Founded in 1946, Garanti BBVA is Turkey’s second-largest private bank, with consolidated assets of approximately TRY 456bn ($67.6bn) as of March 31, 2020. We are an integrated financial services group that operates across every segment of the banking sector. Throughout our many decades of service, we have witnessed numerous changes within the financial services industry; even so, the last decade has delivered innovation at an unprecedented scale and pace. We are committed to playing a leading role within this transformation.
We currently deliver a wide range of financial services to more than 18 million customers via our 18,000-plus members of staff and our distribution network of 904 domestic branches, seven foreign branches in Cyprus and one in Malta. We also have two international representative offices in Düsseldorf and Shanghai. As consumer demands shift, we believe that an omnichannel approach is the best way to provide a seamless experience for our customers, whether it’s through our 5,260 ATMs, our award-winning call centre or our online and digital banking platforms. Wherever our customers need us, that’s where we’ll be.
Moving with the times
In terms of retail banking, Garanti BBVA rolled out its green mortgage in 2017 to promote the development of efficient and environmentally friendly buildings – to date, we have provided a total TRY 379m ($56.2m) in financing. Garanti BBVA also took an important step in 2019 to manage its direct impact on climate change and started working on its Scope 1 and Scope 2 emissions targets.
Garanti BBVA is here to stay and grow with its customers, even on the hardest of days
In light of these developments, the bank signed a contract at the beginning of 2020 with utility companies across Turkey to purchase 100 percent renewable energy for its buildings and branches that have the compatible infrastructure. Garanti BBVA will continue to support its stakeholders in climate change transition, encouraging customers to become aware of their impact on the planet and helping them to adapt their behaviours, including the use of public transportation, electric or hybrid vehicles and other green products. The bank will maintain its key role as an advisor to its customers, supporting them in their endeavours within the sustainable space, such as contributing to the circular economy, sustainable investment funds and sustainable innovation.
As emerging technologies and the changing world rapidly transform customer expectations, the banking sector is being asked to constantly renew itself. Looking ahead to the next decade, we anticipate technological revolutions will continue at an increasing pace, with data analytics, machine learning, artificial intelligence (AI) and automation technologies set to gain further importance. That is why it is key to establish an experience that is both empathetic and instantaneous.
To this end, we make it our goal to adapt to evolving market conditions in a swift and agile manner, making new collaborations that create pioneering business models and channels while maintaining our human-centric approach. As technology, innovation and new opportunities continue to make our customers’ lives easier, the most important guarantors of our success will be our employees, who enable us to establish long-term, deep and emotional bonds with our customers.
Garanti BBVA conducts monthly usability surveys to better observe its users’ needs and devise solutions for problems associated with existing functions. Additionally, these surveys ensure the user experience is the focal point when we launch any new product. A recent example was the enhancements we made to our personal loan service, which provides customers with the loans they need for shopping on digital platforms. Our customers can apply and use the loans for their online shopping expenses as an alternative payment method in e-commerce transactions.
We have also renewed our public dashboard and implemented new features in our app, Garanti BBVA Mobile. We analysed the customer journey and conducted a variety of usability research initiatives within this. Now, the dashboard is easier to use, actions are more visible and the end-to-end digital experience is enhanced. With our digital onboarding project, we streamlined the process of becoming a customer by digitalising our customer acquisition process.
Garanti BBVA will continue to develop new instruments, channels and processes in keeping with this goal, utilising big data, AI and Internet-of-Things-orientated marketing activities, as well as delivering tailored solutions for our customers’ on-site needs.
Guiding the market
With its effective delivery channels and successful relationship banking, Garanti BBVA’s market share in retail lending increased further among private banks in 2019. Preserving its leading position in retail products, the bank continues to respond effectively to its customers’ needs with branches spread across all cities in Turkey. What’s more, Garanti BBVA always approaches its customers in a transparent, clear and responsible manner, improving customer experience continuously by offering products and services that are tailored to their needs.
In 2020, asset growth is anticipated to be around 10 percent and remains loan-driven. Turkish lira loan growth is expected to fall somewhere between 15 and 18 percent, in line with the rebalancing of the economy. While growth is expected to be present across the board for all loans, Turkish lira investment loans will likely lead the way. On the retail banking front, Garanti BBVA will keep focusing on customer satisfaction and loyalty by deepening customer relationships, all while expanding its customer base.
We continue to deliver an innovative experience to all of our retail customers, including the 1.2 million new customers who joined last year. As of December 2019, 524,000 people had become homeowners through Garanti BBVA, and our share of the mortgage market was 10.6 percent. Meanwhile, our share of the consumer loan market was measured at 13.1 percent – putting us first when it comes to consumer loans among our private banking peers – and our consumer deposit market share reached 10.5 percent.
At Garanti BBVA, we believe the requirements of retail banking customers will deepen with every passing year, and the customisation of services and products aimed at these needs will become even more important. In 2020, the bank’s main focus will be to deliver products that are fit for purpose through the right channels and at the right time, thus improving customers’ experiences.
Adapting to the new normal
At the beginning of March, as the COVID-19 pandemic took hold, the world came to a grinding halt. For us at Garanti BBVA, the safety of our employees and the satisfaction of our clients have always been – and always will be – paramount. As such, we immediately adapted to the situation at hand and started multiple initiatives to ensure our goals would continue to be met.
The COVID-19 pandemic has shown us the undeniable importance of digital services
Garanti BBVA was one of the first Turkish companies to organise efforts to fight this crisis. The bank donated TRY 10m ($1.5m) to university hospitals for the purchase of medical devices and materials. Further, we delivered 500 ventilators – worth approximately TRY 30m ($4.4m) – as part of BBVA’s global campaign to help the countries it serves by providing medical equipment and materials to treat COVID-19 patients.
Within days, we moved our customer support centre off-site and provided a series of products, services and changes that would ensure all of our customers and employees felt safe and taken care of. As of March 31, 2020, 90 percent of the staff at our headquarters (approximately 7,000 to 8,000 employees) had started working from home, and only 30 percent of the entire bank continued working in the office.
While all call centre employees were sent home, we have ensured remote staff continue to receive regular updates during this tough period. As the best retail bank in Turkey, we understand that it is our responsibility to be at the forefront of the battle against COVID-19 and come up with new solutions and technologies that will make all of our stakeholders proud. And once the pandemic passes, we are ready to adapt our offices so employees can return safely when appropriate. We have shown during these troubled times that Garanti BBVA is here to stay and grow with its customers, even on the hardest of days.
All in all, the COVID-19 pandemic has shown us the undeniable importance of digital services. In this vein, Garanti BBVA has emphasised the importance of investing in digital channels and technological systems – it’s something that we have been committed to for more than 25 years. In the months to come, Garanti BBVA will continue to focus on digital transformation and remote services, identifying the most suitable tools for employees and customers to adapt seamlessly to the ‘new normal’.
Being a good corporate citizen means more than just considering the ethical and legal responsibilities within an organisation: it means accounting for the needs of wider society, too. At ON Semiconductor, our mission is to provide high-quality, energy-efficient and sustainable semiconductor solutions that enable customers to innovate while operating in an ethical and socially responsible manner.
As a global company, we must put sustainability at the forefront of our operations. That’s why we reuse, reduce and recycle materials at all of our sites and help make the world a greener, safer and more connected place with our energy-efficient semiconductors. Our products help industries become more environmentally friendly, while our business units and research and development department focus on efficiency and green applications. Put simply, we are committed to creating environmental, social and economic value through our sustainability, diversity, governance and social responsibility programmes.
A power of good
The energy grid and its associated infrastructure are facing accelerating change, with prices for solar power and energy storage falling and the load from electric vehicle charging growing across the globe. According to the US’ National Renewable Energy Laboratory, solar installation costs have dropped by more than 80 percent in the US over the past decade. These critical pieces of infrastructure require solutions with the highest levels of efficiency, reliability and safety.
ON Semiconductor has the technology, reliability and application knowledge to enable the decarbonisation of energy infrastructure
ON Semiconductor offers all the elements required for optimal energy solutions, from insulated-gate bipolar transistors, superjunction metal oxide semiconductor field-effect transistors and wide band gap semiconductor devices to power modules, gate drivers and operational amplifiers. Whether at grid, commercial or residential scale, we have the technology, reliability and application knowledge to enable the decarbonisation of our energy infrastructure.
Coal-fired power plants are the largest contributor to global carbon dioxide (CO2) emissions, which drive air and water pollution, facilitate the destruction of habitats and create health hazards. Our power solutions and products improve the efficiency of the overall system to enable a better return on investment on solar installations, further supporting CO2 reduction and combatting the effects of climate change. These improved efficiencies also result in cost reductions, encouraging further solar installations. What’s more, our products help countries reach their solar energy capacity goals while enabling them to retire or convert more of their existing fossil-fuel power plants – to date, ON Semiconductor has shipped enough power solutions to replace 70 coal-fired power plants. In 2019, we reduced emissions by 9,341 tonnes of CO2-equivalent through 35 projects in four countries.
Our Internet of Things portfolio includes solutions for energy-harvesting platforms, which are battery-free solutions with advanced wireless connectivity. The use cases for this technology are exponential, but a few examples include wide-range temperature sensing and combined digital humidity and pressure sensing. The demand for such tools is rapidly growing within the smart farming industry, resulting in cleaner air, enhanced energy efficiency, cost savings and ease of maintenance.
Another area that is gaining rapid momentum – especially as environmental and sustainability concerns grow in tandem with stricter clean air legislation – is the decarbonisation of automobiles and other transportation modes. In this category, our products provide energy-efficient technologies and a complete system solution for electric vehicle charging systems of all types and power levels.
Sustainability on a global scale
In addition to our products creating a safer, more sustainable world, we must continue to abide by our mission statement and operate responsibly. Back when ON Semiconductor was still a part of Motorola, the company had a monthly auction of retired equipment and scrap manufacturing materials. Eventually, the company decided to develop the ON Semiconductor Reclamation Centre (OSRC), which continues to operate efficiently after 40 years. In 2019, approximately 910 tonnes of scrap material and 1.38 tonnes of precious metal from ON Semiconductor’s global manufacturing facilities were processed, sorted and sold for reuse at the OSRC. The reclamation of these materials recouped over $22m.
