruption and industrial transition that and Milton Friedman have also argued for to seek a job during it, and no reduction in
lies ahead,” reckons Will Stronge, the versions of a basic income. Hayek regarded the monthly stipend (of £490) if they did get
director of research at Autonomy. “This is a guaranteed minimum income as necessary one. The post-trial analysis and comparison
why building the evidence base and public to the preservation of social solidarity in with a control group found that the basic
engagement now is so important.” Sceptics complex modern societies. income didn’t do much to encourage
might argue that his scheme is so unrealistic people into work. But the extra income
– recipients get the money, but don’t suffer What about economic arguments? improved mental wellbeing, confidence
the giant tax hikes that would be needed In general, conservatives and economic and life satisfaction. It turns out giving
to fund a real-world basic income – that it liberals have supported a basic income people money for nothing makes them a bit
won’t tell us much. on the grounds of efficiency, simplicity happier. Who would have thought?
23 June 2023 moneyweek.com
16 City view

If it isn’t hurting, it isn’t working

Bailing out homeowners squeezed by spiralling mortgage costs would be a terrible mistake
Secondly, it would be hugely unfair. In
Matthew Lynn effect, any kind of mortgage bailout would
City columnist
involve transferring wealth from people
with no property to those who at least own
With every week that passes, the UK is their own home, even if it comes with a bit
edging closer to a full-blown mortgage crisis. of debt attached to it. Only around a third
Banks have been pulling mortgage deals as of the population have a mortgage (a third
money-market rates climb above levels seen of us own our homes outright and another
even in the catastrophic aftermath of Liz third rent), but everyone pays taxes, even if
Truss’s ill-fated mini-Budget last autumn. By it is only VAT and other duties. The renters
the start of this week, the average rate for a are facing a huge increase in costs, too, and
two-year, fixed-rate deal was above 6%. they are not even building up any equity.
It may soon be above 7%. People who It hardly seems right to expect them to
borrowed money to buy a home at less than subsidise home owners.
2% a couple of years ago are facing a tripling Thirdly, it would be ruinously expensive.
of their monthly repayments when their Davey is kidding himself if he thinks £3bn
fixed-rate deals come to an end. For some would be any more than a drop in the ocean.
people that will simply be unaffordable. A full-scale rescue would quickly run into
Within a few months, we could well see tens of billions, especially when you factor in
repossessions and evictions as mortgage that it would drive interest rates even higher.
lenders call in their debts. With the UK’s debt to GDP ratio already
But there is never any situation that is over 100%, we can’t afford it.
quite so bad that an intervention from the Finally, and perhaps worst of all, it would
Liberal Democrats can’t make it a little bit simply cement the idea that the government

worse. Ed Davey, the party’s leader, has
called for a £3bn “protection fund” to help
out anyone facing repossession. “If we don’t
give that sort of help to those people, you’d
see a spiral down and it will hit the whole
economy,” he said.
We can expect the pressure for that to
grow and grow over the next few months.
Given that Rishi Sunak is a the man who
gave us the sit-around-and-get-paid-for-
doing-nothing scheme (officially known
as “Coronavirus Job Retention Scheme”
– colloquially known as “furlough”) and
the half-price pizza deal (officially known
as “eat out to help out”), it is hard to see
him resisting the clamour for long. Few
politicians in modern history have given
away so much free money.
The trouble is, it would be a catastrophe
for the British economy. There are four
©Getty Images
Liberal Democrat leader Ed Davey’s
proposal will just make things worse
reasons for that. Firstly, it will prevent the
Bank of England from controlling
inflation. It is not raising interest rates
for fun, or because it thinks savers deserve
a better deal. It is raising them because
inflation is out of control. Higher interest
rates dampen inflation by draining demand
out of the economy, and one of the main
ways they do that is by pushing up the cost
of mortgages. If that cost is simply covered
by the state, then it won’t work and we will
be stuck with higher inflation forever.
Even worse, prices may well carry on
climbing at an accelerating rate and we
will end up with interest rates of 10% or
12%. That will make the crisis a whole
lot worse.
will always bail people out of every
situation. The idea that you have to live with
the consequences of your decisions would be
lost forever. And the bailouts would never
end, since there would always be another
“crisis” that had to be fixed.
Stop looking to the state
In reality, the pandemic and the soaring cost
of energy have created the idea that it is the
job of the government to bail out every crisis.
If anything happens that might cause any
financial hardship, then the government has
to step in and fix the problem. If that doesn’t
stop we will simply end up bankrupting
ourselves. Sure, the steep rise in mortgage
rates will cause lots of pain. But there is
nothing the government can do about that
now – and it will only make the whole mess
a whole lot worse if it tries.

City talk
l ”Channel-hopping suits
bored couch potatoes.
But it does no
favours for a
broadcaster such
as ITV,” says Lex
in the Financial
Times. That’s
Britain’s largest
commercial TV
firm wanting to
diversify away from
the cyclical advertising
revenue that makes up half of
its sales. CEO Carolyn McCall
(pictured) thinks that buying up
production firms will smooth
out volatility, hence last week’s
suggestion that ITV may buy
All3Media from Warner Bros
Discovery and Liberty Global
valued at roughly £1bn, l Canadian firm Alpha Auto’s still a steal. “This is what
owns popular £465m bid for car dealer happens when the UK market
shows such as Lookers is another sign that insists on valuing a well-
Midsomer “the wheels are coming off the financed, profitable business at
Murders. “But UK stockmarket”, says Alistair six times earnings… it gets
can ITV afford Osborne in the Times. True, driven away by someone else.”
a chunky cash Lookers was “a right old
outlay?” It has banger” a while ago, with l CMC Markets founder Peter
a healthy accounting issues, Cruddas “is normally a chatty
balance sheet management changes and a guy”, says Simon English in the
and can produce seven-month share Evening Standard. But when
£250m-£300m per suspension. But under CEO the trading firm reported a 43%
year in free cash flow Mark Raban it’s had two strong fall in profits, he had nothing to
– but much of that cash years. Knock net cash of say. CMC says Cruddas doesn’t
goes in dividends. What’s £66.5m and property valued at want the distraction of being
more, even after buying £290.5m off the takeover price asked about Boris Johnson, of
All3Media, it would still be and Alpha is paying £110m for a whom he is a key ally. There’s
relatively sensitive to shifts in business that just made £84.4m nothing wrong with having
advertising. All that explains before tax. Yes, Lookers got a strong political affiliations, but
the “so-so reaction in the ITV boost from post-Covid car CMC investors deserve to hear
share price to this prospect”, shortages, there are pension from him. Otherwise they’ll
©Getty Images

(which in turns owns 10% of which “should give executives liabilities, and the offer is at a worry “if his politics are getting
ITV). All3Media, which is pause for thought”. premium to its peers, but it’s in the way of the business”.

23 June 2023 moneyweek.com

 Investment strategy 17

The beginning of the end Guru watch

Steve Eisman,
portfolio
manager,
The IEA forecasts oil demand growth Neuberger
to slow sharply in the next few years. Berman

The end of the era may be underway The best

investment

©Getty Images
opportunities in the
Cris Sholto Heaton US at the moment aren’t in
Investment columnist the high-flying tech sector,
reckons Steve Eisman, the
fund manager who made his
It looks increasingly likely that the age of oil is name shorting mortgages
on the way out. We’ve been through previous before the 2008 financial
cycles of optimism about other energy sources crisis. Instead, he’s betting
on companies that could
that didn’t change much: there was plenty of talk
benefit from billions of
about government-backed growth plans involving dollars that the Biden
massive renewables investment after the 2008 administration is planning to
crisis, but considerably less action. While there invest in everything from
has been increased investment and technological domestic manufacturing to

©Getty Images
advances that have made renewables cheaper, the upgrading infrastructure.
world still runs on fossil fuels. Big oil should avoid costly investments “The biggest story is
However, it feels different this time. Climate going to be the grid”, Eisman
concerns and geopolitical issues have created estimates that more than $2trn is already lined up tells Bloomberg, referring to
the need to invest in an
a vast incentive for countries such as the US to for clean-energy investment by 2030.
electricity transmission
invest in energy infrastructure (see right). The It’s harder to say what this means for oil prices. system that can cope with
latest forecasts from the International Energy In the short term, demand doesn’t look especially the energy transition. The
Agency (IEA), published last week, are clearly in bullish. Oil demand growth tracks global GDP adoption of everything from
line with that scenario. growth, deflated by about 1.6 percentage points electric vehicles to induction
The IEA thinks that demand growth will slow due to efficiency gains, argues Daval Joshi of BCA stoves will put huge strains
sharply in the next few years as electric vehicles Research in a recent note. He thinks economic on existing infrastructure.
replace ones that run on fossil fuel. Demand will growth and oil forecasts are still too optimistic, “There’s this new rule that
rise by 2.5 million barrels per day (mb/d) this and reckons crude could drop to $55. came out from the governor
[of New York] that says every
year, but by 2028 the annual increase will be just On the supply side, the IEA is forecasting tight
single new building… has to
0.4 mb/d. We’ll still use plenty of oil, but it will markets next year, on the basis that Chinese have an electric oven… if we
be petrochemical demand (and to some extent demand will rise and Opec will cut demand. could snap our fingers and
aviation, the hardest transport use to replace) that That may be unduly bullish: more supplies from just do that, there’d be a
drives demand growth. Thus the IEA expects sanctioned countries (Iran, Russia and Venezuela) blackout immediately.” The
total demand of 105.7 mb/d in 2028 and still are making their way into markets, and Saudi level of investment that this
rising, but combustible fossil-fuel demand to hit a Arabia’s unilateral cut this month showed that it is will require adds up to
absolute peak of 81.6 mb/d in the same year. struggling to get its Opec peers to join in. “unbelievable numbers”, he
The IEA’s forecasts have had “a questionable Still, weak prices discourage more investment: says. “Everybody’s got a
different estimate, but it’s
history” as Bloomberg puts it – ie, they are very US active oil and gas rig have dropped sharply
like $200bn-$300bn.”
often very wrong. Still, this outlook seems pretty in recent weeks. Ultimately, around $70 may be Beyond the electricity
plausible. It’s hard to see what would drive a much the sweet spot – generating enough cash without system, there’s an urgent
faster growth in fossil fuels in a world in which encouraging firms to spend it. The worst scenario need to improve other parts
many major economies see the energy transition for investors would be for Big Oil to ramp up of America’s infrastructure,
as a way to drive economic growth. The IEA output in the face of the shift the IEA predicts. which is suffering from a
underinvestment. “The
had negative alpha of 2% (ie, infrastructure stuff in the US
I wish I knew what alpha and beta were, their returns were worse than is pretty pathetic,” says
but I’m too embarrassed to ask they should have been
considering the composition
Eisman. It’s “embarrassing”
to compare US airports or
Alpha is the amount of value an 10% for the benchmark, then and risks of the portfolio). highways with those in Asia.
investor adds or takes away the manager has generated Beta is a way of measuring Elsewhere, concerns
from an investment portfolio. In positive alpha of 5% on this the risk of a share or a about risks in the banking
other words, it measures how simple measure. portfolio compared with the sector are overdone. “We’re
their stock- or asset-picking Of course, the manager risk of the market as a whole. not having a banking crisis,
skills affect the portfolio, above might be taking more risk than A share with a beta of one we’re having a crisis of
and beyond any returns that are the overall index (for example, will move roughly in line with certain banks.” But he is
simply down to what you’d by only investing in small the stockmarket. A beta of sceptical of opportunities in
expect from the performance of companies). More in-depth more than one suggests that distressed areas, such as
the market as a whole. ways of looking at alpha takes a share rises and falls in line commercial real estate,
Alpha can be looked at in two this into account. One measure with the direction of the despite falling valuations.
main ways. The first is simply to known as Jensen’s alpha market but by a greater It’s a bad sign that major real
compare the portfolio’s compares a portfolio’s risk- amount. A beta of less than estate investors such as
performance with a benchmark adjusted returns with what a one indicates a share that is Blackstone and Brookfield
index. So the returns on a financial model called the less volatile than the market are handing some buildings
portfolio of UK shares might be capital asset pricing model (or an investment that does over to their lenders ahead of
compared with the returns on (CAPM) predicts it should not consistently move in line the debt coming due in the
the FTSE All-Share index over a achieve. So if CAPM predicts a with the market, even though next few years. “They know
given time period. If a fund portfolio return of 17% in the it may still be volatile). Beta is what the cash flow’s gonna
manager’s portfolio has example above, but the one of the key inputs into the be and they can’t support the
returned 15% compared with manager made 15%, then they CAPM and similar models. cash flow.”

