“In economics things take longer to happen than you think they will, and then they happen faster that you thought they could” – Rudiger Dornbusch
Regular readers of our UK market commentary are probably bored of hearing our argument that there are some wonderful global businesses listed in London that are being overlooked, thanks to how unpopular the FTSE 100 is with international investors at the moment. I promise in this commentary to change the record and focus on some ‘big picture’ changes happening in London markets that I believe are here to stay.
Firstly, there is a gaping divide between the winners are losers in 2020. The FTSE’s negative return of -22% year-to-date is a weighted average that disguises the fact that some sectors, such as mining, healthcare and technology, have in fact had an excellent year, while the likes of banks and oil and gas companies have had a year to forget. Royal Dutch Shell and HSBC had reigned as the largest companies listed in London for many years, and their being toppled off the top spots by AstraZeneca and GSK was a seminal moment. Further down the list, we also saw Fever-Tree overtake Rolls-Royce in market value terms, Ocado move above Lloyds and Just Eat scoot past Imperial Brands (Tobacco). There has been a clear changing of the guard across the market and I view this as a permanent shift.
I wonder if and when the great tech winners of today will start to be overtaken by new and more innovative companies? Might we, for example, move from a worlds of FAANGs (Facebook, Amazon, Apple, Netflix, Google) to FYSTT (Fortnite, YouTube, Snap, Twitch, TikTok)?! I do not know the answer to this, but my point is that we cannot ever afford the luxury of resting on our laurels and, looking at generation Z and beyond, it seems clear that much of the behavioural change that we are seeing is permanent.
Speaking of generational change, my last observation for this commentary is that ESG investing is here to stay. As my colleague Harriet Evans recently argued, ESG investing is far from perfect, but gone are the days when a CEO or a fund manager could get away a singular focus on making money. Rio Tinto CEO Jean-Sébastien Jacques thought that he had got away with a public apology and a pay cut when Rio blew-up the 46,000-year-old rock shelters at Juukan Gorge in Western Australia (sacred to the Aboriginal people) this year, but he was sorely mistaken. Jacques was forced to resign in September when a group of major shareholders ‘politely’ informed the Board that heads must roll. This is just one prominent example, but ESG can been seen across markets having an increasing influence. It turns out that capitalism might have a conscience after all.