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Hermes: Eurozone ‘Misery Indices’ – converging on the strongest once again

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Hermes: Eurozone 'Misery Indices' - converging on the strongest once again

To test whether the macro strains in the eurozone periphery are still holding back the core members, Neil Williams, Senior Economic Adviser to Hermes Investment Management, updates his ‘Misery Indices’ (MIs) out to 2019. He finds that, with macro-economic convergence between euro members next year set to be the strongest since 2007, they should be on a better footing to weather their next challenge – linked perhaps to Italy’s political risk. 

Off-the-wall methods for proxying economic hardship include an index adding together a country’s unemployment and inflation rates.

Though hardly scientific, they become especially flawed in a low inflation or deflationary world when the components may move in opposite directions. We offer a more logical alternative to this, and to GDP estimates, which are produced with more of a time lag and frequently revised.

Our MIs are the sum of two parts:

  • the absolute divergence of a country’s CPI inflation from the 1.9%yoy synthetic average since economic convergence was kick-started by the Maastricht agreement, in February 1992; added to
  • the divergence between that country’s unemployment rate and, to gauge the economic cycle, its previous five-year rolling average.

We use Eurostat data and OECD/our CPI and unemployment projections to the end of 2019 to: (i) highlight the disparities still; (ii) quantify the degree/direction of convergence; and (iii) test whether the debtor countries are still an increasing drag on the core.

Converging on the strongest once again

Chart 1 summarises our predictions to 2019. Rising MIs predict greater economic hardship, relative to that country’s past. On this basis, it offers the following observations.

Chart.1 The method & sample data behind our Misery Indices (MIs)

The lower the ‘Misery Index’, the greater the expected economic improvement

 1 Standardised unemployment (%), & HICPs (%yoy).

2 Absolute CPI deviation from 1.9% (+) added to u rate deviation from 5-yr av (+/-).

3 Using adjusted GDP weights.

4 Blue shaded areas suggest ‘faster than average misery reduction’.

Source: Hermes’ MIs, based on Eurostat data, & Hermes, & OECD projections (p).

Source: Hermes’ MIs, based on Eurostat data, & Hermes, & OECD projections (p).

First, after a marked deterioration in eurozone members’ MIs during the global crisis, improvement since 2014 looks to be sustained through to 2019. As a bloc, the eurozone’s (weighted) MI should, at -2, be its lowest since 2001.

Second, with growth now resuming, it’s not surprising to see the sharpest improvement in most of those members that from 2010 ran austerity to cut deficits and debt. Spain, Portugal, Greece, and Cyprus’ MIs are now lower, albeit from a previously high base. For some others, though, unemployment and deflationary pressures from the fiscal squeeze are still dampening improvement in their relative positions. In 2018, Italy will for the ninth year running lie in the above-average-misery zone in Chart 1. But, even this is much improved on 2010-14, and further gains look likely across the periphery.

Still, most revealing is what our MIs say about convergence (Chart 2). Looking back, the dip in the eurozone’s weighted average MI from the mid 1990s reflects Germany’s recovery after its 1992-93 unification-led recession, and the benefits as the converging countries tried to reduce inflation, bond yields, debt and deficits. Our MIs reveal the two stages: from Maastricht in 1992 to the euro’s birth; and thereafter, with the euro, a steady re-widening as policy discipline waned.

 Chart 2. Divergence between the periphery & core continues to correct

The lower the ‘Misery Index’, the greater the relative economic improvement

  Source: Hermes’ MIs, based on Eurostat data, & Hermes & OECD projections (p)

Source: Hermes’ MIs, based on Eurostat data, & Hermes & OECD projections (p)

Convergence after Maastricht was solid. We proxy it by tracking the highest and lowest MIs each year. In 2018, Spain looks the ‘happiest’ relative to its recent past (GDP averaging +3.3%yoy since 2015), with Finland relatively the ‘least happy’ (+1.5%yoy). Greater convergence is shown by the narrowing gap between the two extremes. Looking forward, it suggests 2019 should see the joint largest degree of convergence since 2007, with the periphery leading the charge.