moneyweek.com 23 June 2023 MoneyWeek

18 Best of the financial columnists
Good food I suspect that our descendants will find it extraordinary that we failed to
make the connection between our current health crisis and ultra-processed
Money talks
is the key to foods (UPFs), says William Hague. Britons now consume 57% of their
calories from UPFs and nearly 25% of 11-year-olds are “clinically obese”.
“The [tennis] tour
and everything

progress
that comes
The three recently published books Ultra-Processed People, Unprocessed with it,
and Ravenous all contain “abundant good sense and persuasive science”. it’s not a
William Hague Yet the government still fails to act. This is not from lack of precedent very nice,
The Times (Disraeli passed laws to improve food quality in 1875) but because the trusting
“problem is so vast... that anyone running for election is wary of it”. But the and safe
nettle must be grasped. Think of our “biggest problems”: our struggling space. You
NHS; inequality; record numbers on sickness benefits; and the cost of have to be on
Covid lockdowns, which would have been “far less necessary” were the guard because
there are a lot of
majority of the population not obese or overweight. People are trapped
sharks out there. I think
in a “junk food cycle” and only state intervention can help them break it. people in the industry,
“The hard truth is that you can no longer have a successful health strategy, especially with me
or levelling-up strategy, or economic growth strategy, still less a low-tax or because I was
small government strategy, without a food strategy.” 19, now 20, they see me
as a piggy bank…
I have been burnt a

The cloud is Cloud computing, the data-storage and processing platforms run by Big
Tech vendors may sound “achingly dull”, but “investors and financial
few times. I have learnt,
keep your circle as

a threat to services consumers alike should wake up”, says Gillian Tett. A recent US
Treasury report notes that 90% of the members of the American Bankers
small as possible.”
Emma Raducanu, who

finance
won the 2021 US Open
Association are moving activity onto the cloud and the growth of cloud tennis championship at
usage is expected to be “explosive” in Europe as well as the US. Financial the age of 18, quoted in
Gillian Tett regulators are “ill-equipped” to deal with this. Big Tech vendors have The Sunday Times
Financial Times “never faced serious central-bank scrutiny before” and will “fiercely resist
efforts” to be put under the “purview of central banks or other financial “I had to go out on
regulators”. Washington appears to have “little stomach for that battle”. dates to be fed when
Yet the cloud poses huge risks. If Amazon, Microsoft or Google “suffered I was a nurse. I was
a big cyberattack, weather-linked disruption or simply went bankrupt, that that cheap.”
would rock the system”. Big Tech executives insist this will not happen, Nadine Dorries, former
secretary of state for
and it’s true that these firms are “almost certainly” better at handling
digital, culture, media
cyber risks than banks’ in-house teams, but “nobody is infallible” and even and sport, quoted in the
without cyber risks, the “commercial power wielded by this oligopoly is Financial Times
unnerving”. There are no easy answers, but the issue must be addressed.
“For people who
have made an untaxed
A strategic Saudi Arabia’s ruler, Mohammed bin Salman (MBS), has “acquired a new
bauble”, says Paul Wood. American golf. Saudi Arabia’s Public Investment
gain on their house,
but are now complaining

shopping Fund (PIF) has “negotiated a controlling interest” in the main US golf
tournament, the PGA Tour, merging it with a rival league it already owns,
that vine tomatoes
are a bit expensive, I

spree LIV Golf. An “appalled” Hatice Cengiz, fiancée of the murdered journalist
Jamal Khashoggi, called the deal the “worst face of sportswashing”. In
have two words of
advice. The second one
is ‘off’.”
Paul Wood purely economic terms, the deal makes no sense, but this isn’t just about Columnist Rory
The Spectator moving away the economy away from its dependency on oil. It’s about Sutherland in
politics. The PIF’s billions are being deployed “highly strategically” in firms The Spectator
such as Amazon, Facebook and Google. The “most famous recipient of
Saudi largesse” is Jared Kushner, Donald Trump’s son-in-law. Meanwhile “No real English
the US and Britain continue to sell arms to Saudi Arabia and hundreds of gentleman, in his
retired US top brass and elected representatives reportedly now work for secret soul, was ever
Gulf monarchies. MBS is “creeping back into international favour”. By sorry for the death of
a political economist.”
2030, the PIF could be the world’s biggest state-investment fund with $2trn
Walter Bagehot, quoted
under management. The “spending spree will continue and it won’t just be in the Financial Times
the men in plaid trousers who face difficult moral choices”.
“Don’t tell the taxman
but when I was going
The best “Of all the countries in sub-Saharan Africa to be optimistic about, the
most promising is Kenya,” says Tyler Cowen. Africa is the “fastest-growing
back and forth to college
in America to my family
way to bet continent” and is expected to be home to 25% of the world’s population by
2050. Multinationals are increasingly looking for a “direct presence” there.
home in London I’d
buy a guitar in America,

on Africa But many nations, including Nigeria and South Africa, have experienced
“major troubles” of late. Expats will be reluctant to move there. Kenya,
sell it on Shaftesbury
Avenue for twice the
price, go back to America
Tyler Cowen the seventh-largest nation with 57 million people, cannot compete with and so on. I ended
Bloomberg Nigeria’s 222 million, but it does have a long coastline, relatively easy access up buying a 1968
to the markets and capitals of China and India, and some of the most reliable Gibson Standard SG
internet access on the continent. It also has a “positive story” to tell on now worth hundreds
green energy – renewables already generate 80% of its electricity – and its of thousands of dollars.
climate is ideal for more solar power. There are disadvantages: “Corruption, I paid £125 for it in 1972.”
regulatory barriers to entry and political instability… cannot be dismissed Musician and composer
lightly.” It is also possible that sub-Saharan Africa won’t develop a single Stewart Copeland,
dominant corporate hub, with the United Arab Emirates continuing to 70, founder and drummer
©Getty Images

of The Police, quoted in

“evolve into Africa’s financial centre”. Still, Africa is rising and East Africa is
The Telegraph
too. Kenya may be the “easiest and most predictable way to bet on it”.
23 June 2023 moneyweek.com
 Best of the blogs 19

The “Reverse Fentanyl is far more powerful than heroin

Opium War”
quillette.com
“The legend of the Opium
Wars is inescapable in modern
China”, says Aaron Sarin.
Official propaganda is obsessed
by the “humiliation” of the
two wars the country fought
against Britain and other
Western powers in the 19th
Local cartels then cook these
ingredients up into the final
product before smuggling it
over the US border. Chinese
suppliers may ask to be paid in
wildlife products rather than
cash. That has prompted cartels
to loot Mexican ecosystems
for “jaguars, jellyfish [and]

century over the drug trade.
Over the last decade, China
has been returning the favour:
the country has become a
significant source of fentanyl,
a synthetic opioid fuelling an
addiction epidemic that killed
more than 100,000 Americans
last year. Fentanyl is “many
times more powerful than
heroin”, which increases the risk
of overdose.
The trade starts with
small firms along China’s
southeastern coast operating
under the cover of the “vast”
domestic chemical industry.
Fentanyl “precursor” chemicals
are exported to Mexico.
©Getty Images
sea cucumbers”. These are all
highly prized in traditional
medicine and cuisine.
A geopolitical plan?
Within its own borders, China
is “an aggressive combatant
in the global war on drugs”,
punishing traffickers with “all
the tact and nuance we might
expect from a totalitarian
regime”. Beijing has clamped
down, placing the whole class
of fentanyl-type drugs on its
list of controlled substances in
2019 on US request. Yet the
trade is hard to control because
fentanyl precursors also have
legitimate uses within the
chemical industry. For many
low-level bureaucrats, keeping
local pharmaceutical jobs is a
higher priority than policing
chemical formulae. China asks
why it should be trying to solve
an American problem. Souring
US-China relations have also
weakened China’s willingness
to go after the drug lords. Last
year Beijing suspended counter-
narcotics cooperation with the
US altogether.
Some have dubbed the trade
a “reverse opium war”. Chinese
involvement in the US fentanyl
crisis might not amount to “a
grand Machiavellian plot” to
weaken its rival. But then the
19th-century British traders
who flooded Qing China with
opium weren’t following an
“overarching geopolitical”
plan either. Just like today’s
fentanyl dealers, they were being
“greedy and pragmatic”. Today,
America’s opioid addiction is
“sustained with a similar cold
pragmatism. Beijing looks
the other way, and the deadly
medicine sails west just as its...
ancestor once sailed east”.