The OSRC reflects our commitment to environmental sustainability and resource conservation while optimising our network, protecting intellectual property and maximising profits. It reclaims scrap materials from 22 of our factories and most of our subcontractors globally. Furthermore, we continually refine our methods, researching ways of reclaiming materials that consume less power and boost our revenue generation.
Based at our headquarters in Phoenix, Arizona, the OSRC supports both local and national refineries. When choosing partners, we place an emphasis on refiners – and brokers – that are contracted or have contractual agreements with integrated smelters. This was an important factor for us, especially considering there are only six integrated smelters in the world that are capable of accepting electronic waste and running all of their operations in strict accordance with environmental, health and safety policies – something that directly aligns with how we operate as a company.
Refiners that do not use integrated smelters could decide to piecemeal their scrap to brokers, increasing the chance of waste ending up in countries like China and India, where it will likely contaminate the land, water and air. We also implemented more than 72 projects in 2019 focused on energy conservation, waste reduction, chemical recycling, material optimisation and water conservation. Combined, they allowed the company to save an estimated $10.8m.
Regardless of whom we do business with – whether it’s a partner in the reclaim department, a distributor or any other strategic partner – their business objectives, ethics and sustainability initiatives must align with our own. Together with our partners, we are creating a more sustainable world and making Earth a better place in which to live.
Together with our partners, we are creating a more sustainable world and making Earth a better place in which to live
Heeding the call
We believe the actions we take today will shape the future of the planet. Our leaders like to challenge employees to do simple things that make a difference to the communities ON Semiconductor serves. Whether large or small, we encourage workers to incorporate more sustainable actions into their everyday lives, such as using public transportation, saying no to plastic bags and single-use plastics, picking up and properly disposing of rubbish, and donating to local charities that help the planet.
In 2019 alone, we prevented eight tons of pollution in Phoenix by encouraging our staff to use alternative modes of transportation as part of their commute. When our employees contribute positively to the community and share their time, talent, energy and effort with others, it makes our planet stronger.
The industry recognition we’ve received for our employees’ work in upholding our commitment to corporate social responsibility, sustainability, ethics and compliance is extremely rewarding, including being named one of the world’s most ethical companies by the Ethisphere Institute for the fifth consecutive year, ranking on Newsweek’s America’s Most Responsible Companies list and placing on Barron’s 100 Most Sustainable Companies list for the third consecutive year, among many other accolades. Looking to the future, we will continue to make sustainable investments to enhance our competitive position in strategic end markets, improve our industry-leading manufacturing cost structure and make the world a greener place.
The recent BlackRock letter to CEOs and other business leaders calling on companies to give stakeholders a clear picture of sustainability aligns with our values and reflects our reporting efforts to date. For example, we conduct the essential elements of our business through the lens of sustainability and are working towards reporting through the Sustainability Accounting Standards Board and/or Task Force on Climate-related Financial Disclosures frameworks. What’s more, we have implemented five-year targets relating to the environmental conservation performance at our wafer fabrications, assembly locations and test operation sites, and are currently working to develop appropriate science-based targets. These include plans to reduce carbon emissions, water consumption, energy waste and chemical usage.
As the world looks for new means of protecting the natural environment while driving innovation and not compromising on our way of life, ON Semiconductor is proud to lead the way with its sustainability initiatives.
As COVID-19 continues to wreak havoc on millions of lives, global economies are being devastated and businesses – both large and small – across the globe are being forced to undergo radical changes. Leading economies have been put on standstill as prolonged lockdowns designed to stop the spread of SARS-CoV-2 have pushed stock markets lower, causing mass unemployment and increasing fears of a global recession. Given the severity and unpredictability of the situation, many companies were far from prepared to deal with the slew of challenges triggered by the pandemic.
While some businesses have benefitted from major shifts in consumer behaviour – including a turn towards online services – all companies have been compelled to make swift and often significant changes to their operational models. BDSwiss Group, a global financial services business, is one of the companies that – thanks to its purely online operational model – has been able to respond quickly and efficiently to the ongoing crisis. Importantly, it has done so without compromising its client experience. Moreover, the company has managed to expand its client base during this period by continually onboarding new talent and tripling its average trading volume.
Established in 2012, BDSwiss offers retail forex and contract for difference (CFD) investment services to more than 1.3 million clients from 180 different countries. Having acquired multiple licences, it now operates on a near-global scale, delivering world-class online trading experiences in a regulated and transparent environment. BDSwiss’ growth projections for 2020 remain promising despite prolonged lockdowns.
All companies have been compelled to make swift and often significant changes to their operational models
Putting people first
Like all companies in these times, BDSwiss finds itself in an unprecedented situation. Nevertheless, its approach to the COVID-19 crisis has enabled it to weather the storm. As an online investment services company, its product delivery and distribution channels have remained unaffected. Still, there was a lot to be done on an operational level; due to the way its teams and operational systems are set up, BDSwiss was able to make fast and decisive changes to ensure business continuity.
Unlike many industries, investment firms and other financial services companies have the advantage of predominantly offering their products online. Even so, the sector has had to transition from staffed offices to a work from home (WFH) ecosystem. With almost 200 employees and offices in multiple countries, BDSwiss quickly and efficiently pivoted to a WFH system, prioritising its employees’ health and safety while doing so. The company cancelled all employee travel and seminars, adhering to the instructions of local health authorities. On March 13, BDSwiss was in a position to allow all employees to WFH – thanks, in large, to the firm’s infrastructure, automation and company culture.
Ensuring the safety of the workforce was paramount – understandably so, given employees are unable to perform their responsibilities when their wellbeing is at stake. Having established an operational model that supports telecommuting, BDSwiss employees were able to benefit from remote working early on. The company addressed its employees’ concerns and ensured they had access to all the necessary equipment and support required to be able to deliver a great customer experience in a WFH environment. In addition to its technological capabilities, the company’s strong corporate culture facilitated the move to WFH – at BDSwiss, employees are trusted to deliver a professional level of service, whether working in the office or remotely.
By adjusting its leadership approach to better guide employees through the crisis, BDSwiss maintained a transparent and global communication channel with all its teams, providing clear instructions and guidelines. It has motivated teams by giving assurances of support throughout the crisis and offering step-by-step plans to work collaboratively and manage the challenges presented when working at home.
Notably, BDSwiss also safeguarded all of its employees’ jobs – nobody was furloughed or made redundant. In fact, the business welcomed new employees throughout the crisis, and continues to do so. It also performed frequent assessments, feedback sessions and employee evaluations to ensure high staff productivity and performance.
Innovation and expansion
In times of crisis, a customer’s experience of a company dramatically impacts their sense of trust and loyalty towards it. When it comes to online forex and CFD trading services, clients rightly expect the same platform responsiveness, quality conditions, pricing, execution speed and support. Addressing clients’ concerns, BDSwiss continued to provide an exceptional level of service, fully operational platforms and customer support. At the same time, the company delivered clear and helpful cross-channel client communications via email, social posts, company newsletters and updates. In a pre-emptive effort to counteract possible cyberthreats, BDSwiss further strengthened its cybersecurity controls, taking all necessary precautions and informing clients of how best to keep their accounts secure.
While COVID-19 has had a devastating impact on global financial markets, it has also inadvertently created opportunities through market volatility, encouraging more people to invest. As a result, some financial services firms have faced an unexpected influx of new clients. To onboard them effectively without interrupting or impeding operations – and to handle the sudden increase in trading volumes and customer support enquiries – best-in-class brokers such as BDSwiss have had to make important investment decisions and allocate new funds for server capacity, onboarding procedures and staff resources.
The company not only invested in better server infrastructure, but also upped its expansion and innovation efforts, improving its clients’ experience even during the pandemic. Compromising customer experience was never an option. BDSwiss saw increased demand and acted fast, investing in more servers, hiring new talent and working relentlessly to refine its products and platforms.
BDSwiss’ commitment to expanding its services was on show during its seventh annual kick-off meeting, which was held in late February before many lockdowns had been put in place. During the event, management shared key metrics and achievements from the previous year, including the opening of five new offices and the doubling of BDSwiss’ global workforce to manage the sizeable influx of new traders.
Monitoring customers’ changing preferences in real time has enabled BDSwiss to pivot intelligently and adapt to new market conditions
Even considering the disruption caused by the COVID-19 pandemic, the company’s multistep process for global expansion continues to stand it in good stead. BDSwiss remains committed to investing in employee training, interdepartmental communication and operational excellence, and believes remaining true to these values will bring more success in 2020.
Leading the field
Working closely and intelligently with partners has been another vital component of BDSwiss’ successful response to COVID-19. Its affiliates have also had to deal with increasing client volumes, amplifying the need for new marketing materials and novel ways of engaging with audiences. BDSwiss was quick to address its partners’ needs, working on new ways to communicate with customers through localised online promotions, education and support.
Introducing brokers (IBs) faced a completely different set of challenges that demanded a more proactive approach. Given that IBs traditionally adopt an offline business model, the strict lockdown measures forced them to establish new communication channels with their audiences. BDSwiss’ business development managers worked closely with IBs, helping them to find ways of keeping in touch with clients. They introduced rewards on top of their current payouts and aligned the company messaging with their affiliate and IB partners, providing new ways of informing prospects and customers, including the use of regional promotions.
As a result, the business was able to expand its global network of partners and maintain a successful growth trajectory. Adapting to the operational challenges brought on by COVID-19 has also enabled the company to mitigate risk and turn problems into positive change. For example, BDSwiss managed to respond successfully to the surge in demand for online trading services by investing in the necessary infrastructure.
Monitoring customers’ changing preferences in real time has enabled BDSwiss to pivot intelligently and adapt to new and uncertain market conditions. In light of extreme volatility, more people are keen to capitalise on significant price trends through online CFD trading, as it offers quick and easy access to financial markets. This, in turn, demands more brokers to provide quality support, an excellent user experience and competitive conditions. It’s why BDSwiss has continued to invest in its customer experience, growth and innovation. During this terrible crisis, the company has been incredibly proud of all its employees for their amazing efforts. Throughout it all, the business has managed to do more, not less, and remains committed to delivering value for all its customers and stakeholders.