This combination of reducing strains in the periphery with slower relative improvement in the core means divergence since the crisis is correcting. This is encouraging, though not sufficient for sustaining economic health. This still rests on the core, which account for 80% of eurozone GDP: but, their MIs are also better.

So, while tackling the eurozone crisis needed more than just low rates and QE, without them, Spain, Italy and others’ competitiveness gains may have been offset by a stronger euro. However, while not fixed, euro members should be on a better footing to weather their next market challenge – linked perhaps to Italy’s political risk.

Investing

What is the procedure for proving a missing or lost Will?

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Intermediaries will be key to Investment Houses navigating the Covid19 crisis

By Alexa Payet, Partner at Bolt Burdon and listed specialist in the Certainty

Contentious Probate Hub & Area

Initial steps

When an individual dies it is necessary to search their paperwork to establish whether they made a Will and gather information regarding their estate. This is important because the personal representatives of the estate have a legal duty to distribute the estate correctly and could be held financially responsible for any mistakes made through any breach of duty.

Where a Will cannot be found but is believed to exist there are a number of steps that can be taken to help confirm its existence, including (but not limited to) the following:

  • making enquiries of the deceased’s family and friends;
  • making enquiries with the deceased’s professional advisors;
  • instructing The National Will Register to undertake a Certainty Will Search.

Presumption of revocation

Where the original Will is known to have been in the testator’s possession before their death and cannot be located afterwards, there is a rebuttable presumption that the Will was destroyed by the testator with the intention of revoking it. If an order for the proof of a copy is to be obtained then this presumption must be rebutted.

Procedure for proving a copy Will

The procedure for proving a copy Will is set out in Rule 54 of the Non-Contentious Probate Rules 1987 (‘NCPR’).

The application is made to the Probate Registry at which the application for the grant will be made and the order can be made by a district judge or registrar.

The application must be supported by evidence in the form of an affidavit (although during the global pandemic the rules have been amended by the Non-Contentious Probate (Amendment) Rules 2020, SI 2020/1059, to provide for the use of witness statements as an alternative to affidavits).

The evidence must set out the grounds of the application and any available evidence that the applicant can adduce as to the Will’s existence after the death of the testator or, where there is no such evidence, the facts on which the applicant relies to rebut the presumption that the Will was destroyed by the testator during his/her life.

The applicant must ensure that the Court has the best available evidence of what happened to the testator’s Will in order that effect may be given to his/her testamentary wishes.

It is important to understand that the applicant does not need to demonstrate that the Will has been lost (it is the fact of its loss which gives rise to the presumption of revocation). Instead, the applicant must establish, by evidence, that the Will was not in fact revoked.

What is a Certainty Will Search and why is it necessary?

A Certainty Will Search searches for Wills that have been registered on The National Will Register (circa 8.7 million Will registrations in the system) and for Wills that have not yet been registered in geographically targeted areas where the deceased used to live and/or work. A Certainty Will Search is extremely important as it will be necessary to notify the probate registry of any persons who would be prejudiced by the grant if the copy Will is proved. If no such person exists then the registrar is more likely to grant the application. Alternatively, if such a person does exist then you should seek to obtain their written consent to the application. The written consents can then be lodged with (or following) your application.

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Oil prices rise as investors look to higher demand seen in second half

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Oil prices rise as investors look to higher demand seen in second half 1

By Shadia Nasralla

LONDON (Reuters) – Oil prices climbed on Tuesday as optimism that government stimulus will eventually lift global economic growth and oil demand trumped concerns that renewed COVID-19 pandemic lockdowns globally are cooling fuel consumption.

Brent crude futures for March rose 72 cents to $55.47 a barrel by 1152 GMT after slipping 35 cents in the previous session.

“The perception that any retracement will be quick as confidence in economic and oil demand recovery is unlikely to fade away,” said PVM analysts in a note.

U.S. West Texas Intermediate crude was at $52.65 a barrel, up 29 cents. There was no settlement on Monday as U.S. markets were closed for a public holiday. Front-month February WTI futures expire on Wednesday.