How capitalism shaped men

mises.org
Myth of a high-
tax golden age
aei.org
Fierce debate over “what constitutes masculine virtue” is older than you might think, says Ryan Calls for higher taxes on the
McMaken. The qualities that a first-century Christian thought made for a good man would have been wealthy are growing stronger,
unrecognisable to a Greek pagan. The rise of capitalism again upended an older idea of manhood. says James Pethokoukis.
In the late nineteenth century, figures such as Theodore Roosevelt romanticised the frontier life and Progressives point out that for
much of the 1950s and 1960s, a
clung to the medieval view that “masculinity was... defined by hunting, feats of physical strength, and period considered a “golden
military” derring-do. On the other side, classical liberals, such as William Graham Sumner, argued age” for the US economy, the
that the rise of the market economy had changed everything. Sumner thought that while in pre- top federal tax rate was 91%,
industrial times “theft... and physical domination of others” might have been useful ways to compared with 37% today. “Not
build wealth, in the modern world “aggression, philandering, and unsettled wandering” was a so fast”. The headline rates are
recipe for failure. In a capitalist economy, “true manhood was learned from practicing bourgeois misleading: the tax code at the
virtues such as prudence, thrift, and devotion to family life”. Civilisation was being built up in cities time was “full of loopholes”,
“by the men who were doing the hard work of managing businesses, saving money, supporting meaning that the “top effective
families, and educating children”. tax rate” in the era was really
between 50% and 60%. Indeed,
thanks to a mixture of loopholes
at first, but “days can be long 65 and older report that they and evasion few paid the top
The joys of and boring without work to fill were previously retired, but then rates. Between 1950 and 1963
income taxes generated
semi-retirement them”. Many retirees struggle
to replace the “structure,
went back to work.
Many former workers take
revenue worth 7.5% of GDP.
When Reagan cut tax rates in the
theatlantic.com socialisation, and even basic on part-time work or one-off 1980s, income-tax revenue
Older adults are increasingly physical activity” that they used projects in their old field, but actually rose above 8% of GDP.
keeping one foot in the to get from their jobs. Indeed, others take the opportunity One widely cited 2012 study
workforce, says Kate Cray. 40% of employed people aged to pursue “niche passions”. calculated that the optimal top
Around 13% of retired A retired vice president of a US tax rate is 73%. But that
Americans report working for Lazing on a beach manufacturing-equipment overlooks the “long-term
can get boring impact” of dissuading people
pay over the past month. Some outfit passes his time “hawking
will be doing so out of financial hot dogs at baseball games”. from making risky career
moves that drive innovation.
necessity, but one 2014 study As the population ages and Would Jeff Bezos have left his
found that “80% of semi- younger workers face careers comfortable job at a hedge fund
retirees say they’re employed of up to “60 years”, finding to create Amazon if he had faced
because they want to be”. work you can enjoy doing the prospect of any additional
©Getty Images

A retirement spent “lazing into old age is becoming more income being taxed at 90%?
on the beach” sounds appealing essential than ever. Perhaps not.

moneyweek.com 23 June 2023

20 Analysis
Private equity trusts:
value play or value trap?
Investment companies focusing on promising unlisted companies have rarely been this cheap.
But are they in the bargain basement for a reason? Rupert Hargreaves assesses the outlook
Investment trusts are fascinating vehicles. While there
are different versions of these investment companies
in other countries, London’s collection of investment
trusts is the largest and most diverse in the world. In the
most basic sense, investment trusts are companies that
own a portfolio of investments.
They are so-called closed-ended vehicles, meaning
the number of shares in issue is fixed. Unlike open-
ended investment funds, which issue and redeem shares
daily to match inflows and outflows, the share price of
an investment trust is determined by market sentiment.
This gives rise to an interesting quirk of investment
trusts: they trade at a discount or premium to net asset
value (NAV), the value of the underlying portfolio.
An investment trust’s NAV is calculated by adding
together all of the assets owned by the investment
company and deducting any liabilities. The figure is
then divided by the number of shares in issue to give a
NAV-per-share number.
If there are more sellers than buyers for an investment
trust, it’s common for the share price to dip below the
NAV per share. That’s just what’s been happening in the
UK over the past year.
According to analysts at Stifel, a wealth management
and investment banking group, the average discount
to NAV across all investment trusts listed in London
widened to 16% in the first quarter, a level not seen
since the 2008 global financial crisis (GFC).
Similar discounts were recorded in September 2022
during the mini-Budget crisis and at the beginning of
the pandemic in March 2020. These figures also include
real estate investment trusts (Reits).
A longer-term view
The closed-ended nature of investment trusts gives them
another advantage. Trust managers with a fixed pool
of capital don’t have to worry about daily inflows and
outflows, meaning they can take a longer-term view
when buying and selling assets.
There is also evidence that this structure has helped
investment trusts outperform over the long run. As they
don’t face daily redemptions, trust managers don’t have
to sell into a falling market if investors panic and want
their money back.
They can also take a contrarian view, buying when
others are selling, and keeping the long term in mind.
Trusts can and frequently do borrow money to improve
returns. As companies, they can issue bonds in the same
way other companies might, giving them another fixed
pool of capital to invest with a fixed cost of borrowing.
Thanks to this benefit, investment trusts have sprung
“These trusts up offering investors access to a wide array of assets –
from farmland to cargo ships and tankers, aeroplane
offer investors leases, mortgage debt and hedge funds.
access to There is also a range of private equity-focused
investment trusts listed on the London market, offering
a market everyday investors access to a market generally only
usually only accessible to institutional investors, large pension funds
and family investment offices.
available to And at present the private-equity investment trust
institutions” sector is trading at one of the largest discounts to
23 June 2023
recorded NAV in recent memory, suggesting investors
can snap up a basket of private businesses at a vast
discount to their intrinsic value.
Facing a reckoning
According to asset manager Investec, the valuation gap
between the reported NAV per share and the current
share price of London-listed private-equity trusts ranges
between 18% and 54%.
It calculates that the 14 largest private-equity
investment trusts (excluding 3i, the largest by far) had
a combined NAV of £17.3bn as of 23 May, compared
with a market capitalisation of £11.1bn. The average
discount across private-equity investment trusts
was 34%, more than double the figure for the wider
investment trust sector.
This discount appears to stem from the belief
among investors that the trusts’ reported NAVs do
not accurately reflect the values of their underlying
portfolios. This in itself reflects a wider belief that the
private-equity industry as a whole is facing a reckoning
as interest rates rise and the cost of debt increases.
Unlike venture capital, which tries to pick smaller
companies and often has a high loss rate, private
equity invests in firms with robust fundamentals,
©Shutterstock
often mature businesses with room for improvement.
The managers acquire these operations, improve
them and then try to sell them at a higher price.
Typical holding periods can range from three
years to five years, although that will vary from
manager to manager.
HarbourVest Global Private Equity is the one
exception here. The trust has far more exposure
to earlier-stage ventures than its peers, “and while
unfashionable at the moment, these, in aggregate,
have performed very well for us historically”, says
Richard Hickman, the trust’s managing director.
Most of the time, private equity will use borrowing
to improve returns, only putting in a tiny slice of its own
cash and using debt to fund the rest of the acquisition –
the idea being that a profitable company will be able to
pay off the debt once it is acquired; it can also sell assets
to raise cash.
The success of this strategy relies on two things.
Firstly, buyers must be willing to pay more for the same
asset several years later. If the company has grown and
become more efficient, buyers might be willing to pay
more. If not, they might question the price.
This is where the other headwind emerges: the cost of
debt. If I am a private-equity buyer acquiring a business
largely with debt, the cost of that debt needs to be low
enough to make the deal work.
What’s more, I need to be sure the cost of borrowing
is low enough to make the deal attractive for the next
buyer in the chain (as managers are only looking a
couple of years ahead).
This is admittedly quite a simplistic view of how
the private-equity industry works, but it does illustrate
why private-equity trusts are trading at these levels.
With the cost of debt rising, the outlook for the sector
is uncertain. There is therefore mounting concern over
moneyweek.com
The average discount among investment trusts recently widened to its highest level since the global financial crisis of 2008
valuations and whether managers can sell the private
businesses they own at the prices they want to achieve.
If we assume the market is efficient, and all available
information is reflected in security prices, the 34%
discount on private-equity investment trusts suggests
the market believes businesses in the portfolio are
worth 34% less in the new higher interest-rate
environment than trust NAVs suggest. But is that
true, or is this one of the most exciting value trades
available to investors?
Primary and secondary investments
Private-equity trusts use a variety of different
strategies. “Primary” investments are stakes taken
in private-equity funds at their inception. These tend
to be managed by the industry’s global giants, such as
HarbourVest (the parent of the investment trust, which
manages more than $100bn in funds globally). Stakes in
these funds can be traded at a later stage, and these are
called “secondary” investments.
Then there are “co-investments”, also known as
“direct” investments. These are direct holdings in
private businesses, either with a partner or directly by
the private-equity investor.
Within these broad groups, there are sub-categories.
For example, a trust might target primary investments
in buyout funds (the most popular buy-improve-sell
strategy, as described above).
Whichever approach a private-equity investor
chooses, returns are always going to depend on the
performance of the underlying assets – the private
businesses themselves. And establishing the value of
moneyweek.com
these assets today is the hard part. “The reality is, well-
run listed private-equity investment companies employ
“Managers
a strict, consistent valuation methodology and audit are inherently
process throughout their structures, which should give
shareholders comfort in the validity of the asset values,”
conservative
says Hickman. when
He also notes that trust managers were careful not
to write up the values of assets in line “with the
evaluating
peaks seen in public markets in 2021”. As a result, their
portfolio values are unlikely to suffer the same kind of
drawdowns in 2023.
holdings”
Helen Steers, the lead fund manager of Pantheon
International (PIP), another private-equity trust,
agrees with this view, noting that “private-equity
managers are inherently conservative when valuing
their portfolio companies”.
The fund manager’s preferred measure of this is
the recorded uplift of value at exit. On this measure,
which tracks the value of stakes sold compared with
their carrying (book) value over the previous 12
months, the “weighted average uplift from PIP’s
portfolio has been 31% on average”.
Steers says “it’s important to note that private-equity
managers are not paid their performance fee until their
funds are fully realised and certain hurdles have been
[overcome]; therefore there is little incentive for them to
overinflate their valuations.”
On a similar note, ICG Enterprise, which is around
half the size of Pantheon, recorded a 24% uplift to
carrying value on the assets it sold in 2023. “We think
Continued on page 22
23 June 2023
22
Continued from page 21
that’s a really strong validation of portfolio growth and
portfolio valuations,” explains Colm Walsh, the trust’s
managing director.
Valuations are under pressure
According to managers in the sector, so-called
secondary deals (the trading of stakes in private-equity
funds) comprise one of the most attractive markets
today. Pantheon and ICG have both been increasing
their exposure to these markets.
Pantheon has been buying “single-asset secondaries
and now over half of its portfolio is invested directly
in private companies”, says Steers. Meanwhile, Oliver
Gardey head of private-equity fund investments at ICG,
says this is possibly one of the best markets he’s ever
seen for secondary investments.
That’s because other institutional investors are
trying to offload these assets quickly, and they are
willing to sell at a discount. In much the same way
that private-equity trusts are selling at a discount in
the public market, holdings of private businesses are
being sold for less than they are worth in the private
secondary market.
It is here that private-equity trusts have the edge.
Gardey says private-equity managers – those managers
raising money for private-equity funds – love working
with trusts because they’re a fixed pool of capital.
They know they’re not going to demand the money
back and they can invest with a long-term horizon.
The fixed pool of capital also allows these trusts to
invest counter-cyclically. Walsh explains that some
“vintages coming out of the GFC ended up being
some of the best vintages”, referring to private-equity
fund stakes and secondary investments. “In times
of economic disruption private equity is very well
positioned,” agrees Steers: deals often have “very
attractive pricing and downside protection.”
Private-equity managers ultimately want to make
money, so they focus on the companies that are likely
to be good investments. And if they need to help the
underlying businesses along they will.
Pantheon will only back “top-quartile management”,
while Walsh explains that ICG likes to own businesses
providing “mission-critical services” with the “ability
to pass on price increases”. The manager also wants to
see businesses with “high margins”, which leave more
room for manoeuvre “when things get tough”.
Thanks to this focus on top-quality firms, holdings
in both trusts’ portfolios have outperformed the
MSCI World index’s average earnings growth over
the past 15 years. The earnings growth of companies
in the underlying portfolio has consistently been higher
and more stable than the wider market.
The discount dilemma
At the smaller end of the private-equity trust spectrum
lies Literacy Capital. This trust differs from its larger
peers as it seeks to “build and create thriving UK
businesses”. It only takes direct stakes in firms (other
trusts use a blend of direct stakes and other private-
equity funds) and its managers “speak to companies
daily to see how we can help them grow”.
Literacy operates at the bottom end of the private-
equity market, where there is “less competition”, so it
can get away with paying less for businesses. It’s buying
family-owned companies where a founder is looking to
hand the business to a long-term steward on retirement.
This is, once again, where the long-term capital
structure comes into play. Sellers can be confident this is
a long-term investor that will look after the assets.
Literacy is one of the only private trusts trading at a
premium to NAV, which stands as a testament to the
23 June 2023
Analysis
©Alamy
Discount retailer Action makes up 60% of 3i’s portfolio
company’s model. Since listing in June 2021, its share “Just because
price has returned 202%, making it one of the best-
performing trusts on the London market.
something
The other private-equity trust trading at a looks cheap
premium is 3i, the sector’s biggest trust with a market
value of nearly £20bn – although some might argue its
doesn’t mean
large holding in Action, the European discount retailer, it will trade
which accounts for 60% of the fund’s assets, makes it
more of a retailer with a private-equity arm attached.
up to
But in both cases, the market does not seem to be fair value”
too worried that the managers of Literacy and 3i are
overstating the value of their assets. This suggests
the issues with other private-equity trusts are more
localised. Here we have one of the great paradoxes of
markets: just because something looks cheap doesn’t
mean it will ever trade up to fair value.
The UK market as a whole is suffering from
an aversion to risk-taking by the country’s fund
managers and investors. This is hitting all but the most
popular and successful equities. Private-equity trusts
are suffering from this headwind, but also from the
challenges and complications of private equity,
making it less attractive for investors who are
already risk-averse.
The benefit of investment trusts is they can act to
close this gap. Most managers have started buying
back shares to try and close the discount, although
a balance between taking advantage of the current
market and rewarding investors needs to be struck.
Trusts can afford to take a long-term view and
invest as well as return capital. Investors who can do
the same may be able to capitalise on the sector’s
depressed values today, but patience may be required.
What to buy now
Considering the uncertain outlook for private-equity
valuations, it might be best to stay away from any
investment companies in the sector trading at a
premium. A discount to NAV may offer a cushion
against further valuation declines.
It may also be sensible to stick with the sector’s
largest players, which are generally the most liquid
names. The more liquid a trust, the easier it is for
managers to repurchase shares and close NAV
discounts, and for larger investors to buy significant
stakes (which will also reduce the discount).
The largest players in the sector, with market
values of around £1.5bn, are HgCapital Trust (LSE:
HGT), HarbourVest Global Private Equity (LSE:
HVPE), and Pantheon International (LSE: PIN).
HarbourVest Global Private Equity and Pantheon
International are trading at the biggest discounts: 45%
and 41% respectively.
moneyweek.com