Maintaining individual or family wealth through generations is one of the major preoccupations of wealth advisors, with people often making very detailed arrangements for how their wealth should be passed on. All too often, though, the values of founders or family members are relegated to the status of informal considerations.
Companies and investors that practise responsible leadership and long-term thinking have something to teach us about ensuring values continue to have an influence in the long run. Family businesses, in particular, provide a good model, as they are often driven by the values and views of their founding members – the need to think and act sustainably is rooted in their DNA. Value-based investing provides family companies with a tool kit to articulate and promote their values and social commitments while mastering global challenges, such as their operational business, investments or philanthropic work.
Making it count
Like investment strategies, values can be integrated into legal structures from the off. When safeguarding wealth, people often set up foundations, trusts or similar legal vehicles. These can generally accommodate all types of assets, including investments in companies, real estate, art collections and, of course, liquid assets.
All too often, the values of founders or family members are relegated to the status of informal considerations
Most people who set up such structures use them not only to provide a safe home for their wealth, but also for planning and structuring. Such plans have to be precisely defined and clearly embedded within the structures. At Kaiser Partner, a leading family-owned wealth advisory group based in Liechtenstein and Switzerland, our experts emphasise the need to define and closely coordinate the details of family governance, business governance and investment governance so that clients’ values can be directly integrated.
In most cases, the priority is to clarify two aspects: family governance and business governance. Family governance issues will typically include details of any claims to foundation assets, criteria for the distribution of income or capital, clear instructions about which family members should be involved in decisions about such distributions, and the uses to which funds may be put.
For a family company that is held via a trust or foundation, business governance will always include detailed provisions of how long this asset should be held and who should receive dividends under which conditions. The criteria for selling stakes in family companies will also be defined, as will the criteria governing whether family members can work for the company and at what point they must leave.
By contrast, foundations and trusts often neglect the topic of investment governance, with most structures failing to establish an investment policy for liquid assets. Consequently, assets are invested conservatively and excessive risks are avoided, which often means there is no opportunity to shape a sustainable long-term strategy. The person or institution setting up the foundation (the settlor) often forgets that they can define specific management criteria, whether that’s in the foundation documents, the trust agreement or in special investment governance and regulations.
Within these guidelines, the settlor can lay down rules about the investment process and give direct instructions that must be considered when eyeing new investments. Alternatively, they can delegate such decisions to a committee. If no instructions are in place, the responsible bodies of the foundation or trust decide on the investment rules.
Assistance from client advisors and investment managers who specialise in responsible and sustainable investing is vital when establishing a value-based approach to investment
Taking responsibility
Over the past decade, value-based investing has become an increasingly important method of long-term wealth preservation for foundations and trusts, with younger generations in particular keen to focus on responsible and sustainable investments. Value-based investing is a strategy that concerns itself with the environmental and social impacts of a company’s actions, products and management. This approach covers various practices and is known variously as socially responsible investing, environmental, social and governance (ESG) factor investing, sustainable investing or impact investing.
An increasingly large number of people want to use value-based investing to put their money into organisations and companies that have a positive impact on the environment, culture, society and government, but they don’t want this to come at the cost of financial returns. Targets of such value-based investments include organisations with inclusive boards and management teams, companies that proactively reduce their consumption of water and production of emissions, and businesses that give something back to society. The latter might take the form of creating long-term jobs or building schools to help educate future generations.
Successfully establishing a value-based approach to investment for a foundation or family business requires perseverance and support, particularly when it comes to younger generations. According to the World Economic Forum’s 2019 report, Impact Investing for the Next Generation: Insights from Young Members of Investor and Business Families, young members of wealthy families face four main obstacles when trying to introduce value-based investing: opaque asset structures and impact objectives; a lack of confidence in their abilities; a dearth of expert support; and concerns about confidentiality. There is a desire, meanwhile, for honest experience and deal sharing.
Support systems
Assistance from client advisors and investment managers who specialise in responsible and sustainable investing is vital when establishing a value-based approach to investment. With the right experts, issues concerning clarity and confidence can be avoided. Another 2019 study, the Centre for Sustainable Finance and Private Wealth’s Impact Investing: Mapping Families’ Interests and Activities, came to a similar conclusion. It found that around 46 percent of the wealthy families surveyed were dissatisfied with private bank or wealth managers who weren’t specialised in impact investing, feeling their plans didn’t have the right support. Those advised by impact investing specialists were, however, mostly satisfied.
In the same survey, more than half of the 32 wealthy families living in the US said they would be investing 90 percent of their investable assets according to impact investing principles over the next 10 years. Studies such as these underline once more the rapid growth of the market (see Fig 1) and the greater diversity of products and services. This presents challenges to investors and client advisors.
It is equally clear that there is a greater demand for experts who can provide clients with solutions tailored to their values. Any advisory relationship should start with a value-based interview with the interested parties, which is exactly what Kaiser Partner Privatbank in Liechtenstein offers. The family-owned private bank, which has specialised in responsible investing since 2009, uses a comprehensive checklist to map out the areas that are close to the investor’s heart. Put simply, it seeks to identify the investment areas in which the client wishes to make a positive impact as well as the areas that should be avoided.
Clients can fundamentally exclude investments in specific categories, such as defence and weaponry, and cap the revenues generated in others, like alcohol and tobacco. In general, assets that generate revenues in segments that are important to the investor are given a high weighting, while those judged to have a negative impact are reduced to the maximum defined percentage or excluded altogether.
A dynamic process
The client-weighted standards and restrictions are put through Kaiser Partner’s screening service for ESG business involvement. As well as ensuring the effective implementation of client requirements, the service facilitates reliable and efficient portfolio management. Thanks to constant monitoring, the defined assets can also be adjusted at any time.
Investors and wealth advisors can make these adjustments with the help of heat maps, which are currently being put together based on an extensive survey of wealthy families. Heat maps are designed to identify underinvested market segments and show which impact topics, regions or asset classes are oversaturated.
Specialist asset managers have a clear task: creating new and innovative solutions while constantly monitoring the asset owner’s needs and interests. There is also a steady stream of new alternatives for philanthropy that wealthy individuals and families can use to express their values through foundations and other structures.
Values such as sustainability and responsibility lie at the roots of Kaiser Partner Wealth Advisors, Kaiser Partner Privatbank and Kaiser Partner Family Office Services. Based in Liechtenstein and Switzerland – two of the most stable and independent jurisdictions in the world – our specialists in sustainable and responsible strategies support wealthy families from all over the planet. The successful, long-lasting partnerships they forge are based on personal values, which are applied to all investment decisions.
Whether it’s in the underlying structure of foundations, the investment strategies or a philanthropic project, asset management can reflect personal values in countless individualised ways. And it can do this without reducing the wealth intended for future generations or compromising on financial returns. Now more than ever, investors and asset managers have the unique opportunity to use this dynamic and reciprocal process to innovate and give a personal slant to
financial, local and global interests.
Getting an international trade deal over the line is never easy. The Comprehensive Economic and Trade Agreement between Canada and the EU took seven years to negotiate, while the North American Free Trade Agreement (NAFTA) was initially thought up in 1980 but wasn’t ratified until 1993. Signing the deal is only the beginning, too: trade agreements are subject to changes and disagreements, as the recent NAFTA wrangling has shown. That particular deal was replaced at the start of July.
Businesses and wealthy individuals may be interested in the terms of the agreement that make it easier for investments to be made in each market
Nevertheless, parties that do manage to reach an agreement should be allowed to feel at least a moment of pride for the culmination of their efforts. This is likely how the EU and Mexico are currently feeling after wrapping up four years of negotiations by finalising a new trade agreement in April. The deal makes almost all goods traded between the two parties duty-free, but that does not mean all disagreements have been put to bed.
EU and me
Mexico is currently the EU’s biggest trading partner in Latin America, while only the US and Canada trade more goods with Mexico than the 27-member bloc. Despite the vast distance and cultural differences between the two parties, there are already a fair few economic connections between the EU and Mexico: trade in goods alone rose by 148 percent between 2000, when the original trade agreement between the two states came into force, and 2018.
“The economic, social and political differences between the EU and Mexico constitute the comparative advantages of each side to engage in mutually beneficial trade in goods and services,” Dirk De Bièvre, a professor of international politics and chair of the Department of Political Science at the University of Antwerp, told World Finance. “These differences make them complementary economies, creating the prerequisites to reap benefits from the trade facilitation and the stabilisation of mutual expectations that a trade agreement can offer.”
Yet, the kind of general incentives mentioned by De Bièvre are usually not enough to galvanise exporters, trade-dependent sectors and public authorities on both sides to invest in arduous yearlong trade negotiations. Extra political incentives have to give this general idea a final push. For the current update of the EU-Mexico agreement, there were incentives to deepen and solidify the level of commitment.
“The new type of committal signed by the EU and Mexico ensures a stability and credibility upon which investors and exporters can reliably build their long-term investment and distribution channel decisions,” De Bièvre said. “It gives political and legal certainty – an asset that is [in] gravely short supply in the US now. For Mexico, having this type of stable and deep trading relationship with one of the three most important players in international trade policy, the EU, is an important insurance policy.”
Given that the US-Mexico-Canada Agreement – the agreement that replaced NAFTA on July 1 – offers less favourable terms than Mexico enjoyed previously, the signing of a new deal with the EU has come at an opportune time.
Agree to disagree
The question of how the new agreement will impact the respective economies is difficult to answer at this stage. Tariff reductions are substantial, and they will be eliminated entirely on poultry, cheese, pork and numerous other agricultural and food products.
“The transition period for phasing out all tariffs is seven years – a typical transition period for this type of radical elimination of all tariffs,” De Bièvre explained. “Presumably, this will lead to some farming sectors specialising in some niches on both sides. This constitutes an important shift, yet remains only one of the many building blocks of regulatory cooperation (conformity assessments, facilitation of import and export procedures, and the like) for all trade in goods, not just agricultural ones. These are at least as important as the plain elimination of tariffs.”
But not everyone is pleased with the new agreement. France’s national livestock and meat association, Interbev, warned that the deal risked opening up the European market to “20,000 tons of Mexican beef” that were previously banned. Criticism also centred on food security matters, which appear all the more pertinent given the supply chain disruptions caused by the COVID-19 pandemic. Protectionism and self-sufficiency are back in vogue.
