November 2019

The importance of the election!

By Patrick McIntosh, [email protected]

It is impossible to predict the outcome of the election for many reasons, but probably the most relevant reason being the absolutely fractured state of the political and democratic process both here and across the whole of Europe. And this has led to such a tumultuous and unfortunate situation for us and for all Europeans.

From KMG’s perspective, however, the reality of life is as follows:

It is an absolute fact that the birth rate has not increased for several decades and the population explosion that we are living through will only last for another 15 to 25 years – and then will very rapidly decline. You have to spend only a month in Japan to see quite how dramatic and extraordinary are the events of an ageing and a dying population, and what this means for them as they lose approximately 40% of their population in the foreseeable future! It is an absolute fact that what is happening in Japan will arrive in Europe in the foreseeable future for the following reasons:

Firstly, our birth rate is not sufficient to replace the population.
Secondly, we have an ageing population which will reach a tipping point during the course of the next 15 to 25 years. The effects of this tipping point are becoming extremely relevant to us now in caring for the elderly and providing pensions and a support system to cope with an ageing population.

If we continue to live in a world where we deny migration then we have to accept that the technological revolution will be employed to cope with and manage this dynamic. Again you only have to look at Japan where there has been virtually no inward migration to see how this scenario is playing out.

It is another absolute fact that we are all enjoying the spectacular evolution of technology and are continuing to develop and live in the future both subliminally and consciously. However, I am afraid it is a human trait that we think in the past, we vote in the past, and we act based upon completely out of date information and knowledge. This is probably why there is so much confusion in the political system both in America and in Europe.

The final and I am afraid probably most relevant issue that the whole globe will have to address in the very near future is the speed of climate change. I can tell you having cycled slowly across the world and having seen the unbelievable amount of carbon being sucked out of Siberia and blown into the air (be it from European power stations, or further afield in China, Korea and Japan), the fact of the matter is that unless we can arrest and help carbon exporting countries such as China or Russia, I am afraid we really do not need to worry about anything else – because climate change will overwhelm us.

If you are not coming to my talks on my bike ride, let me tell you that as I cycled across Russia, one third of it was underwater, and 7,500,000 acres were on fire. I cycled through dramatic climatic events beyond our wildest imagination – none of which are being reported. The Russians know as well as we do that they are likely to destroy the planet faster than any war or other event that we could possibly imagine.

The structure of society is going to change beyond our wildest recognition over the next 5 to 25 years. Taxation is going to change: it may not get any higher but it could be focused on those more capable of paying, particularly those with capital wealth.

So please go and vote, and please encourage everybody to engage in the democracy that we so value in this country. However, please be aware that whoever ends up in power, the above issues are central to our way of life, and survival, and will have to be addressed by whichever government we end up enjoying.

Who would benefit from 5G?

By Gemma Barker, [email protected]

We have all been adopting technology in subtle (and not so subtle) ways to improve the way we live our lives, from booking holidays to tracking how many steps we take in a day.

The momentum of new technology continues to build, and while I am still trying to work out what exactly a quantum computer is I have been interested to read about the impending roll-out of 5G around the world. The increased level of wireless connectivity from 5G will allow artificial intelligence, the Internet of Things, and augmented reality to transition from buzz-words to genuinely useful technology that can be fully integrated into our lives.

While I haven’t yet been able to imagine a case for the WiFi-enabled cooker hood I recently heard about, the potential for further linking of the internet-of-things (which allows devices to communicate with each other and share data) will go far beyond what we know today. The “data network effect” is the idea that data allows a service to improve, which attracts users. Those users generate more data, which helps to improve services which attracts more users, and so on.

A report from Deloitte claims that countries who adopt 5G early can expect to benefit economically for a decade, and China have taken an early lead. According to Deloitte, China have invested in 5G infra-structure at a rate of $8-10 billion per year more than the USA since 2015.

What about us in the UK? 5G isn’t far away; there are further rounds of “spectrum auctions” taking place in spring 2020, and by the end of 2020 all of the UK’s operators will have launched their 5G offering.

I don’t know how long it will take to become mainstream, but I do know that these kinds of developments are the way of the future and KMG’s Investment Committee will continue to follow with interest.

Surveying our clients

By Gemma Barker, [email protected]

The service that we provide for you is at the very core of our business, and we are always looking for ways that we can improve. We have recently introduced a survey for you, our clients, to give us your feedback on what we have done well, or what we could improve.

We would be extremely grateful if you would take the time to fill in the survey after your annual meeting, alternatively, if you prefer you can use the on-line format which can be found on our website. Head to the News page where you’ll find a link to the PDF version.

A little positive pause for thought

By Christine Norcross, [email protected]

Climate change, albeit inevitable as highlighted by Patrick’s article, is certainly interpreted individually in a magnitude of ways ranging from climate collapse denial to full force apocalyptic fear.

As a mother of young children, I do not have the option to subscribe to the thought that efforts to impact climate change are too late and indeed futile. On a ground level within my peer groups and certainly school age children, I note that single-use plastic has become as socially unacceptable as public smoking, and the younger generation are discussing building their first homes from eco-bricks that they have made (in our garden suggests my six-year old).

So, call me an eternal optimist, but with the amount of renewable energy now generated and targets set to increase the capacity of wind, solar, biomass and hydro-power – even I now have solar panels! The rise of simple individual changes like the increase in plant-based diets and the vegan trend gathering momentum – plus the 20-year anniversary of the G20 countries working together to bring about collective behavioural change, hope exists. And where there is hope there is opportunity. Nick mentioned this is his last Bulletin article, that the guidance or control that we as investors and advisers can have on companies, profits and the direction they take mean the climate change landscape is not set. So, let’s keep moving the markets by the way we spend, invest and live. I believe we are waking up to the fact that there is no fate, but that which we make.

The value of our money

By Nick Matthews, [email protected]

For most of us, we live, work and spend the vast majority of our time in the UK. It makes sense for the pound to be our reference point.

When we look at your investment portfolio, we have to think differently, and it is a good job that we do. Unfortunately, this comes back to Brexit and politics in part, which has recently dented the value of sterling against other currencies but really the pound has been losing value to the US dollar for half a century. The £1 that could buy almost $3 in 1967 now only buys $1.25.

There are a couple of things that jump out at me. The first is that we have been talking about positive but lower levels of growth than we expect to see round the world, and I believe this has been proved right. However, investments made abroad now buy more pounds when brought back to the UK, so you have actually done rather well despite slowing growth.

The other side is the remarkable absence of inflation. For a nation that imports half of our food, the same weekly shopping bill should now cost 10% more than it did three years ago given a 20% depreciation in the pound, but shopping bills have not increased in reality, but I suspect they will unless sterling rises in value. Having said that, better fuel efficiency and technological progress means we can do more with less in other areas which masks the problem.

So, the point to make is that currency has a big impact not only on your investments but also on the general cost of living – not just holidays. We do not expect rampant inflation, and indeed would not be surprised if sterling had some form of rally. But do not forget about inflation and the life changing impact it can have if it gets out of hand. I hope this explains why we invest globally as we look to provide for your financial security.