The eight-year cycle in sterling
Dominic Frisby’s Flux theory predicts
a major low for the pound in 2024
An alert just went off in my calendar. “Start looking
to short the pound”, it says. Why would one short
strength? Sterling has been very strong over the past
few months.
You wouldn’t know it to listen to many financial
commentators, who so often seem consumed with
national self-loathing, but against a basket of major
foreign currencies, the pound is actually flirting with
six-year highs. It has a bit further to go against the
euro and the US dollar; we tend to think of the pound-
dollar rate, aka cable, as the defining measure.
Charlie Morris of asset manager ByteTree argues
that the pound has become a carry trade (whereby
you borrow at a low-interest rate in one currency and
invest in another currency with a higher rate of return).
We appear to be in an equities bull market, and the
pound, as the currency of a nation geared to finance,
tends to be strong when financial assets are strong.
During times of financial crisis, it is much weaker.
Whatever the explanation for the recent strength
of the pound, I set the alert some three or four years
ago – before the strength kicked in. What on earth
was I thinking? It’s based on a cycle I’ve identified.
As far as I know, I’m the first to observe this cycle, so,
with Brand Frisby in mind, I’ve named it after myself:
Frisby’s Flux – the eight-year cycle in the pound.
Before I explain the cycle, let me issue a disclaimer.
As I explained last week, it’s easy to look back at the
past, find some arbitrary pattern and declare it a cycle.
Real life in real time is often a very different matter.
Nevertheless, cycles can help frame where we are in
the grand scheme of things.
A pattern beginning in 1976
My observation is that every eight years, the pound
seems to crash. We start in 1976, the year we needed
a loan from the International Monetary Fund. At
one stage, inflation reached 24%. The Labour
government borrowed $3.9bn, at the time the largest
loan ever requested. From high to low, sterling lost
around 40%, reaching $1.60. But it recovered. By the
early 1980s sterling was back above $2.40.
Then came the next bear phase, in which the pound
would drop by more than 55% and reach a record
low against the dollar: $1.04. This was the era of the
Falklands War and then the miners’ strike. The low
came shortly after 1984 became 1985.
On the other side of the trade, the US dollar
was showing extraordinary strength – so much so
that France, Germany, Japan, the US and the UK
eventually colluded to depreciate it. This was the
Plaza Accord of 1985. Again sterling would recover –
this time to $2.
Eight years on, in 1992, sterling hit another
significant low. This was Black Wednesday, when the
Bank of England took the UK out of the European
Exchange Rate Mechanism (ERM). It fell from $2
to $1.40 – a 30% loss. The killing that George Soros
made selling the pound sealed his reputation.
Eight years later, around 2000, as the dotcom
bubble collapsed, the pound lost a fifth of its value.
(What did I say about the pound being geared to
finance?) But again it rebounded. By 2007 it was
above $2.10. Can you imagine? The pound above two
dollars only 16 years ago.
Then we got the financial crisis of 2008 and, yes,
the pound lost 35%, hitting a low of $1.36. The next
moneyweek.com
Opinion 23
©Shutterstock
George Soros made a killing shorting the pound in 1992
low came in 2016 with the infamous Flash Crash,
shortly after Theresa May’s speech at the Conservative
Party Conference. Having been above $1.70 at
one point earlier in this cycle, it hit a low of $1.14.
The overall drop from high to low was 35%.
The subsequent bull market was probably the
limpest in living memory. The 2016 low was retested
in the Covid panic of 2020, but then we had a good
rally to $1.42 by mid-2021.
After that, with so much political upheaval, the
pound turned down. When the Bank of England
broadcast that it would be selling the UK gilts it had
printed the money to buy during quantitative easing
(QE), and chancellor Kwasi Kwarteng then gave us
his low-tax budget, panic gripped the markets and the
pound hit an intraday low of a $1.04 (the same low it
hit in 1985). Since then we have had quite some rally.
Did the eight-year cycle low come early? Was that
it in 2022, or can we expect it some time in 2024?
When I first wrote about Frisby’s Flux in 2017,
I suggested that we should be looking for a high
some time in 2022-2023, as an opportunity to
go short. That is why I got that notification in my
calendar. This current rally might be providing us with
just one such opportunity. The question is: how long
will it go on?
On a long-term basis, the pound at $1.28 is not
exactly hugely overvalued. The Economist’s Big Mac
Index gauges whether currencies are overvalued or
undervalued by calculating what exchange rates would
be if the price of a Big Mac were the same everywhere
– if purchasing power were equal everywhere, in other
words. The Big Mac gauge suggests we are not far off
fair value. As I say, cycles are easy to identify in the
rear-view mirror. They are much harder to trade in
real time.
“The pound Perhaps the trigger will be yet more dysfunctional
politics. Perhaps the Bank of England will fall even
bought more further behind the inflation curve and rates will spike,
than two triggering some kind of crisis such as we saw in the
lead up to 1992. Maybe equities more generally turn
dollars only bearish. We can only guess what the trigger might
16 years ago; be. But Frisby’s Flux, whatever it is worth, and that
might be very little, is suggesting there might soon be
it then slid an opportunity to go short the pound, looking for an
by 35%” eventual low in 2024.
23 June 2023
24 Funds

Time to back American small caps

Smaller stocks are on a near-record discount to the S&P 500 despite strong growth prospects
earnings and cash flow. They
Max King
Investment columnist invest with a three- to five-year
view.
With 80 holdings for BASC

T he bears of the US
stockmarket are pointing
out that the index would be
and 100 for JUSC out of a
universe of 2,000, both trusts
are very differentiated from the
down in the year to date if not Russell 2000 index. The stock-
for the “MegaCap-8” that selection criteria for both trusts
accounted for 26.4% of the S&P are similar and both share an
500 at the end of May. Excluding aversion to the energy sector.
these stocks – Alphabet,
Amazon, Apple, Meta, The top choice for now
Microsoft, Netflix, Nvidia and However, it is Berrier who
Tesla – the S&P 500 is down emphasises “small-cap
1.4% and trades on a multiple companies that have the
of 16 times forward earnings. potential to be much larger”.
With them, it is up 9.5% and BASC has much higher
trades on a multiple of 18.3. exposure to healthcare, but less
The valuation of the mid and in industrials and financials.
small-cap indices is considerably He also has the humility to

lower, on forward multiples
of 13.3 and 13.2, according
to independent strategist Ed
Yardeni. For most of the past 20
years, though not since 2018,
the valuations of these indices
have been higher than for the
S&P 500, but now they trade
on a near-record discount of
28%. Yet while the earnings of
these indices are expected to fall
roughly 10% this year against a
small increase for the S&P 500,
double-digit growth is expected
in 2024.
This makes it a very good
time to be looking at US small-
and mid-cap investment trusts.
The £169m Brown Advisory US
Smaller Companies Trust (LSE:
BASC) trades at a 15% discount
and the £292m JP Morgan US
Smaller Companies Trust (LSE:
JUSC) at a 10% discount. Both
have returned about 20% in
Brown Advisory US Smaller Companies has high healthcare exposure
the past five years, 9% ahead
of the Russell 2000 index,
excluding income.
Small caps have now
underperformed for seven
consecutive years, leaving
the Russell 2000 index with
a combined market value of
less than Apple, points out
Jon Brachle, co-manager of
JUSC. “The argument for
mean reversion is compelling,”
he says, “but patience could
continue to be required due to
macro-economic and geo-
political factors.”
Focus on stock picking
This year started well, with the
Russell 2000 rising 8%, but
it then gave all of that back.
The small-cap stocks that
©Getty Images
have performed well are in the
technology and biotech sectors,
particularly companies without
earnings. These account for
roughly 40% of the Russell
2000, but much less at JUSC.
As a result, JUSC’s year-to-date
performance lags the Russell
2000 by 9%, excluding income.
At BASC, Chris Berrier
is also averse to companies
without earnings but they still
account for a “lower teens
percentage of the portfolio”.
His style is growth-orientated
but “we care deeply about
valuations” as does the team
at JUSC. Both managers
emphasise “quality”, stable
businesses with visible long-
term growth, low cyclicality,
good margins and hence solid
own up to his worst performers,
though two of his bottom
five in the year to date are
companies that have “nothing
wrong with them but don’t
have the attributes for current
market conditions”. The stock
examples for both funds sound
compelling.
On a higher discount
and with a better one-year
performance, BASC is the more
compelling of the two right now,
despite its smaller size. It also
has the slightly lower annual
management charge of 0.70%
compared with JUSC’s 0.75%.
The total ongoing charge
figures were 0.97% and 0.95%
respectively for 2022. But both
are excellent funds with great
records of adding value over
the medium to long term in an
anomalously attractive area of
global markets.