With agriculture only constituting little more than one percent of the EU’s GDP, the threat posed by Mexican goods may not cause much distress outside of farming circles. Instead, businesses and wealthy individuals may be more interested in the terms of the agreement that make it easier for investments to be made in each market, with limits removed on the number of enterprises that can carry out a specific economic activity. Changes to food standards may make the headlines, but new investment criteria will determine where the real money ends up.
With COVID-19 sending markets around the world into a state of flux, investors are looking for alternatives to enter. One of the top-performing assets is fine wine, which offers stability and decent year-on-year returns.
The top end of the fine wine market is self-contained and, to a large extent, divorced from financial markets, because it shadows the movement of wealth around the globe rather than being permanently attached to a single economy. This unique characteristic means it is less susceptible to the fluctuations witnessed in conventional markets and, more importantly, provides flexibility, as its appeal is less open to fashionable interpretation than other luxury collectables.
World Finance spoke about upcoming developments in the fine wine market with Andrea Elia, Managing Director of the Swiss fine wine company UKV International, which buys, sells and trades some of the most sought-after wines on the planet.
Why do you think the fine wine market attracts such a high level of interest?
Collecting fine wine to trade in the future is not a new concept. It has, however, become one of the most popular soft commodity markets, enjoying a perpetual increase of investment over the last 25 to 30 years, because it enjoys an extremely stable environment, flexibility and favourable tax treatment from regulators.
Historically, the fine wine market has outperformed many other investments and is considered a safe haven for funds
The wine market originated when aristocrats and gentry would buy more than they intended to drink, before selling some to subsidise their own consumption. Fine wine was also frequently used as an alternative currency and was exchanged for other goods, used to pay debts or offered as security against financial borrowings. Today, it is used more as a safe place to park money in the medium term, realising a decent return on the capital element.
Why does fine wine have such international appeal, particularly among canny investors and the wealthy?
After the 2008 financial crisis, people looked for areas to safeguard funds that were not directly linked to the financial markets and therefore were free of the exposure that traditional investors are often forced to endure. Investors were drawn to assets that would be less volatile and more sustainable over time.
The tangible aspect of a fine wine may be another reason why investors like this market; it is comparable to property without the maintenance or dependence on trends. Few tangible assets can be easily traded internationally, and even fewer are not reliant on a single economy.
In 2008, fine wine showed a brief dip in values before bouncing back to record highs. How does the market remain stable in turbulent financial periods?
I believe the wine sector remained resilient in 2008 because, while some financial markets were in meltdown, others, like the Far East, were bullish. In this way, fine wine is quite mercenary and unique as it follows the money, moving to active markets to maintain a strong presence.
Historically, the market has outperformed many other investments and is considered a safe haven for funds. In the first quarter of this year, the COVID-19 crisis sent stock markets into free fall. While the S&P Global Luxury Index fell 23 percent, the Liv-ex Fine Wine 1000 slipped just four percent and had begun its recovery by May (see Fig 1).
How does the market remain strong as political landscapes and financial horizons change?
The market maintains a strong position within the performance rankings because it is always attracting new money. While luxury goods and markets are often led by fashion, fine wine seems to have a much broader appeal. In many countries, it signifies success, not unlike an impressive property or exotic supercar that can be displayed as a status symbol in social or business circles. By broadcasting success in this way, fine wine is given an extra dimension as an investment.
The simplicity of the market also adds appeal. Driven by the simple laws of supply and demand, trading fine wine makes economic sense to investors – even those with no experience of this asset.
What drives demand in the market?
The market has attracted investment from wealthy individuals, which has increased demand on an already limited supply chain. To appreciate this, one needs to realise some of the leading Châteaux in Bordeaux and Burgundy produce less than 2,000 cases per year. This demand grows exponentially as the market attracts new areas of wealth, but with production remaining static, it is easy to see how demand outstrips supply of the most sought-after wines.
Wine is regarded as an armchair investment that requires no maintenance and has minimal costs except storage and insurance to safeguard the asset. It is important the wine is held in a secure facility with automated atmospheric conditions suited to the long-term storage of wine to ensure its condition is maintained.
Unlike many luxury consumables, there is a definitive stock at the end of each harvest year, because you cannot produce more than the capacity of the vineyard. Therefore, you cannot increase production to meet demand. Additionally, not every harvest produces the same quality of grape. Extreme weather will create a lower yield, forcing Châteaux to be more critical with their grape selection for top labels. In some instances, this reduces production to as little as a third, which naturally affects the values of the new vintage and subsequent vintages.
The fine wine market maintains a strong position within the performance rankings because it is always attracting new money
Do you have any advice for someone who wants to get involved in fine wine?
Our clients are from many walks of life, but the one thing they have in common is that they prefer to have funds outside the more volatile mainstream markets. They know this is not an in-out, buy-sell marketplace, which means they don’t have to monitor market performance on a regular basis. Most clients appreciate wine as a medium-term investment and know that if they get between seven and 14 percent growth per annum in a tax-efficient environment and the wine is held for eight to 10 years, they will have a valuable fine wine collection.
Anyone wanting to get involved in the fine wine market should understand this and look elsewhere if they are pursuing massive overnight profits or quick returns. This market remains stable because it is about a steady, incremental growth over months and years. My advice to anyone looking to enter the marketplace would be to see it as an asset they can add to frequently. They should lay a solid foundation and then build on it.
How could an individual engage with the market before committing financially?
UKV International holds luncheons and social events, to which we invite both prospective and long-standing clients so they can network, gain first-hand examples of how the market works and hear feedback about the service we provide.
This allows would-be clients to get an idea of the marketplace, enjoy the social aspect of our services and set their expectations in terms of time frames, returns and exit strategies. Many different people from a variety of geographical areas and social backgrounds attend these events, showing that the market is not the preserve of a particular demographic.
Our clients have many reasons for entering the fine wine market. Many of them are successful entrepreneurs who simply want funds outside the mainstream markets; they are company owners and directors who have utilised all of their personal tax allowances and traditional tax wrappers and want an additional tax-efficient vehicle. Additionally, many of our clients are looking to bolster their pension or retirement plans.
Levels of entry differ and can be flexible depending on the client’s circumstances and objectives. Most clients enter the market with between $24,000 and $61,000 to create a foundation to build upon. Some start with as little as $12,000 and add regularly to build a solid portfolio over 12 to 18 months.
Those who are looking for income from their investment usually transfer more volatile or underperforming funds, and so their entry levels are much higher. In these cases, entry levels are between $600,000 and $1.2m, but it largely depends on the individual, the purpose of holding wine and what they are looking to get out of the market. Whatever they are looking for, the message in the bottle is: fine wine is not just for drinking.
Bank of China Macau Branch (BOCM) has developed in step with the Macau special administrative region (SAR) since the founding of the People’s Republic of China, and was a key source of stability around the 1999 resumption of Chinese rule. As the bank’s general manager, I am looking forward to a new period of development opportunities as BOCM celebrates 70 years in operation.
Founded in 1950, soon after the establishment of the People’s Republic of China, BOCM (formerly known as Nam Tung Bank) has always been an essential pillar of the Macau SAR’s economy and society. It accounts for nearly half of all banking business in the region and is the most profitable overseas branch of the Bank of China Group, China’s primary international bank.
In 1987, Nam Tung Bank received approval to change its name to BOCM. The change was the culmination of governmental efforts to broaden the range of products and services provided by financial institutions in the region, and helped to boost internationalisation in the domestic financial sector. The bank’s new name also recognised the important role that Bank of China was playing in stabilising the financial market as talks about the future relationship between Macau and mainland China progressed. Then, as today, BOCM is committed to ensuring Macau’s future economic prosperity.
The ‘one country, two systems’ policy allows BOCM to capitalise on the opportunity to perform on a large stage
I am proud to highlight the bank’s clear and obvious advantage within the ‘one country, two systems’ policy. The policy allows BOCM to capitalise on the opportunity to perform on a large stage. China’s 40-year ‘reform and opening up’ era led to grand growth initiatives running across Macau, such as the Belt and Road Initiative and the development of the Guangdong-Hong Kong-Macau Greater Bay Area, and increased foreign direct investment into the mainland’s previously closed economy (see Fig 1). As China continues to pursue ambitious development projects and collaboration with other countries, BOCM and the entire SAR are set to benefit.
Promoting development
Since its establishment in Macau in 1950, BOCM has unswervingly followed its mission statement: rooted in Macau, serving Macau. The bank has shown dedication to fostering economic development, promoting industry and commerce, supporting disadvantaged communities and constructing smart infrastructure, all to guarantee the continued prosperity and stability of Macau. The result is that we have won the trust of the region’s citizens, making us the region’s preferred bank.
BOCM is not only a Macanese-pataca-issuing bank, but it is also the government’s public banking representative and a renminbi-clearing bank. Besides these formal roles, over the years the bank has organised charity events, supported education initiatives and been instrumental in the development of new talent in the banking industry. Our achievements are the result of joint efforts spanning several generations. The past decade, in particular, has seen a marked increase in development in this area.
Under the Belt and Road Initiative, BOCM has seized the opportunity to meet the financing needs of Chinese firms that are investing overseas. Chinese organisations expanding into Portuguese-speaking countries and companies from Portuguese-speaking nations entering the Chinese market will find BOCM’s services particularly beneficial.
Macau is uniquely positioned as a core city for the Greater Bay Area and the Belt and Road Initiative, presenting BOCM with many opportunities but also a great deal of responsibility. We are keen to ensure that businesses, both domestic and international, have access to the capital they require in order to participate in these ambitious development programmes.
BOCM’s progress in promoting Macau’s financial development, especially in the Guangdong-Hong Kong-Macau Greater Bay Area urbanisation initiative, is very gratifying. BOCM has issued pataca bonds worth $1.8bn, offshore renminbi bonds worth CNY 4bn ($562m) (part of a growing number of ‘lotus’ bonds) and offshore One Belt One Road renminbi bonds worth CNY 4.5bn ($633m), among other themed bonds. As a global coordinator, we have successfully implemented the Ministry of Finance’s plan to issue government bonds worth CNY 2bn ($280m) in Macau.
