Alpha Portfolio Service Brochure
Water is unlike any other commodity on earth. It covers 71% of the planet and without it life on earth couldn’t have started. Unlike most resources water is pretty much indestructible – it doesn’t break down when heated up, but evaporates, constantly changing its form. We can’t live without it but in most places on Earth water holds practically no financial value. Our most precious of resources is free – but for how long?
Water shortages are becoming more commonplace across the world. This is being caused by unprecedented population growth and greater wealth, leading to more meat consumption, combined with climate change and severe droughts. Growing levels of water shortages have political consequences and have helped destabilise the Middle East. The World Resources Institute (WRI) estimates that a billion people currently live in water scarce regions but that this could grow to 3.5 billion by 2025. Demand for water is projected to rise by 40% over the next 20 years. “Forget the Global Financial Crisis, the World Is Running Out of Fresh Water.”
The WRI estimates that it takes about 2,400 litres of water to produce the ingredients of a hamburger! It takes 75 litres of water to produce a pint of beer. Global brewer SAB Miller estimates that 90% of its water to brew its beers comes from growing ingredients such as barley and hops.
Which got us thinking, if you are worried about the forthcoming EU referendum then here is a more frightening thought. Beer drinkers be warned ‘no water, no beer!’
What have we been watching?
The Mother of Dragons, white walkers, the Dothraki, fire breathing dragons and three –eyed ravens. Yes, series 6 of Game of Thrones has begun! (If you haven’t seen series 1-5 where have you been?)
One of the big themes of 2016 so far has been the weakness of the US Dollar since the start of the year. This reflects the more dovish stance from the US Fed. US Dollar weakness has removed some of the pressure on the Chinese currency and helped commodity prices and in turn global miners.
In the UK, most fund managers are not expecting Brexit considering the British electorate to be cautious, and so continue to track bookmaker odds which have remained at 2/1 on for the UK to remain part of the EU. No company results or trading updates have yet mentioned a direct impact from potential Brexit. Yet despite this, domestically focused UK shares appear to be under pressure. For example, after the increase in housing transactions, ahead of the stamp duty change, UK housebuilders have fallen sharply recently due to concerns about a slowdown, particularly in London, ahead of the EU referendum. House construction has slowed sharply in the first three months of 2016 but this is believed to be largely due to planning delays.
UK clothing retailers have continued to struggle with home shopping business N Brown, the owner of the JD Williams brand highlighting ‘subdued trading’. Even the pub and restaurant trade has reported soft trading despite the benefit of Easter. Are UK consumers concerned about Brexit or are they instead, undertaking home improvement projects, going on more holidays or buying new cars while interest rates remain at historic lows? As if to underline the point, the ONS data for March showed a 1.3% fall in UK retail sales volumes which was weaker than expected. Furthermore, the tough conditions could be about to claim another high street victim with BHS expected to file for administration today threatening almost 11,000 jobs.
In Europe, the ECB released the results of its Q1 lending survey which was generally supportive of an improvement in Eurozone lending conditions, which should offer some relief given the recent weakness in bank shares. However, ECB President Mario Draghi warned that inflation could turn negative again later this year before recovering towards the end of 2016. Not surprisingly, European interest rates are to stay at zero for an extended period of time and ‘well past the horizon of ECB net asset purchases’. The ECB seems confident about its stimulus policy and its ability to respond further, if required despite political criticism, most of it from Germany. Some analysts are suggesting further easing in September when a further extension of the timeframe for QE beyond March 2017 could be announced.
In the USA, home sales came in ahead of expectations in February with growth of 5%.
In Japan, March exports were not quite as bad as expected but were still lower than February while imports declined steeply, the fifteenth month of decline. Flash manufacturing data for April was also disappointing. The BoJ meets later this week and Japanese equity investors are hoping that it will undertake more stimulus measures to mitigate the effect of the recent earthquakes on the island of Kyushu.
China’s debt grew by 50% in Q1 2016 to about $25trillion, equivalent to 237% of GDP. This surge in borrowing again raised concerns that it could trigger either an acute financial crisis or a Japan style ‘lost decade’ of slow growth and deflation.
Brent oil had rallied above $44 ahead of the previous week’s Doha meeting. The price was also supported by news of a public sector workers strike in Kuwait. The three day strike ended after Kuwait’s oil minister announced that negotiations with workers would not commence until, the strike had ended. Oil prices fell back on the news before firming again following comments from Iraq’s deputy oil minister who suggested that another round of production freeze talks could be held in Russia as soon as next month. Data from the IEA also showed global oil inventories were lower than expected. In addition, Chinese oil imports in March were the second highest on record aided by government and local refinery stock piling.
Finally, bookmakers must be crossing their fingers that they get the EU referendum betting right given some of them have not had the best of luck recently. For example, Ladbrokes said that the recent Cheltenham Festival was its ‘worst in living memory’ while confirming that it has a £3m liability if Leicester City win the Premier League!
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This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.
You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.
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