Activist watch Short positions... energy trust faces wind-up threat

Elliott Investment Management and
n The ThomasLloyd Energy Impact Trust, a n ”When your fund manager leaves to a new
the London Metal Exchange headed to
government-backed trust that invests in firm, it can be tempting to follow,” says fund
court this week over the latter’s
renewable energy in emerging markets, is research firm Morningstar. But “you should
decision to cancel billions of dollars in
fighting a wind-up vote, says Citywire. think twice before taking the leap”. While
nickel trades on 7 March and 8 March
Trading in the £148m trust was halted in April successful managers who move or set up on
last year as the price of the metal
after cost overruns at its flagship solar project their own tend to deliver strong returns at
soared, says Bloomberg. The three-
in India forced the delay of its annual results. first, that fades over longer periods. A sample
day hearing in London, which began
The trust is expected to write down the $7m of 518 managers who changed firm over the
on Tuesday, has seen Elliott argue the
value of the project – “a significant failure… past 30 years in the US and 20 years in Europe
exchange rejected alternative courses
at an early stage, which raises significant found their average outperformance in the
of action that would have had a less
questions about the manager’s due- first three years was 0.69 percentage points
damaging outcome for the market.
diligence process”, says Numis. Now, just 18 per year more than in the three years before
The hedge fund – which is known for a
months on from its initial public offering, it they moved. But this rarely lasts: their record
successful court battle with Argentina
faces the prospect of a continuation vote over five years was almost identical. What’s
on defaulted sovereign bonds, as well
after failing to invest three-quarters of the more, taking into account managers who did
as numerous activist campaigns
money raised within 12 months. But not complete five years at their new firm, just
against underperforming companies–
management wants to postpone the vote, 35% of managers beat the market over five
is seeking $456m in damages for
arguing it would “not be appropriate” years. Still, sticking with the old fund under
positions that one of its traders had
before the audited accounts are published. new management may be worse: the moving
sold at a large profit on 8 March before
The UK Foreign Office is the trust’s largest managers beat their replacements by 0.52
the trades were cancelled.
shareholder, with an 18% stake. percentage points per year over five years.

23 June 2023 moneyweek.com

26
Cut overseas spending costs
Every holidaymaker should carry zero-fee credit and debit cards
Nicole García Mérida
Online writer
D espite the cost of living
squeeze, households are
not giving up on a summer
break. But if you want to keep
your spending under control,
it’s not just the price of flights
and hotels that are important.
Use the wrong card and you
could be stung with 3% or
more in fees. However, you can
avoid these charges by using a
©Getty Images
debit or credit card that comes
with zero fees on transactions
in foreign currencies.
The two top credit cards
Credit cards offer protection on
purchases over £100 and under
£30,000 under Section 75 of
the Consumer Credit Act, so
will be the best choice for many
types of purchases whether
you are at home or abroad. The
Barclaycard Rewards Visa is
perhaps the top option. There
are no fees on spending or cash
withdrawals abroad, so long
as you pay your bill by the
due date. The exchange rate is
Visa’s wholesale rate, which is
extremely close to the rate at
which big institutions transact
in the currency markets. You
also get 0.25% cashback on
purchases at home and abroad.
Halifax Clarity Mastercard
is the other popular option.
This uses the Mastercard
wholesale exchange rate,
which is very similar to Visa’s.
There are no fees for using it
abroad, but unlike the Barclays
Pocket money... a possible tax hit for fractional shares
l Some individual savings
account (Isa) investors could be
at risk of shock tax bills due to
the rules around fractional
shares, says The Telegraph.
Some platforms, including
investing app Freetrade, allow
investors to buy fractions of a
share in US companies and
hold them in an Isa. However,
the 1998 rules governing which
assets can be held within an Isa
only permit full shares, says
HM Revenue & Customs.
Freetrade says it disagrees
with HMRC’s “interpretation”
of the legislation. “Like many
other participants in the
market, we are of the view that
the current Isa rules do not
23 June 2023
Personal finance
Don’t get ripped off in the rush to spend
Rewards Visa, interest will be
charged on withdrawals from
as soon as the cash is taken
until it’s repaid. There’s no
ongoing cashback, but new
cardholders can get £20 for the
first purchase made within 90
days of account opening.
Best choices for cash
While Barclaycard Rewards
effectively gives fee-free cash,
taking out cash on a credit card
is not ideal (it shows on your
credit report and may be seen
as a sign of distress by lenders).
So fee-free debit cards are
better for cash, even if you use a
credit card for spending. All use
the Visa or Mastercard rates.
The new app-based banks
are well known for this. Chase
lets you take out a maximum
of £1,500 per month abroad;
it also offers 1% cashback
on spending. Starling lets
you withdraw £300 per day.
Monzo is more complex: you
prohibit fractional shares from
being held in an Isa,” the broker
tells The Telegraph. However, if
the taxman pursues platforms
that have allowed investors to
hold fractional shares in an Isa
and wins any legal challenges,
investors could be liable for
thousands of pounds in back
capital gains and income taxes.
l The average interest rate for
a two-year fixed-rate mortgage
jumped to 6.01% on Monday,
according to data provider
Moneyfacts. Rates are now
closing in on the 6.5% average
rate reached during the Liz
Truss budget crisis in late 2022,
which in turn was the highest
can withdraw £250 every
30 days in the European
Economics Area (EEA) and
£200 elsewhere, after which
you pay a 3% fee, but if you
meet certain activity criteria,
all EEA withdrawals are
free. Kroo is fee-free until 31
October, and normally free up
to £200 per month (3% above).
Among high-street banks,
Virgin Money’s M Plus account
has no fees anywhere, while
Metro Bank is fee-free in
Europe. Nationwide’s FlexPlus
account has a £13 monthly
account fee, but no card fees
anywhere. TSB’s Spend & Save
Plus account is also free of card
fees; it has a £3 monthly fee,
but pays £5 cashback if you
make 20 debit card payments
(not withdrawals) per month.
HSBC current-account holders
can get its app-based Global
Money account and card,
which has very good rates on
cash withdrawals and transfers.
for 14 years, says Bloomberg.
While these headline-grabbing
numbers attract plenty of
attention, they are only an
average: better deals are
available with mid-5% yields,
especially for those with low
loan-to-value ratios, while
borrowers looking for five-year
or ten-year terms can still lock
in rates below 5%.
There’s even more pain in
the buy-to-let mortgage
market, says The Telegraph.
Lender NatWest has hiked its
buy-to-let mortgage rates to
around 7%, while a swathe of
other lenders have pulled their
products pending further
clarity on future interest rates.
Don’t rush to
empty savings
With the average two-year
fixed mortgage rate now
exceeding 6%, borrowers
might be tempted to use spare
savings to pay off outstanding
balances. The problem with
using spare cash to reduce
any outstanding mortgage
balance is that you cannot
draw the money back if you
need it for a large unforeseen
expense or crisis.
Dipping into your savings
to reduce your borrowings
can therefore significantly
reduce your financial
flexibility. So it may be worth
looking into other options,
such as an offset mortgage.
These allow you to maintain
your liquid savings balance
while using the money to
offset the total outstanding
balance on any mortgage.
Instead of being paid interest
on your savings, which could
be taxable, you save interest
on your mortgage. This
arrangement is far more tax
efficient, especially for higher
earners, and you can still
withdraw money held in the
savings account at any point.
Another strategy for older
workers may be to increase
pension contributions. Most
people over the age of 55 can
withdraw around 25% of their
pension tax-free (these rules
will vary from person to
person) and those under 75
will still receive tax relief on
pension contributions. For
example, a worker paying
40% income tax could see a
£60 contribution grossed up
to £100. This can later be
withdrawn tax-free to reduce
any outstanding mortgage
balance in a tax-efficient way.
Both strategies can help offset
higher mortgage costs
without draining your savings.
l The £2 coin turns 25 this
year, but inflation has eroded
its value since it was first
issued, says This is Money.
A £2 coin kept in a piggy bank
since then is worth just £1.07 in
1997 terms. When it was
issued, £2 would buy you five
litres of petrol, or four loaves of
bread, or two pints of lager.
Today, it will buy you just 1.4
litres of petrol, 1 loaf of bread,
or 0.4 pints of lager.
The huge impact of inflation
shows the importance of
investing to beat inflation: a £2
coin put into a savings account
back then would be worth
£2.90 now, while £2 invested in
the FTSE 100 is worth £6 today.
moneyweek.com