In addition, in 2019, BOCM successfully issued the first green bond in Macau. This was also the first secured overnight financing rate bond for commercial institutions in emerging markets and the Asia-Pacific region; launching the product greatly enhanced the reputation of Macau’s financial institutions in the international bond market.
Clear the way
As a renminbi-clearing bank, BOCM has led the way in opening the first renminbi bank account in Macau for Portuguese Commercial Bank, thereby accelerating the development of Macau as a Sino-Lusophone renminbi-clearing region. In May 2019, the Conference of Central Bankers, Financial Supervisors and Financiers from China and Portuguese-speaking Countries coordinated the efforts of Chinese banks to engage with five bank associations from Lusophone countries. This united a wide range of participants in financial services, leading to improved trade cooperation between China and Portuguese-speaking countries.
At the same time, BOCM has expanded the geographical reach of the bank and diversified the wealth management channels available to residents. For instance, the Shanghai Gold Exchange has authorised BOCM to handle its offshore accounts, making business simpler for the bank’s account holders. The deal will promote the trading of precious metals in Macau.
BOCM is also a pioneer of digital banking in Macau, having embraced areas such as fintech. BOCM is taking the lead in this area with the creation of BoC Pay, an online payment channel that supports Alipay, WeChat and UnionPay. By the end of 2019, the platform had welcomed 7,860 merchants. Other digital initiatives that we have promoted include online banking for personal and corporate customers, which offers self-service functionality safeguarded by the highest security standards.
Branching out
The Bank of China Group has established branches in Portugal, Brazil and Angola, creating a service network in Portuguese-speaking countries to help customers pursue opportunities in Sino-Lusophone development. In the construction of the renminbi-clearing centre for Lusophone countries, BOCM has joined the Cross-Border Interbank Payment System, which covers these countries. At present, the bank has established an agency relationship with 17 banks in Lusophone countries. In 2018, business in this network reached CNY 2.5bn ($350m).
At the same time, BOCM is working on creating a Sino-Lusophone investment and financing service platform. This would provide a wealth of information on investment projects in Lusophone countries, promoting the integration of Sino-Lusophone projects and project matching. Thus far, BOCM has successfully assisted the Portuguese central bank in issuing panda bonds in China, becoming a model for foreign central banks to issue panda bonds on the mainland. BOCM also supported an enterprise in Macau to purchase a Portuguese farm for €35m ($38m) to promote the development of agricultural and commercial cooperation between China and Portugal.
As we look to the future, BOCM will continue to support the development of Macau’s economy and society, helping to improve people’s lives in accordance with the Macau SAR Government’s policy agenda. The bank will also fully support the development of the Guangdong-Hong Kong-Macau Greater Bay Area, thereby promoting the integration of Macau into the country’s overall progress.
BOCM will maintain its position as a well-rounded, mainstream bank in the region and strive to become an important financial institution serving the Guangdong-Hong Kong-Macau Greater Bay Area, as well as serving the Belt and Road Initiative, especially among Portuguese-speaking countries.
Like every other industry that has been disrupted by digital transformation, the wealth management sector is facing many challenges. Customers expect to receive exactly what they want almost as soon as they ask for it, and this is reflected in their everyday interactions with businesses. Consumer habits are changing, and digital banking is now taken for granted.
The wealth management sector was first developed in the early 1900s to distinguish services that were particularly relevant to high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors from mass-market offerings. Wealth management has since spread throughout the financial services industry to become part of many banks’ essential services.
During the global financial crisis of 2008, which transformed the dynamics of the wealth management industry, it became clear that wealth management players had much to learn. In particular, they needed to become more aware of how to manage their own wealth. Then came the coronavirus pandemic of 2020, which has forced many services online.
Although banks are ahead of the curve in terms of adopting digital processes compared with other industries, their wealth management and private banking services have still heavily relied on face-to-face meetings to guide clients through their portfolios. Now, they have been forced to rethink this approach. Historically, markets have recovered in the aftermath of epidemics, but we have to wait and see how the wealth management industry will get through this one.
Survival of the fittest
With or without the current global pandemic, wealth managers would be facing many challenges this year. Primary among these are regulatory changes, which involve new compliance requirements. These are always in a state of flux, meaning organisations must constantly be aware of developments in order to be sure they continue to operate within the regulations.
As digital technologies grow in importance, firms may neglect to recognise the unique role played by their staff. This would be a huge mistake
Another danger facing businesses is the worry that they will lose the human connection with their customers. As digital technologies grow in importance, firms may neglect to recognise the unique role played by their staff. This would be a huge mistake, as employees remain the most important asset to businesses, even in a digital-first industry.
On that point, digital technologies will create many difficulties along with the benefits they deliver. The cost, pace of change and logistical challenges of moving from legacy architecture to more innovative solutions are all complicated issues that must be worked through. Organisations may decide that a shift towards cloud computing will help them deliver the wealth management services their customers require without resulting in significant increases in expenditure.
If businesses revamp their digital solutions, the desire to gain better access to customer data is likely to be one of the main motivators. Data-driven decision-making is revolutionising the wealth management industry in a multitude of ways, including process automation, customer interaction and risk management. Wealth management firms should note, however, that the use of data is a double-edged sword: while it will allow them to deliver more efficient products and services, it will also create additional risk. According to the 2020 Allianz Risk Barometer, cyber incidents rank as the biggest threat to businesses this year (see Fig 1). Extra security requirements will need to be implemented to ensure this data remains protected.
Currently, it appears that not all wealth managers are taking the threat of data loss and privacy breaches seriously. GlobalData reports that, while 92 percent of mid-sized firms and 78 percent of small businesses cite cybersecurity as a priority, this figure falls to 60 percent for wealth management firms. Stepping away from operational silos is one way firms can mitigate cyber risks, but cultural changes will also prove important. Keeping data secure is not purely a technical challenge; it is also a human one. Staff may need retraining or additional support to ensure they are aware of new security protocols that have been put in place.
While digital changes occurring in the wealth management space are profound, they can be adopted without causing undue disruption. Many wealth managers are already in the process of digitally transforming their businesses. Now, working remotely and using digital tools is increasingly looking like the new normal.
Managing change
At ICS Financial Systems (ICSFS), we have helped our banking and financial customers make their own digital transition through a number of initiatives. First, we have embraced open banking, delivering open solutions through application programming interface (API) architecture. We have also been quick to adopt cloud-based solutions, benefitting from the reliability and scalability they deliver.
We have focused on utilising data and customer analytics across more of our operations, improving our efficiency across the full cycle of wealth management. Delivering extra touchpoints to reach more customers is also vital. Therefore, we have promoted an omnichannel experience through the unification of all our digital systems. Collectively, our efforts have allowed us to provide an enriched customer experience, while increasing consumer confidence, engagement and loyalty.
We are aware that the implementation of new technologies is often hindered or blocked completely by new regulations, so we have adopted a number of regulatory technology solutions to ensure that we monitor our processes in real time, identify any potential issues and maintain compliance.
Despite the huge strides we have made in the digital space, we understand that there is more work to be done. We remain committed to delivering dynamic products that can be adapted to new business trends and future-proofing all our digital banking products. Continuous technological advancement, with the aim of delivering a lower total cost of ownership, remains our ambition.
According to a survey by Thomson Reuters and Forbes, 68 percent of wealth managers say learning about and keeping up with new technology is the greatest challenge they face. Wealth managers and financial institutions must re-engineer the way they do business to face growing challenges brought up by endless disruptive innovation.
Know the market
Wealth managers should differentiate between the investment needs of each generation. Millennials are more confident with digital solutions than the generations that preceded them, but Generation Z is the first truly digitally native cohort. Additionally, while younger generations have been drivers of sustainable investment in recent years, the trend is growing across all age groups.
Wealth managers and private banks must offer a holistic wealth management solution with comprehensive touchpoints and omnichannel capabilities. This will allow them to leverage data and acquire the desired information in order to create differentiated value for customers. This is what ICSFS offers through its ICS BANKS Wealth Management software solution. ICS BANKS Wealth Management enables financial institutions to serve their customers by using the latest technology to provide essential products and touchpoints. ICS BANKS Wealth Management supports anti-money-laundering initiatives, the Foreign Account Tax Compliance Act and the Common Reporting Standard, while its API connects to local and regional authorities for further regulatory and compliance processing.
ICS BANKS Wealth Management is used for rendering personal banking services and supporting various processes through its deployment of the latest technologies and touchpoints, such as cloud technology, data aggregation, data analytics, open banking, open APIs and artificial intelligence. In addition, the platform makes use of machine learning, smart processes, chatbots, smart customer engagement, robotics, smart contracts, cardless payments, digital customer onboarding, wearable banking and the Internet of Things.
ICS BANKS Wealth Management also offers best-in-class functionality and a host of features to cover customers’ current and future wealth management needs. The utilisation of artificial intelligence and robotics within ICS BANKS Wealth Management enables any financial institution to boost process efficiency and accuracy, both in its internal processes and customer interactions.
As a long-standing player in the banking technology industry, the ICS BANKS Wealth Management platform from ICSFS is designed to meet customers’ expectations, increase public confidence in financial services and enable businesses to better understand the services their customers want. Ultimately, this will increase the competitive advantage of financial institutions by reducing the time to market for new products.
We have reached a critical moment in the fight against climate change, which means now is the time to kick-start a decade of urgent and robust action. The past 10 years have gone down in history as the hottest on record, the environmental impacts of which have reverberated around the world. In the five years that have passed since the 2015 UN Climate Change Conference, climate change has morphed from a serious challenge into a full-blown emergency, leaving impending threats and uncertainties in its wake.
We have entered the final decade to address the UN’s Sustainable Development Goals (SDGs), which set targets for the world to become safer, healthier, fairer and more sustainable by 2030. To achieve these ambitious goals, policymakers and businesses must share the same level of responsibility in mitigating and adapting to the climate emergency, working together to form a strong force for good.
Increasingly, the business case for environmental, social and governance (ESG) integration is strengthening, as seen by a noticeable rise in ESG investing. According to Morningstar, ESG-related funds amassed $20.6bn of new money in 2019 – almost four times as much as the previous high of $5.5bn in 2018. Companies that manage sustainability risks and opportunities tend to have stronger cash flows, lower borrowing costs and higher valuations over time. Financiers are also increasingly pegging lending rates to the ESG performance of corporate borrowers.