Investors are upbeat about demand in China, the world’s top crude oil importer, after data released on Monday showed its refinery output rose 3% to a new record in 2020.

China also avoided an economic contraction last year.

Investors are watching out for U.S. oil inventory data from the industry association API, due on Wednesday, the same day U.S. President-elect Biden’s inauguration speech will likely give details on the country’s $1.9 trillion aid package.

The International Energy Agency cut its outlook for oil demand in 2021, but pointed to a recovery in demand in the second half of the year to an annual average of 96.6 million barrels per day.

“Border closures, social distancing measures and shutdowns…will continue to constrain fuel demand until vaccines are more widely distributed, most likely only by the second half of the year,” it said in its monthly report.

(Additional reporting by Florence Tan, editing by Louise Heavens)

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Investing

Can Thematic Investing provide investors with growth opportunities in uncertain times?

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The impact of COVID-19 on the investment market

New whitepaper from CAMRADATA explores

CAMRADATA’s latest whitepaper on Thematic Investing, considers the role this type of investing can play in asset management and explores trends that can permeate society and traverse sectors. The whitepaper includes insights from guests who attended a virtual roundtable on Thematic Investing hosted by CAMRADATA in November, including representatives from CPR Asset Management, Sarasin & Partners, Impact Investing Institute, PwC, Quilter Cheviot, Scottish Widows and Stonehage Fleming.

Sean Thompson, Managing Director, CAMRADATA said, “In these seminal times, thematic investing has the potential to shape how the future unfolds. Yet running a successful thematic fund is no easy feat – it is a bit like navigating unchartered waters trying to identify the trends and the long-term opportunities.

“Trends such as AI and biotechnology are still in their relative early days, for example, and global economies are undergoing dramatic changes. But mapping out certain trends, identifying potential sustainable returns through a unifying thread that spans multiple sectors, could help future-proof investments. “Our roundtable guests considered current key themes, which themes worked well, and which have not and how thematic investors could identify trends with the potential to offer future growth.”

The guests named themes they currently like which included artificial intelligence, China, climate change, clean energy, automation, evolving consumption, ageing, digitalisation, water, waste management, biodiversity, and board diversity.

After discussing themes that have worked or not, the guests looked at total allocation to themed funds, and whether clients might be blinded by themes to the overall risk exposure in their portfolios.

Key takeaway points were:

  • Themes have a habit of coming and going. One guest recognised that automation and robotics, for example, were cyclical, which means that investors will have to think carefully about entry-points.
  • It was agreed that the commodities ‘super cycle’ of the 2000s came about with the economic development of China. Many commodities-based products found their way into mainstream investing, but this is unlikely to happen again.
  • One guest was surprised by some of the themes that interested their customers; with their research showing that Board Diversity was almost the lowest-ranking concern among the ESG choices they listed.
  • There was correlation between environmental impact and social benefits to investing. The theme that concerns the Impact Investing Institute, which is less than two years old, is improved measurement of such relationships.
  • In terms of successful themes, one clear winner due to COVID had been digitalisation.
  • One theme that has not done so well is the Ageing theme focused on older people travelling and enjoying experiences abroad later in life.
  • One guest said their firm used themes for ideas generation, not as a shortcut for portfolio construction. They said themes lead to good ideas, but they then spend at least three months researching a stock, so that the best themes are represented by the best investments.
  • The final point was that there are sensitivities for any global investor in allocating to themes, even the biggest one of all, Climate Change.
  • But on a positive note, one guest added if all stakeholders can resolve their differences on definitions such as impact and ethical investing, then more capital will be readily transferred into opportunities.

The whitepaper also features two articles from the sponsors offering valuable additional insight. These are:

  • CPR Asset Management: ‘Central Banks: leading the path towards Impact Investing’
  • Sarasin & Partners: ‘Theme or fad? How to invest for the long term’

To download the Thematic Investing whitepaper, click here

For more information on CAMRADATA visit www.camradata.com

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