How to claim your cash
Dealing effectively with late payments is crucial to small firms’ survival
David Prosser
Business columnist
W hen times are tough,
powerful organisations
are often tempted to throw
their weight around in order
to protect themselves. Surveys
in recent weeks have suggested
that small businesses are
experiencing exactly that.
A third report a significant
deterioration of the late
payments problem, as larger
customers take longer and
longer to settle their bills.
Small business owners often
feel powerless when customers
behave this way, particularly
if the customer is a large and
important one. But with
companies’ survival threatened
by late payments – the
Federation of Small Businesses
say the problem causes the
closure of 50,000 firms each
year – it is vital to confront
the issue. And
there are steps “The law allows you don’t be afraid doing
you can take to add interest to bills to take tough standard payment terms. The
that can make
a significant not settled on time” action.
difference.
The key is to focus on each
stage of how you do business
with customers. That starts
before you even agree to
supply a product or service.
You should, for example,
make credit checks on new
customers, particularly if they’re
considering a large purchase.
And keep a close eye on existing of involving a third party. One
customers. Are they paying bills option is to use the service
later than in the past?
You can also reduce risk by
setting tougher payment terms.
You may want to do this for all
customers, or just those where
initial checks flag up concerns.
For example, you could ask
for 50% of the cost of an order
upfront. You can reduce the
period a customer has to pay a
bill, to 30 days, say, rather than
the usual 60. Inevitably, this will
be an area of negotiation, but an
outright refusal by a customer to
consider your terms is a sign of
potential danger.
One you’ve accepted an
order, make sure your payment
processes are slick and efficient.
State your payment terms
explicitly at the outset, identify
who should receive your
moneyweek.com
Small business 27
Insurers to cough up
after Covid ruling
Hundreds of thousands of
businesses may be owed
significant sums by insurers
following two separate
rulings on the way their
business-interruption claims
were handled during the
Covid crisis.
Business-interruption
cover pays out if a business is
unable to trade for a period
due to circumstances beyond
its control. While the Covid
crisis seemed like an obvious
example, some insurers
initially insisted their policies
did not cover pandemic-
related losses – only for a
Supreme Court test case in
January 2021 to find they
©Getty Images
were liable.
A third of small firms say bills are being paid later and later More than two years later,
the Financial Ombudsman
invoice, and issue bills promptly. businesses and larger peers. You Service has now ruled that
Modern invoice-financing could also use a private-sector businesses covered by that
software can help you automate debt collection agency – it will case are entitled to claim
interest on their
these processes to bolster charge for its help, though you
compensation to cover
efficiency. They will also flag are entitled to pass on these the period between them
up overdue invoices as soon as costs to the customer. making their disrupted claim
they occur – you should begin Finally, where you do and their insurer finally
chasing these straight away. run into a late-payments settling it. In some cases, the
Where a customer fails problem, think seriously interest due could run into
to respond to your demands about whether to continue thousands of pounds.
Separately, the High Court
promptly, business with this
customer, at least on your has ruled that the Supreme
Court’s original ruling has
wider implications than some
The
law gives you
worst case is that they’re paying
you late because they’re in
insurers had believed. In
particular, it says insurers
the right to add interest to bills financial difficulties – next time, should have paid out on
not settled on time, at a rate set you may not get paid at all. Even policies that required a
by HM Revenue & Customs in if they’re just settling invoices problem to occur “at the
line with the Bank of England’s slowly in order to drive stronger premises”, rather than only in
base rate. You are also entitled cashflow, are you prepared to be the locality. Lawyers say a
to charge for any costs you incur exploited in this way? large numbers of businesses
will be affected by the ruling.
in the process of chasing the The bottom line is that
Small business advisers
unpaid invoice. in a challenging economic say firms which had business
With the most problematic environment, where many -interruption policies in place
customers, you have the option businesses face tough cost during the pandemic should
pressures, late payments are now seek guidance on
bound to increase. But by whether they are owed
provided by the Small Business confronting the issue head on, money, irrespective of
Commissioner, which intercedes you may be able to reduce your whether their original claims
in disputes between smaller overall exposure to this issue. were settled.
Petty cash... a dearth of equity capital
l Small businesses looking to raise equity through publicity and promotions as it seeks
may be in for disappointment, with new to boost awareness of this year’s Small
figures revealing that the availability of capital Business Saturday event, due to be held on
has declined sharply. New data from the 2 December. See smallbusinesssaturdayuk.com
British Business Bank reveals that new equity for more details.
investment into small firms fell by 47% during the
second half of last year as investors became l Does your business know how advertising
much more risk averse. With some businesses regulation may affect marketing campaigns
also reporting that debt capital is becoming you want to run? The Advertising Standards
harder to obtain, firms may find it harder to raise Authority (ASA), the watchdog responsible for
cash for investment. advertising regulation, has launched a new
collection of resources specifically tailored for
l The organisers of the Small Business Saturday small companies. The ASA says small businesses
initiative have launched their annual search for were responsible for around 80% of the adverts
100 inspirational businesses that they plan to where it ordered amends or even withdrawal last
profile in the run-up to the event later this year. year – often because the business did not
The campaign will highlight the companies understand the rules.
23 June 2023
28 Personal view

Where to invest in the metals that

will engineer the energy transition
A professional investor tells us where he’d put his money. This week:
John Ciampaglia, manager of the Sprott Energy Transition Materials UCITS ETF
Sprott has specialised in the metals and mining sector
for decades. The Sprott Energy Transition Materials
UCITS ETF focuses on eight critical minerals that are
essential to the generation, transmission, and storage
of clean energy. We apply a rigorous investment-
screening process to select the pure-plays well
positioned to benefit from the increased investment
in the critical minerals necessary for the clean-energy
transition. These three companies are at the epicentre
of the clean-energy movement.

Driving the EV revolution

Lithium is synonymous with electric-vehicle (EV)
batteries, and Sociedad Quimica y Minera de Chile
SA (NYSE: SQM) is the second-largest producer of
this critical mineral. Being based in Chile, SQM has
exclusive access to the world’s largest and highest-
known concentration of lithium-rich brines. The
group expects to produce about 180,000 metric tons
of lithium carbonate in 2023, with plans to increase
refining capacity of lithium carbonate and lithium
hydroxide in the coming years.
With a market capitalisation of more than $19bn,
©Shutterstock

Electric cars’ batteries contain

SQM has considerable resources and expects to expand
its refining capacity. Record-high lithium prices in the
autumn of 2022 caused users to draw down existing
supplies of lithium rather than purchase additional
material at inflated prices, lowering sales in the short
term. Demand for restocking and rising prices in the
early part of 2023 is expected to contribute to a strong
second half of the year.
several kilograms of lithium
on geological surveys – amount to an estimated 235
billion pounds. Accessing these vast reserves in a
sustainable way is a priority for Freeport. It implements
the sustainable development framework created by the
International Council on Mining and Metals (of which
FCX is a founding member).

Copper leads the charge The boom in battery technology

Given its ability to conduct electricity efficiently, copper
plays a central role in energy transmission and EVs.
Producing more than 4.2 billion pounds of copper
“Freeport- in 2022, Freeport-McMoRan (NYSE: FCX) is the
McMoRan largest publicly traded miner of this critical mineral in
the world, boasting copper reserves in Indonesia and
is the North and South America. Thanks largely to the energy
world’s top transition, demand for copper may double between
2022 and 2035. FCX is already well positioned to meet
publicly the world’s growing need for copper, having copper
traded reserves of 111 billion pounds, but it also intends to
increase production.
lithium Freeport’s copper resources – which include reserves,
miner” discovered deposits and undiscovered deposits based
EV makers are continually searching for new battery
technologies that can lower costs and increase cars’
range. Increasing the proportion of nickel in lithium-
ion batteries to as much as 80% has helped meet both
goals. The A$11bn (£6bn) Australia-based explorer and
miner IGO Limited (Sydney: IGO) is a leading supplier
of nickel.
In addition to its three nickel-copper-cobalt
operations in Western Australia, IGO has nearly a dozen
more exploration projects and two lithium-producing
assets in the battery metals-rich country. Over the last
several years, IGO has invested heavily to ensure the
company’s future growth and enable it to capitalise on
the growing demand for critical battery minerals.
©The Telegraph 2023

23 June 2023 moneyweek.com

30 Profile

The crooner who conned Italy

Silvio Berlusconi started out by charging friends to ghostwrite their essays; he then built a media
empire and dominated Italian politics for two decades. Jane Lewis reports
Silvio Berlusconi, who has he wasn’t performing. After
died aged 86, often told a joke graduating in 1961, he tapped
about his search for a suitable his father’s bank for funds to
tomb. He’d decided to buy the start a construction company,
Church of the Holy Sepulchre Edilnord. The firm promptly
in Jerusalem where the body won a huge contract to develop
of Jesus was brought after Milano 2: a complex of 4,000
crucifixion. The problem was houses, offices and a hotel.
the $2bn cost. “Do I really have There were big questions
to pay so much? For what, to from the start about how
stay there only three days?” The Berlusconi got his “seed
Christ comparison highlighted capital”, says The Economist.
a mischievous quality that Opponents said it was down
was part of Berlusconi’s risqué to Mafia connections. He
charm. Yet he was perceived refused to say – beyond boasting
by many Italians as an almost that he’d swung the deal by
immortal figure – his countless contriving to “meet” a sceptical

comebacks were testament to
that. Italy’s longest-serving
prime minister “dominated
the public life of his country
in a way no Italian had done “He always refused to say where he got the the vast media group that later
since the fascist dictator Benito
Mussolini”, says The Guardian.
Berlusconi’s ascent was all the more
remarkable because he didn’t launch
his political career until he was 57. In
January 1994, he was best known as “a
sharp-witted entrepreneur” who’d made a
fortune from property and television and
owned the trophy football club AC Milan,
says the Financial Times. Three months
later, his new political party – created by
his advertising agency, Publitalia, and
named Forza Italia (“Come on, Italy!”)
after a football fans’ chant – was in power,
brimming with revolutionary vim.
Saving Italy from communism
Berlusconi liked to boast that, with
Italian capitalism in crisis, his greatest
achievement was saving the country from
communism. Yet his propulsion into
politics was motivated just as much by
seed capital to start his business empire” “smoothed his entry into Italian
commercial interest. He stepped into the
void left by ejected corrupt politicians,
including his patron Bettino Craxi, who’d
oiled the wheels of government for favoured by Berlusconi’s Fininvest holding company
businessmen. Berlusconi’s own cabinet
collapsed in scandal within a year. But he
would be back.
Born in Milan, the son of a bank clerk
and a redoubtable “mamma”, Berlusconi
came of age during Italy’s “Dolce Vita”:
the sweet spot in the late 1950s and
early 1960s when the post-war economy
boomed and the world lapped up Italian
glamour. Fittingly, one of his first jobs –
while studying for a law degree – was as
a crooner on a cruise ship: his speciality
was Neapolitan love songs. Early on he
showed a knack for business, charging
friends to ghostwrite their essays and
selling vacuum cleaners part-time when
©Getty Images
financier on a train, bonding
over bawdy stories.
Whatever the case, the
property deal paved the way for
politics”. He set up a cable TV
station, TeleMilano, for the residents of the
complex – eventually weaving a network
of local stations. The stranglehold wrought
over Italian media eventually extended to
three national TV channels, two national
newspapers and more than 50 periodicals.
Berlusconi regained power in 2001 –
following an election stunt in which he
distributed copies of his hagiography, An
Italian Story, to every household in the
country – and held it intermittently for a
decade. “A populist of genius,” his business
career and showbiz lifestyle offered Italians
the promise that they too could “have it all”,
says The Guardian. That proved a mirage
(see box). Admirers credited Berlusconi
with “pioneering a form of ‘anti-politics’”.
But that often degenerated into outrageous
behaviour, such as his humiliating
description of the German leader, Angela

“A populist of genius” Merkel, as “an unbeddable lard-arse”.