Pillars of strength
As the world transitions to a low-carbon economy, the need for a sustainability mindset has never been greater or more critical for businesses to unlock opportunities. A pioneering force in sustainability, City Developments Limited (CDL) has a strong track record in ESG performance. Guided by its four strategic pillars – integration, innovation, investment and impact – CDL has been able to forge ahead in the new climate-centric economy, future-proofing its business and sustaining growth in the right manner.
CDL has been able to forge ahead in the new climate-centric economy, future-proofing its business and sustaining growth in the right manner
Worldwide, the buildings and construction sector accounts for approximately 40 percent of energy-related carbon dioxide emissions every year. As a global real estate company, we recognise that improving building technology and performance makes a difference to our environment and building users. As such, we have leveraged our four strategic pillars for more than two decades to pioneer an ESG strategy that helps our stakeholders, the planet and us.
Our first pillar, integration, involves the creation of value based on our corporate ethos of ‘conserving as we construct’, which means integrating ESG effectively and holistically into our business and operations. We were one of the first companies in Singapore to establish a dedicated sustainability governance structure, whereby the chief sustainability officer reports directly to the board sustainability committee (BSC), which comprises three independent directors and CDL’s executive director and group CEO.
The BSC has direct advisory supervision of CDL’s sustainability strategy. Its key roles include: assisting the board in the review of the company’s sustainability issues and approach to sustainability reporting; appraising the company’s ESG framework, key ESG targets and performance; and assessing its reputation as a global corporate citizen. In September 2019, we joined the pioneering batch of 87 companies worldwide in supporting the UN Global Compact’s (UNGC’s) ‘Business Ambition for 1.5°C’ campaign, pledging to align our operations with limiting the global temperature rise to 1.5 degrees Celsius.
Moving on to our second pillar, we remain committed to innovation by strengthening climate resilience through new technologies and solutions. In a country that lacks natural resources like Singapore, innovative technologies are key to improving productivity and boosting the environmental, health and safety performance of our projects.
Continued research and development is crucial to helping us stay ahead of the curve. In partnership with the National University of Singapore (NUS), we opened the NUS-CDL Tropical Technologies Laboratory and the NUS-CDL Smart Green Home in 2018 and 2019 respectively. Both labs conduct studies on smart features, green building technology and designs for sustainable living. To create long-term sustainability and value over time, sustainable businesses ought to look beyond the current horizon and be future-ready – integration and innovation are two key approaches to achieving this.
Making an impact
Innovation and new technologies are key to establishing a low-carbon economy, but they will not magically appear – they must be supported by sustainable investments. Our strong ESG track record has reduced CDL’s long-term borrowing costs and expanded our pool of ESG-centric investors and lenders. Since the introduction of our pioneering green bond in 2017, which raised SGD 100m ($70.2m), CDL has continued to tap into sustainable financing. In April 2019, for example, we secured SGD 500m ($350.8m) in two green loans, allowing us to finance new green developments both domestically and abroad. Last year also saw us secure a first-of-its-kind SGD 250m ($175.4m) SDG Innovation Loan, which will help us as we accelerate innovative solutions and continue to embrace the SDGs in the built environment.
Building a sustainable future requires the collaboration of a larger ecosystem. The Singapore Sustainability Academy (SSA) was designed and built by CDL to be a hub for capacity-building, thought leadership and networking. As the first ground-up initiative and zero-energy facility in Singapore dedicated to supporting the SDGs and climate action, the SSA was set up with the support of six government agencies, 15 founding industry partners and the Sustainable Energy Association of Singapore. Since its establishment in June 2017, the SSA has served more than 14,500 attendees through 370-plus outreach events and training sessions, attracting international partners such as the UN Environment Programme, UN Development Programme (UNDP), UNGC and Asian Venture Philanthropy Network.
To further our community investment, we founded the Incubator For SDGs in September 2019, providing a rent-free co-working space at the Republic Plaza to selected enterprises or start-ups that embrace the SDGs. The initiative, which was set up in partnership with the UNDP, raiSE (Singapore Centre for Social Enterprise) and Social Collider, offers extensive network and mentorship opportunities to help aspiring social innovators scale up and reach out to potential investors.
What’s more, we have furthered our social investment through the creation of national platforms such as My Tree House and the CDL Green Gallery. My Tree House – a partnership between CDL and the National Library Board of Singapore – was opened in 2013 as the world’s first green library for kids. The CDL Green Gallery, meanwhile, was built in just 24 hours using prefabricated, modular construction technology. Located at the Singapore Botanic Gardens, it is the first zero-energy gallery in Singapore and is a fantastic showcase of the country’s greening efforts.
CDL understands that all stakeholders have a role to play in ensuring the world moves towards a more sustainable way of life
Building sustainable communities
Sustainability is not only good for the planet: it delivers business advantages, too. Over the many years that CDL has been pursuing its ESG strategy, we have witnessed tangible and intangible benefits – these fall under the impact pillar of our sustainability initiatives. Over SGD 28m ($19.6m) in cost savings were achieved between 2012 and 2019 as a result of energy-efficient initiatives implemented across eight of our commercial buildings. At the same time, our low-carbon programmes have resulted in a 38 percent reduction in the intensity of carbon emissions in 2019 when compared with 2007 levels, putting us on track to achieve our Science Based Target initiative-validated goal of 59 percent by 2030.
Moreover, CDL’s track record of effective ESG integration over the past two decades has been widely recognised by 12 leading global sustainability benchmarks, including the 2020 Global 100’s most sustainable corporations in the world list, which saw CDL ranked first globally among listed real estate firms. CDL was also the only company in South-East Asia and Hong Kong to score two A’s in the 2019 CDP Global A List for corporate climate action and water security.
Last year, we were honoured to have been able to play a key role in spearheading the establishment of the Global Reporting Initiative (GRI) regional hub in Singapore. As the first corporation in Singapore to publish a dedicated sustainability report using the GRI framework, we continue to support the GRI’s mission to raise the standards of sustainability reporting and disclosure in Singapore and the wider region. It is through pioneering efforts such as these that other organisations, industries and markets can see the benefits of more sustainable business practices.
With awareness of climate change and sustainability on the rise, the adoption of sustainable business practices has never been more important. Our integrated approach has helped us make financial sense of our commitment to sustainability, allowing us to effectively articulate our climate mitigation and adaptation strategies to our investors and stakeholders, and connect our ESG goals to our value-creation business strategy.
At CDL, we understand that all stakeholders have a role to play in ensuring the world moves towards a more sustainable way of life. Our four strategic pillars demonstrate the concrete efforts we are putting in place to improve and build upon our current ESG strategy. Although we are proud of our green achievements to date, we refuse to rest on our laurels – there remains much to do, and the planet relies on us all making sure it gets done.
If truth is the first casualty when war is declared, then the same goes for capital mobility when pandemics strike. This became evident on May 11, when US President Donald Trump ordered the federal pension fund – the world’s fifth-largest pension fund – to stop investing in Chinese equities. The move came in response to what the US Government perceived as persistent Chinese aggression – COVID-19 just being the straw that broke the camel’s back. “The role of the Chinese Government in purposely not disclosing what was going on during the COVID-19 outbreak has fuelled a lot of [anti-Chinese-Government] sentiment,” Charles Calomiris, a professor of financial institutions at Columbia Business School, told World Finance.
After a long period of integration, segmentation, driven by geopolitical turbulence, is becoming the norm
It was not the first time that the Federal Retirement Thrift Investment Board, which represents the interests of around 5.5 million federal employees through its $600bn Thrift Savings Plan, had been pressed to steer clear of Chinese assets. Last November, the board rebuffed a similar request by US lawmakers on the grounds of missing out on investment opportunities. Trump’s order put paid to the board’s plan to shift its $40bn international fund from the MSCI World Index, which focuses on developed markets, to the MSCI All Country World Index, which includes Chinese shares. Although the fund is not legally obliged to obey, it has little leeway this time, as the US Government aims to replace the majority of its directors.
Moving backwards
Although largely symbolic, the ban highlighted a basic truth about global financial markets: after a long period of integration that started in the 1970s with the collapse of the Bretton Woods system, segmentation, driven by geopolitical turbulence, is becoming the norm. The era of financial globalisation reached its peak in 2007 when global cross-border capital flows reached a record $12.7trn (see Fig 1). The shock of the credit crunch and the ensuing eurozone crisis halted unbridled capital mobility. Within 10 years, capital flows had dropped to $5.9trn, driven by a sharp decrease in cross-border lending.
In a working paper published this spring, researchers from the French asset manager Amundi argued that financial globalisation is not a linear process, but instead evolves in cycles. Following a period of erosion of financial borders between the late 19th century and the First World War, moderate integration took hold until the 1970s, when fierce globalisation kicked off with the dismantling of barriers to capital mobility.
According to Marie Brière, Head of Amundi’s Investor Research Centre and one of the authors of the paper, we have been going through a phase of financial deglobalisation since the Great Financial Crisis (GFC), and the pandemic will only accelerate this trend. She told World Finance: “It is unlikely that we will go back to a period of no market integration, like the Bretton Woods one. What could happen, and we are already seeing it, is going back to a period of more moderate integration.” One side effect is that contagion may become more likely when things go awry. “When there is absolute market segmentation or, on the contrary, full market integration, there is little risk of contagion,” Brière said. “But if there is a moderate degree of market integration, as in the 1880-1914 period, the risk is higher.”
Segmentation is partly driven by geopolitical developments. The US-China trade war, Brexit, turbulence in Hong Kong and a more insular EU had already halted trade liberalisation before the pandemic, erecting new barriers in financial markets. According to the UN Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) dropped by one percent last year to $1.39trn, its lowest level since 2010 (see Fig 2). The pandemic has further disrupted global trade, exposing the vulnerability of ‘just in time’ manufacturing and international supply chains.
Emerging markets, which have benefitted from a vast inflow of foreign capital over the past few decades, are now bearing the brunt of the crisis. Through daily tracking of non-resident portfolio flows, the Institute of International Finance (IIF) revealed that emerging markets saw the largest capital outflow in history in Q1 2020, despite the Federal Reserve taking swift action to support many of them through dollar-denominated swap lines.