The death of his mother in 2008 seemed
Berlusconi’s political calling right-wing populist”, says scratched from the record”, to remove a brake, unleashing the wave of
card was all about The Wall Street Journal. noted The Guardian’s John “bunga bunga” activity that culminated in
business, says the Financial But his actual policies Hooper in 2011. On the charges of sex with an underage prostitute.
Times. He told Forza Italia’s differed little from the other hand, says Lisa Jucca Berlusconi shrugged off all his gaffes
candidates “to dress like centrist consensus. Efforts on Breakingviews, he with the same ease that he sidestepped
smart salesmen and to reform the tax system, awakened a spirit of laws, helped by a 2008 statute that
saleswomen”. But although “to bring more of Italy’s enterprise that stands the granted the prime minister immunity from
his own commercial economy into the open”, country in good stead. prosecution. “All publicity in his book was
interests “grew like topsy stalled because he couldn’t Nonsense, says Annalisa
good publicity,” says Prospect. He might
when he was in power” – get it through the Merelli on Quartz. His
aided by 20 new measures legislature. But the wider failure to invest and plan even have survived the encircling sex and
that favoured either him or malaise in Italian politics dragged a country once corruption scandals had the global financial
his firms – he presided over was partly to blame. buzzing with innovation crisis and ensuing recession not intervened.
a decade of economic He weakened the rule of (think Fiat and Olivetti) into With typical positivity, he told Italians “the
stagnation, says The law, leaving behind a a race to the bottom, crisis would not affect them”, says The
Economist. That left Italy country “in which anyone “short-changing younger Economist. As their economy crumbled,
dangerously exposed when who cooks the books or generations to keep power many of his most devoted followers realised
the eurozone sovereign seeks to embezzle or in the hands of the few”. that – like so many of Berlusconi’s business
debt crisis exploded. defraud can do so The Berlusconi era is far
associates – “they too had been duped by
Berlusconi was often knowing… their offences from over – “Italy is still
portrayed as “a dangerous will most likely be paying for the damage”. the great seducer”.

23 June 2023 moneyweek.com

32 Travel

A rewilding safari in Sussex

Matthew Partridge joins a tour scanning the Knepp Estate for the “big seven”
“T wo decades ago, most
of the farmers in the
area opposed us. Now, many
of them are interested in
copying what we do,” said our
guide, Tom Forward, as our
group strolled along the Sussex
savannah. Of course, the idea
of rewilding still remains
controversial – especially given
rising food prices, and being
grandson of a Fermanagh
farmer, I also have mixed
feelings. However, the Knepp
Estate’s approach shows
that selective rewilding can
have a place in the modern
British countryside.
The Knepp story started in
1999 when farmers Charlie
Burrell and Isabella Tree
realised that, no matter how
©Charlie Burrell

efficiently they farmed their

3,500-acre estate, it wasn’t Deer belong to the “big seven” beasts of the wild
commercially viable. Rather
than sell up, they decided to you do have to stick to the paths. out the various species of birds entrance, in the adjoining
rewild their land, beginning However, if you want to explore that have reappeared since the village of Dial Post, it is the
with restoring the Repton deer the wilderness area properly, as land was returned to nature, quintessential country inn.
park, which had been ploughed well as learn about the animals, and took us to see the beavers, The Crown Inn offers a range
under during World War II. insects and plants that inhabit who are currently required to of accommodation. The Coach
Over the next two decades, they it, you should book one of its be enclosed, although Knepp is House and Hayloft are cottage-
converted their land to pasture tours, such as the “Walk on the lobbying Defra to allow them style apartments designed
for their free-roaming livestock. Wild Side” safari that I joined. to roam. with kitchens, while there are
What’s more, for the 1,160-acre After the walk had finished, also four bedrooms (“Safari”,
southern block, they went even I felt that I understood a “Ancestry”, “Wildflower”
further, converting it into a lot more about how Knepp and “Butterfly”) – “Safari”
wilderness area. operates, as well as the being ideal for small families.
Of course, as philosophy underpinning Butterfly, where I stayed, is
Forward explained, rewilding in general. While it elegantly designed in a bright,
rewilding doesn’t just eclectic style, with a striking
mean abandoning “The Crown Inn, view over the village common.
the land, which The inn itself offers a range
would quickly turn located close by, is of upscale pub food. For lunch,
it “into a mass the quintessential I had whitebait, while I opted
of brambles and for the tasty traditional fish and
eventually dense country inn” chips for dinner. The next day,
forest”. Instead, I returned to sample the juicy
the idea is to use the would be impractical to expect burger and fries. For breakfast,
selective introduction every farm to follow this idea, the inn offers guests a selection
of animals to achieve an there is something undeniably of yoghurts, cereals, homemade
equilibrium between beast magical about being able to energy bars and bread and jam
and plant. This ensures that hear the sounds that have been for a small supplement, which is
the area becomes lightly Led by our enthusiastic lost during the last century of then left outside your room in a
wooded scrubland, where expert guides, many of agricultural development. cooled hamper.
some of the birds, animals and whom have advised on other
trees that used to be part of the similar projects elsewhere, Charming country inn Matthew was a guest at Knepp
natural background to rural our group spent an enjoyable Knepp is only a 20-minute taxi (knepp.co.uk). Safaris start
Britain, but are now at risk of morning exploring, with a ride from Horsham station, from £60. Rooms at The
becoming extinct, can thrive mid-morning break for some which has frequent trains Crown Inn start from £130,
together. To finance this, they homemade brownies. to and from London. So it crown-inn-dialpost.co.uk
have set up a campsite that During the three-hour tour, is possible to visit the estate
makes a big contribution to the Forward detailed Knepp’s as part of a day trip. Knepp
local economy. history, as well as showing us Estate itself offers everything
the best places to find its “big from basic pitches to upscale
A very English safari seven” – storks, beavers, red glamping. However, you might
In theory, Knepp is criss-crossed deer, fallow deer, long-horn want to consider The Crown
by various public rights of way, cows, Tamworth pigs, and Inn. Located less than ten
with no entry charge, although Exmoor ponies. He also pointed minutes’ walk from the main

23 June 2023
 Cars 33

Aston Martin’s finest DBS

The DBS 770 Ultimate is the best Aston Martin of the modern era. Chris Carter reports

“I nduction. Compression. Ignition.

Combustion. Exhaust. In most cars, this
explosive reaction between fuel, oxygen and
electricity is anaesthetised into something
spiritless and mundane,” says Tim Pitt in City
AM. Not in the Aston Martin DBS 770 Ultimate.
“Its 5.2-litre V12 is one of the most exhilarating,
awe-inspiring engines ever unleashed onto the
road.” But it’s also the end of an era in that it is
possibly the last series production Aston Martin
to be fitted with a V12. That said, the way it
drives “bodes brilliantly” for the next car in the
DB series, the DB12, which arrives this summer.
“Yes, this is the last of the old guard,” says
Ollie Kew for Top Gear. The DB12 is a sign of
where the Warwickshire-based car marque is
going and the Ultimate is a fine expression of
“By the beard of where it’s been. It is “an enormous canal boat of
Zeus, the Ultimate a car”. Its proportions, however, are “beautifully
judged”. No matter how many financial storms
is a monstrously… the company weathers, “the British public seems
improved DBS” to have a bottomless pit of affection for [the DBS].
It’s a universally adored national treasure. Like
driving around on Adele”. So, Aston Martin has
“gone to town on the old warhorse”. And while
the brand has a reputation for doing more than
most others, “by the beard of Zeus, the Ultimate
is a monstrously, vastly improved DBS.” It races
to 62mph in 3.4 seconds and tops out at 211mph.
“It’s hilariously fast, in a kind of never-ending,
elastic [way], but almost all of the little shimmies
and wiggles that the DBS used to perform as it
tried to wrestle over 700bhp onto the road are
gone.” Finally, you can unleash with confidence
“the World War II fighter plane engine”.
“All of which is to say that it’s mind-blowingly
good,” says Richard Lane in Autocar. Its 759bhp
makes the Ultimate “the most powerful series-
production Aston ever made”. On the one hand
it is “a collectible, alluring run-out special for the
wonderful DBS”. On the other, it is a “dynamic
manifesto for [the future and] the incoming…
DB12”. Until then, “what we have here is
probably the finest Aston of the modern era”.
£314,000, astonmartin.com

Wine of the week: Portugal’s answer to Château Lafite

2014 Mouchão, Alentejo, Matthew Jukes
Portugal Wine columnist
£48.95,
weaverswines.com; Regular readers know I am a big
£49.95, fan of Portuguese wines. Last
southdownscellars.co.uk week, I published a review of the
finest wines from two of the most
famous Portuguese supermarket
chains on my website. This will
ensure you will not go wrong when
seeking the finest bargains to drink
while you are on your hols. At the
top end, I have done the same with
three elite estates – you can order
these to be delivered ahead of your
arrival. Not wanting to leave out
those who don’t holiday in the land
of pastéis de nata, here is the
finest, sub-£50, elite Portuguese
red wine in the UK for you
to dive into, and it will
reward your senses like no
other. I wonder if,
alongside Pêra-Manca
and Barca-Velha,
Mouchão is the
country’s third
exceptional “First
Growth”. If
Mouchão’s Tonel No
3-4 is Portugal’s
Lafite, this makes my
featured wine
“Carruades de
Lafite”, and I like this
analogy. Of course,
the flavours are poles
apart, but the
expressive, layered,
noble fruit tones are awe-inspiring
and echo the sophistication found
in the Bordeaux superstar.
My featured 2014 vintage is
smooth, honed, and drinking
beautifully at nine years old, and
the 2015 that follows it is equally
alluring with a 20-year life ahead
of it. I tasted the 2016, too, at the
winery a couple of weeks ago;
it is, undeniably, a masterpiece.
Mouchão might be over a
century old, but it is
performing at its apogee today.
Matthew Jukes is a winner
of the International Wine &
Spirit Competition’s
Communicator of the Year
(MatthewJukes.com).

moneyweek.com 23 June 2023

34 Property
This week: properties for around £800,000 – from a thatched cottage with a garden fronted by a stream

Rose Cottage, Hilton, Cambridgeshire. Clifton House, Timberland, Lincoln.

A Grade II-listed cottage with a garden
fronted by a stream with a bridge leading
to the village green. It has exposed wall and
ceiling timbers, a kitchen with an Aga, and
a dining room with an inglenook fireplace.
4 beds, 3 baths, 2 receps, outbuilding,
0.3 acres. £775,000 Cheffins 01223-214214.
A Grade II-listed 1770s property with a
four-bedroom coach house in the grounds.
It retains its original fireplaces and 18th-
century staircase. 5 beds, 3 baths, 2 receps,
study, library, garden room, kitchen,
attached greenhouse, workshop, garden,
orchard. £799,950+ Savills 01522-508909.

Weavers, Stradishall,
Suffolk. A Grade II-listed
cottage with enclosed gardens
with a barbecue terrace, a
large pond and a waterfall.
It has exposed wall and ceiling
timbers, oak floors, large
inglenook fireplaces with
wood-burning stoves, a
double-aspect dining room,
and a breakfast kitchen with
bespoke cabinets. 4 beds, 2
baths, 3 receps, study, double
garage, parking. £799,950.
Jackson-Stops 01638-662231.
23 June 2023 moneyweek.com

m in Hilton, Cambridgeshire, to a converted coach house with a turret in Monmouthshire, Wales
Farnley Grange, Markington,
Harrogate, North Yorkshire.
A late 19th-century property
surrounded by gardens on the
edge of a village. The house retains
its Victorian ceiling roses and
period fireplaces, and has wood-
burning stoves and a kitchen with an
Aga and French doors leading onto a
south-west facing patio. 5 beds,
2 baths, 2 receps. £800,000+
Strutt & Parker 01423-706771.
moneyweek.com
Property 35
Mallord Street,
Chelsea, London SW3.
A recently renovated
one-bedroom apartment
in a period building
situated just off the
King’s Road, within
walking distance of
both Sloane Square
and South Kensington
underground stations.
The apartment has large
sash windows, a period
fireplace in the living
room, and a newly fitted
kitchen and bathroom.
It comes with access to
communal gardens and
a share of the freehold.
1 bed, bath, recep.
£825,000 Dexters
020-7590 9510.
Bury, Dulverton,
Exmoor National Park.
A Grade II-listed former
chapel dating from 1889.
It retains its vaulted
ceilings and arched
windows and has a
bespoke conservatory.
3 beds, 3 baths, recep,
breakfast kitchen,
converted stable with
studio, workshop, mature
gardens. £820,000 Fine &
Country 01398-324818.
The Old Coach House,
Llangattock Vibon Avel,
Monmouthshire, Wales. A
Grade II-listed converted coach
house with mature gardens
with views over a church
towards the mountains beyond.
It has wood and tiled floors,
panelled walls, traditional and
contemporary fireplaces, and
a turret accessed by a spiral
stone staircase. 3 beds, 2 baths,
2 receps, breakfast kitchen,
vegetable garden, 1.2 acres.
£815,000 Roscoe Rogers &
Knight 01600-772929.
Tudor Cottage,
Chiddingfold, West Sussex.
A Grade II-listed cottage in a
quiet village. It has allocated
parking, a courtyard garden
and grounds overlooking the
surrounding countryside.
The cottage retains its leaded
light windows, exposed
ceiling timbers, and inglenook
fireplace. It has a dual-aspect
sitting room and a bespoke
country kitchen with an Aga.
3 beds, 2 baths, recep, garage,
two parking spaces, electric-
car charging point. £725,000
Knight Frank 01428-770561.
23 June 2023
 Crossword 37
Bridge by Andrew Robson Tim Moorey’s Quick Crossword No.1161
A bottle of Taylor’s Late Bottled Vintage will be given to
Sussel’s sleight of hand the sender of the first correct solution opened on 3 July
Feigning strength when you have weakness, feigning weakness 2023. By post: send to MoneyWeek’s Quick Crossword
No.1161, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email:
when you have strength – such ploys are very much part of the
scan or photograph completed solution and coupon and email to: crossword@
winning declarer’s armoury.
moneyweek.com with MoneyWeek Crossword No.1161 in the subject field.
I love the coup pulled off by this week’s declarer, the late Parisian
Patrick Sussel (pronounced sou-sell). Monsieur Sussel has pulled off
many such coups, all with an unlit cigarette hanging out of the side
of his mouth (it may even be the same cigarette). This one came from
the European Open Championships in Menton.
Dealer South Neither side vulnerable
♠ J73 ?????
♥ J62 ????
♦ AJ1074 ????
????
?? ♣ Q6 ????
♠ K94 ??? N ???? ♠ Q10652
♥ Q93 ???? ???? ♥ K1085
♦ 983 ???? ???? W ???? E
♦ 52
♣ K1075 ???? S ♣ A3
????
♠ A8 ????
♥ A74
♦ KQ6
♣ J9842

The bidding
South West North East
1NT* pass 3NT pass
pass pass

* Theoretically “Sans Atout Fort” (15-17). “Je me donne un

point,” Mon. Sussel may have said. Down clues are mildly cryptic whereas across clues are straight

West led the five of Clubs and East won the Ace. Declarer carefully ACROSS DOWN
concealed his four and two, to make it appear to East that his partner 1 Lather (4) 1 Force into service in Eastern port (8)
held greater length. But it was not the eight he played on the first 3 Trustworthy (8) 2 Duke terribly late for major airline (5)
round that was so clever (concealing such low cards is a standard 8 Given permission (7) 4 Senior seen in Sheffield estate (6)
expert ploy). It was the card he played at trick two on East’s Club
10 Quarrel (5) 5 Wise men in one country proving vision (11)
11 Variety of apple (6,5) 6 Sectarian keeping quiet for somebody (3,4)
return that was so clever.
13 Junkie (6) 7 Flat race, say not quite finished (4)
Declarer followed with the Knave. Yes – really. West fell for the 15 Military display (6) 9 Turn on cold convector and take this off? (11)
bait, winning the King and happily cashing the ten, preparing to lead 17 Acts of mischief (11) 12 Son in a stew first to see areas of trouble (3,5)
over to his partner’s presumed two long cards. I can only imagine his 20 Watchful (5) 14 Pavlova, perhaps with long hair taken up (7)
expression when he saw that it was his partner who discarded on the 21 In the distant 16 Scruffs grabbing learner in Italian city (6)
ten of Clubs, not declarer. Hoodwinked. past (4-3) 18 Knowing of conflict within hospital
Declarer had now two established Club tricks, to go with five 22 Little star (8) department (5)
Diamonds and the two major-suit Aces. Nine tricks and game made. 23 Supreme god (4) 19 Oscar’s successor in pop (4)

For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com Name

Address

email !
Solutions to 1159
Sudoku 1161 Across 6 Detour anagram 7 Pursue U inside purse 8 Mess two definitions
9 Green tea anagram 10 Blessed two definitions 12 Garb reversal 14 Alec
To complete MoneyWeek’s hidden reversal 15 Diverse divers + e 18 Penelope pen + elope 19 Snap two
8 Sudoku, fill in the squares definitions 20 Odious od + IOUS 21 Allied (r) allied
1 3 4 9 in the grid so that every row
and column and each of the Down 1 Cereal hidden 2 Roos homophone rues 3 Dragnet anagram
8 1 5 3 nine 3x3 squares contain all 4 Frontage anagram 5 Superb Super B 7 Peek reversal 11 Skeleton
the digits from one to nine. anagram 13 Sidebar S I debar 14 Agenda end in aga 16 Seated anagram
3 7 4 The answer to last week’s less d 17 Oops o inside ops 19 Sale hidden.
6 9 8 3 puzzle is below.

2 7 5
9 2 4 8 4 3 9 5 1 2 8 7 6
5 8 1 6 7 3 9 4 2
6 8 9 1 6 2 7 4 9 8 5 3 1
The winner of MoneyWeek Quick Crossword No.1159 is:
Sachin Meghani of London
1 8 1 5 3 2 7 6 9 4 Tim Moorey is author of How To Crack Cryptic Crosswords, published
by HarperCollins, and runs crossword workshops (timmoorey.com)
3 9 4 8 6 5 1 2 7
MoneyWeek is available to visually Taylor’s is one of the oldest of the founding port houses, family run and entirely
2 7 6 1 4 9 3 8 5
impaired readers from RNIB National dedicated to the production of the highest quality ports. Late Bottled Vintage
Talking Newspapers and Magazines 7 6 3 9 5 4 2 1 8 is matured in wood for four to six years. The ageing process produces a
in audio or etext. 1 4 8 2 3 6 7 5 9 high-quality, immediately drinkable wine with a long, elegant finish; ruby red
For details, call 0303-123 9999, in colour, with a hint of morello cherries on the nose, and cassis, plums and
or visit RNIB.org.uk.
9 5 2 7 8 1 4 6 3 blackberry to taste. Try it with goat’s cheese or a chocolate fondant.

moneyweek.com 23 June 2023

38
Lessons from Zimbabwe
It’s impossible for politicians to turn off the printing presses
Hyperinflation: a challenging cycle to break
Bill Bonner
Columnist
A
mong the many curiosities,
back eddies, and ironies in
finance world is this: equities
can go up, even as an economy
goes down. Take Zimbabwe,
where local investors have
driven stocks up 600% this year
as they try to shelter from the
latest bout of hyperinflation.
Zimbabwe has been
fighting inflation, depression
and hyperinflation for nearly
20 years. No sign of victory
yet! The country used to be
the breadbasket of Africa,
with rich fields of wheat and
tobacco at the centre of a
thriving agricultural economy.
It flourished after it gained its
independence from Britain in
1979. But in the early 1990s,
politics gained the upper hand.
The Robert Mugabe
government began its own
reparations programme, taking
land from white farmers and
distributing it to Mugabe’s
cronies. The whites fled.
Food production dropped.
Unemployment soared to
80%. Tax revenues fell, so
the government turned to the
printing presses. Consumer
prices rocketed.
So in 2007, the government
took forceful action against
inflation. No, it did not stop
printing money. Printing
money is like taking heroin.
23 June 2023
Last word
Once you get in the habit, it’s a
hard one. You plan to do it…
promise to do it… and even try
to do it. But in the end, you just
don’t want to do it.
Instead, it made it illegal to
raise prices. Executives who
tried to keep up with inflation
by raising prices were put in
“Printing money is
like heroin… it’s a
hard habit to kick”
jail. This had the effect of
stopping output all together.
Commercial activity shifted
to the black market. A loaf
of bread could be bought,
legally, for about Z$500m.
On the black market, which
was the only place you could
normally find bread, the price
was Z$10bn. By July 2008, the
inflation rate was believed to be
250 million percent.
Back to their old tricks
In 2009, the Zimbabwe dollar
was abandoned altogether.
Things settled down. Business
returned, using the US dollar
as the substitute currency.
But in 2018, the authorities
went back to their old tricks.
A new Zimbabwean dollar
was introduced. A year later,
inflation was said to be over
500%. Today, prices are going
up at about 200% per year.
For a long time, we carried a
memento of the hyperinflation
©Getty Images
period – a Zim bill with a face
value of $100trn dollars. With
that and five US dollars, we
would have been able to buy
a cup of coffee in Harare. But
there was no coffee in Harare,
or anywhere else in the country,
because nobody wanted to
take Zim currency in payment.
So the shelves were cleaned
out. And soon there was no
food. No clothing. No fuel.
Almost nothing.
That was when Gideon
Gono, head of the central
bank, made the discovery that
will prevent the US and other
nations from dealing with the
current scourge. With inflation
out of control, people needed
more and more money just to
buy necessities, he later told
our old friend Doug Casey.
The situation was terrible. But
it would have been even worse
– including civil war – if they
hadn’t kept printing, he said.
This is the advanced stage of
the “inflate or die” dilemma.
Once you’re hooked on
inflation, it’s very hard to give
it up. Stock prices, corporate
profits, household earnings –
rich and poor – all depend on
more and more money. You
have to keep inflating or the
whole thing collapses. Even an
honest politician thinks twice
before cutting off the thing
everybody most wants – more
money. Going cold turkey is
painful. It is much easier just to
keep printing money.
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