Jonathan Fortun, an economist at the IIF, told World Finance: “The COVID-19 shock has resulted in a pronounced sudden stop in capital flows to emerging markets. While we expect a recovery of flows to emerging markets in the second half of 2020, we do not believe that the pickup will be strong enough to bring about a return to 2019 levels.” The organisation forecasts that non-resident capital flows to these markets will reach $444bn in 2020 compared with $937bn last year, marking a new low since the GFC. Calomiris added: “The combination of dollar appreciation, global recession and [a] huge build-up of leverage in dollar-denominated debt is an existential threat for emerging markets.”
Barriers to success
Looser financial ties are reflected in the decline of cross-border listings, particularly in the US. Historically, foreign firms have listed on US exchanges to access more liquid markets, with the spillover effect spurring capital inflows and advances in financial integration in their home countries.
In a recent working paper for the National Bureau of Economic Research, academics Craig Doidge, Andrew Karolyi and René Stulz claimed that the valuation gap for firms from developed markets increased by 31 percent after the GFC – a mark of a sharp reversal in financial globalisation – while the gap for firms from emerging markets (excluding China) stayed stable. However, the propensity of non-US firms from both developed and emerging markets to cross-list in the US has decreased, a development that the authors interpret as another sign that financial globalisation is in retreat.
The pandemic has further disrupted global trade, exposing the vulnerability of ‘just in time’ manufacturing and international supply chains
Last year, the volume and value of cross-border initial public offerings (IPOs) around the world dropped by 17 percent and 35 percent respectively when compared with 2018 levels. As Karolyi explained to World Finance: “For some firms, the benefits of a US listing may have diminished because they were able to secure adequate financing for their operations domestically or by other means than an offering associated with a US listing. For other firms, it may be that funding needs for growth dried up because they saw a slowdown in their growth.”
In the banking sector, the financial turbulence that followed the GFC and the sovereign debt crisis curtailed cross-border lending for more than a decade, with foreign claims on advanced economies dropping from around $16trn to $12trn between 2007 and 2015. According to McKinsey’s The New Dynamics of Financial Globalisation report, the introduction of Basel III – a patchy regulatory framework for the banking sector – indirectly hit cross-border lending by forcing banks to sell foreign assets in a bid to shrink their balance sheets and meet high capital requirements.
Brière believes national regulation has also played a role: “Just after the subprime crisis, we saw a form of ‘quasi-nationalisation’ due to government interventions in the banking sector aiming to reduce cross-border lending.” That trend started reversing in 2018, according to a report by the Bank for International Settlements, with outstanding loan growth approaching 2008 levels last year, driven by an increase in international lending by European banks. However, the current pandemic may reverse these gains. As Brière explained: “In the short run, we could see more focus on domestic investment, as in the previous crisis.”
Since 2017, US authorities have blocked several takeover bids from Chinese rivals on national security grounds, including telecoms powerhouse Huawei
A new cold war
The COVID-19 pandemic has escalated a long-simmering conflict between the US and China, two of the main drivers of financial globalisation. Some fear that the ban on the federal pension fund was just the first shot in a more open confrontation. David Dollar, a former US Treasury emissary to China and currently a senior fellow at the Brookings Institution’s John L Thornton China Centre, told World Finance: “There is a risk of a financial war… If the tensions were to escalate to serious measures, such as cutting off China’s state-owned commercial banks from the US financial system, the effects would be hard to predict, but almost certainly recessionary for the world, as these are among the biggest global banks.”
Suggestions that the US might demand financial compensation from China for the economic damage wrought by the pandemic have added fuel to the flames, with Trump describing the COVID-19 outbreak as an attack similar to Pearl Harbour and 9/11. Shehzad Qazi, Managing Director at China Beige Book International, an independent provider of data on the Chinese economy, told World Finance: “If relations continue to deteriorate, particularly over Hong Kong, we could see the US testing the waters with banking sanctions. If the US makes moves to cut China or Chinese entities off from US dollar access, this would be a serious escalation.” Some worry China could retaliate by selling a chunk of its US Treasury holdings, but Dollar believes such a move would be counterproductive: “China bought those for its own purposes of exchange rate management. Selling them en masse would tend to make China’s currency rise, which is not to its advantage at the moment.”
Geopolitical tensions are undermining investor confidence, with many worrying about the ability to repatriate funds
Even before the pandemic, the US was increasingly wary of Chinese inroads into its markets. Since 2017, US authorities have blocked several takeover bids from Chinese rivals on national security grounds. This, according to the Rhodium Group, led to a sharp decline in Chinese direct investment into the US between 2016 and 2019, falling from $45bn to just $5bn. A case in point is the trade ban the US Government has imposed on Chinese telecoms powerhouse Huawei, preventing it from buying or using technologies owned by companies operating in the US. In mid-May, the US Government extended a national emergency declaration that targets Huawei and other Chinese firms, restricting the company’s access to Google’s services and halting its plans to develop its semiconductor chips via a partnership with the Taiwan Semiconductor Manufacturing Company. The US Government has also pressed allies to follow similar policies.
Running out of stock
Inevitably, financial warfare is spilling over into the stock exchange. US listings of Chinese companies – a marker of financial integration between the two countries – had been growing for two decades, culminating in Alibaba’s listing on the New York Stock Exchange (NYSE) in 2014, the biggest IPO in history at the time. This trend raised eyebrows, though, particularly among US competitors complaining that Chinese firms were not subject to the same rigorous disclosure rules. The argument resurfaced in April when Luckin Coffee, a China-based coffee company listed on the NASDAQ, disclosed that around $310m of its 2019 sales had been “fabricated”. In May, the US Senate passed a bill that could block some Chinese companies from US exchanges, while former Trump aide Steve Bannon has called for all Chinese companies to be delisted.
“It would take deft negotiation between US and Chinese regulators to find a practical compromise,” Dollar said. “[That] seems very unlikely in the current environment, so probably the US will follow through with the recently passed Senate bill that ends with delisting all Chinese companies.” Sceptics, however, downplay the possibility of drastic action. “There will be no delisting of Chinese firms, at least [not] anytime soon,” Qazi said. “The legislation requires all companies on US exchanges – not just Chinese firms – to adhere to US compliance regulations, such as opening themselves to [Public Company Accounting Oversight Board] audits. It’s true this basically calls out the biggest national actor that refuses to adhere to those standards, China, but firms have three years to begin complying with the new law.”
The EU is scrutinising its financial ties with China, even if its objections are expressed in more diplomatic language
Karolyi believes Chinese companies list in the US because the benefits – such as access to global investors and liquid markets, global brand awareness and the ability to raise capital on better terms – exceed the costs and reporting burdens back home. However, as he explained to World Finance, this may soon change: “The geopolitical tensions that arise from the US-China trade war and beyond may very well be putting a damper on those benefits and increasing the costs and burdens. So, I expect a number of these cross-listed Chinese firms may very well rethink their capital market strategies and initiate a delisting and deregistration from US markets.”
China’s biggest chipmaker, the Semiconductor Manufacturing International Corporation, announced it was delisting from the NYSE last May, citing “low trading volume and high costs”, while Alibaba has reportedly been considering a secondary listing in Hong Kong. Qazi said: “Any Chinese firms that preemptively delist would be cutting their nose off to spite their face because only a handful of the very largest Chinese companies could successfully raise the same type of funding elsewhere.”
The EU is also scrutinising its financial ties with China, even if its objections are expressed in more diplomatic language. Alarmed by a series of Chinese takeover bids for EU companies, the European Commission is exploring the possibility of blocking Chinese investment on national security grounds. Margrethe Vestager, the commission’s executive vice president, has urged member states to buy strategic stakes in companies that are more vulnerable to takeovers due to the pandemic and its negative impact on share prices. Brière said: “Europe is more open to Chinese investment than the US, but given the shifting political environment, we may see it place more scrutiny on Chinese investment.”
US listings of Chinese companies had been growing for two decades, culminating in Alibaba’s listing on the NYSE in 2014, the biggest IPO in history at the time
A road to salvation
Strained relations with the West come at a crucial time for China’s financial system. The Chinese Government has been trying to open up the country’s $45trn financial services industry to improve competitiveness and attract foreign capital in a market long dominated by local state-run players. Chinese authorities have gradually dismantled barriers to foreign investors accessing the country’s $13bn onshore bond market, while Chinese bonds were included in the Bloomberg Barclays Global-Aggregate Total Return Index last year.
According to data held by China’s biggest bond market clearinghouse, the Central Depository and Clearing Corporation, foreign investors held Chinese bonds worth CNY 1.95trn ($275.5bn) at the end of February, a large chunk of which were government bonds. The Chinese Government has also relaxed rules on foreign stock ownership as part of a trade deal with the US. The country is expected to permit foreign investors to acquire life insurance providers, futures and mutual fund companies, as well as local banks. A link between the Shanghai and London stock exchanges was established last year through the Shanghai-London Stock Connect scheme, which enables firms listed on one of the two bourses to issue, list and trade depositary receipts on the other.
Perhaps the outbreak of SARS-CoV-2 will accelerate long-brewing trends, such as a green revolution in the investor community
Chinese banks have boosted their share of global cross-border lending – due, in large, to China’s ambitious Belt and Road Initiative – with the number of international claims growing by 11 percent per annum since 2016. Dollar believes their expansion makes US sanctions less effective: “The main downside of a serious action like sanctioning China’s big commercial banks is that these are deeply integrated globally. Constraining them will have unpredictable effects, especially in developing regions such as Africa, South-East Asia and Latin America, where these banks are very active. China would certainly retaliate by keeping US institutions out of its newly opened financial services markets.”
Lower capital flows due to the COVID-19 pandemic may stall China’s plans, however. Recent disruptions in Hong Kong are expected to hamper the country’s ability to attract capital from European and US institutional investors. Geopolitical tensions are also undermining investor confidence, with many worrying about the ability to repatriate funds due to US sanctions or other barriers. Many harbour doubts about the rate of change, too. Qazi said: “Relatively little has been done to date to open up the Chinese financial system to foreign firms, and what has been done has been done far too late. Foreign banks will not be able to compete with Chinese banks even with Beijing opening that sector, given their entrenched positions. Deteriorating relations between China and the rest of the world won’t help out what little movement we have seen so far.”
Even if the peak of financial globalisation is over, there is no going back to the era of closed borders. Less than 10 years after the GFC, foreign investors owned more than a quarter of equities and close to a third of bonds globally. In the US, the heart of the global financial system, foreign assets and liabilities scaled by GDP increased from 48.3 percent in 1980 to 324 percent in 2017. According to Brière, though, investors should be prepared for an era of financial protectionism and contagion: “They will have to look for alternatives beyond typical diversification strategies. For example, sector diversification tends to work better than country diversification in crises.”
Perhaps the outbreak of SARS-CoV-2 will accelerate long-brewing trends, such as a green revolution in the investor community. An Amundi study highlighting the impact of COVID-19 on the exchange-traded fund market showed surging outflows from conventional equity funds, while funds with environmental, social and corporate governance (ESG) agendas were much more resilient. “Even before the pandemic, we have been observing a shift of institutional and retail investors towards sustainable investment and ESG products,” Brière said. “The pandemic has reinforced this trend.”
On May 26, the Singaporean Government announced it would inject SGD 33bn ($23.3bn) into its economy, which has been severely impacted by the COVID-19 pandemic. It is the city-state’s fourth stimulus package in as many months.
Unveiling the package, Singapore’s finance minister, Heng Swee Keat, said: “We are dedicating close to SGD 100bn [$70.5bn] to support our people in this battle, which is almost 20 percent of our GDP. This is a landmark package and the necessary response to an unprecedented crisis.”
The Singaporean Government has said its latest stimulus package will be used to help retain jobs
So far, much of the funds provided by the last three stimulus packages have been used to support a wage subsidy initiative, dubbed the Jobs Support Scheme. The first stimulus package, unveiled in February, set aside $6.4bn to support businesses, workers and families affected by the novel coronavirus. In March, Heng added $48.4bn in a supplementary Resilience Budget and, in April, he rolled out the Solidarity Budget, which provided a further $5.1bn to boost the economy.
The government has said this latest package will be used to help retain jobs. It includes enhanced support for businesses in hard-hit sectors, including those that can’t easily resume operations once lockdown is lifted, rental waivers and relief for small and medium-sized businesses, and the creation of more than 40,000 jobs in the public and private sectors.
Despite its quick response to the pandemic – Singapore was one of the first countries to impose restrictions on travellers from China and parts of South Korea – the city-state is considered particularly vulnerable to the economic fallout because it relies heavily on trade for growth. The so-called Fortitude Budget was announced just after Singapore’s Ministry of Trade and Industry slashed its forecasts for GDP.
It’s now predicted that Singapore’s GDP will contract by between four and seven percent this year – the worst contraction the city-state has seen since gaining independence.
The computer and smartphone revolutions have put a trading station in the hands of almost every person, making trading more accessible to a far wider group of people. Concomitant to that has been the public’s growing interest in learning about markets and exploring their newfound ability to allocate parts of their wealth to assets beyond their national currencies.
The idealised view of trading is that it provides a quick way to get rich, but in reality, successful traders put in a great deal of hard work – anyone who thinks playing the market is easy will likely receive a nasty surprise. World Finance spoke to Giles Coghlan, Chief Currency Analyst at the multi-regulated forex (FX) and contract for difference (CFD) provider HYCM, to learn more about the trading strategies that may be worth considering and how the market is likely to change in the year ahead.
How has the market changed since you started trading, and how have traders adapted?
The market is constantly changing. The dotcom bubble burst in the late 1990s and was shortly followed by the global financial crisis of 2008, which led many institutional investors to search for alpha – the active return delivered by an investment – in places other than conventional assets. FX gradually came to the fore as an asset class in its own right when a lack of excess returns elsewhere forced people to start focusing on the currency aspect of whatever transactions they were making. This also partly led to the explosion in retail FX.
By 2013, US stock markets, saturated with newly printed money, were testing their pre-crisis highs. What we’ve seen since is an unprecedented stock market rally that has taken the focus away from FX and, indeed, many other asset classes. It has forced brokers who only offer currency pairs to expand into stocks, indices and more. For our part at HYCM, we’ve tried to remain ahead of the curve and offer our clients exposure to as wide a variety of markets as possible. All this cheap money has, in many ways, made it almost impossible to trade against the trend – hence the FAANG (Facebook, Apple, Amazon, Netflix and Google) phenomenon and the craze for passive investing.
All investors should consider whether they understand how CFDs work and whether they can afford to take the high risk of losing money
Do the same trading styles and strategies continue to work today?
The steps we collectively took to avoid a catastrophic financial collapse in the aftermath of 2008 have distorted the way markets work. Existing trading styles and strategies remain valid but are perhaps not as applicable – depending on the market you’re trading, of course. One of the most prevalent trends, especially in the US, has been the focus on passive rather than active investing. In other words, passively allocating capital to index funds and exchange-traded funds in place of actively trading individual stocks.
Active investors have been underperforming passive investors for a while now, and some analysts have even calculated that the stock of passive funds is now on par – if not larger – than the stock of active funds (see Fig 1). This is a massive shift and has led to an explosion of wealth management apps across the retail space, providing Millennial investors with access to funds that are ordinarily reserved for accredited investors. Today, Millennials can round up their card purchases or set aside a percentage of their income per month to allocate to their chosen sectors. Of course, by investing in this manner, they’re the very last to the party – they go through more intermediaries and receive worse fills than others higher up the food chain. But the appeal is that they don’t have to think about it – they just trust in the tech.
This trend of ‘set it and forget it’ may work well in a world of low volatility, where stock markets continue to slowly tick upwards, but it is entirely dependent on things carrying on as they are. Many seasoned traders have taken heavy losses trying to sell a top that never seems to come or shorting a zombie company that could only possibly exist in a world of record-low interest rates. Should the music stop in the coming years, I think we’re going to see massive changes to what works and what doesn’t. Hopefully, this will mean a return to active investing, true price discovery and people investing time and energy into the craft of trading.
One strategy that will always work well is reducing risk. Of course, risk comes with any trade. CFDs, for example, come with a high risk of losing money rapidly due to leverage. In fact, 67 percent of retail investor accounts lose money when trading CFDs with HYCM. All investors should consider whether they understand how CFDs work and whether they can afford to take the high risk of losing money. Education and risk management will always be among the best trading strategies.
How has the invention and popularisation of cryptocurrencies affected trading?
As far as I can see, cryptocurrencies have given birth to a whole new wave of traders. People are learning how to perform technical and fundamental analysis – things that, a few decades ago, seemed like secret magic arts – and they’re applying them to a completely new asset class. I think cryptocurrency is also providing a sort of release valve on the kinds of central bank excesses that we’ve seen since 2008. The last time we had a crisis, there was no alternative other than gold. Indeed, bitcoin itself was born in the shadow of the last collapse. Next time around, there will be numerous alternatives.
The fact we’re hearing so much about countries actively developing digital currencies leads me to believe that central banks and nation states are finally waking up to just how powerful this technology can be and how great the risk of being left behind is. The question is, are we in the early stages of a complete overhaul to our definition of money, as well as a general reappraisal of who has the right to issue it? It is impossible to know if we are, but it’s interesting to note that, despite a US equity market that refuses to come down, bitcoin was still the best-performing asset of 2019, up 127 percent, according to CoinDesk.
Are technological and regulatory developments affecting the future of retail trading?
The usual technological suspects – smartphones and artificial intelligence – have changed retail trading a great deal. The mobile revolution has made it possible for everyone with a smartphone to be a trader, while the ability that traders now have to formalise their trading rules and create bots to do the work for them is a pretty incredible development. It puts the power back into the hands of the individual.
At HYCM, we have always been open to new developments and bringing them on board. Our goal is to offer a variety of tools to suit each style of trader. As far as regulation goes, the retail FX market has done a solid job of creating a regulatory framework that protects investors while also legitimising the space. Recently, we’ve seen a convergence of regulatory practices, particularly across the UK, EU and Australia. This should reduce regulatory arbitrage and increase the credibility of the industry going forward.
What are your expectations for 2020?
We believe that 2020 is shaping up to be a very exciting year. The gold rally we saw in the latter part of 2019 suggests many investors fear that it won’t be business as usual. The cryptocurrency markets also seem to be in the early days of staging a comeback. I think several factors are converging, leading people to search for alternatives.
For one, equity markets are beginning to look as though they’re entering full-on bubble territory, particularly based on what we’ve seen since November. Companies like Apple have added hundreds of billions of dollars to their valuations without anything having fundamentally changed. Geopolitical tensions are also on the rise, and the rhetoric we’re hearing from central bankers and politicians is starting to sound a little like a call for competitive devaluation.
Something has to give, but we’re just not sure what that will be. If I were to venture a guess, I think we’ll see a return to volatility in the coming year as the global economy struggles to cope with spiralling debt and abnormally low interest rates. What this eventually leads to is entirely up in the air at the moment, but I think that safe-haven assets will continue to do well until then.
How do you see the retail trading industry shaping up in the next five to 10 years?
I think the retail trading industry is only likely to grow. A couple of decades ago, we saw the phenomenon of retail FX trading becoming so widespread in Japan that retail traders were moving international currency markets. Incidentally, this was also a by-product of low interest rates in the country, which forced savvy retail investors to search elsewhere for yields.
A generation later, we saw the cryptocurrency phenomenon being a primarily retail affair. Retail traders understood what cryptocurrency was and why it was so revolutionary far in advance of the institutional community. Retail traders are no longer unimportant, low-hanging fruit to be disregarded and overlooked; in many ways, they are driving the future of markets. Also, with Millennials – the largest generation in history – entering their prime spending years, retail trading will continue to be a booming industry for many years to come. What form it takes remains to be seen.
Sustainable development is a subject of great interest nowadays, for both financial institutions and their customers. As a result, many market players are integrating various social responsibility programmes into their corporate strategy. Today, businesses in any industry simply cannot afford to sit out the sustainability trend.
Businesses are under growing pressure from society, partners, consumers and employees to behave in a way that demonstrates a commitment to human values, instead of simply chasing profit. One way or another, it is customers and employees who drive change in businesses. Those who don’t understand this will lose out in the long run.
Adhering to the UN’s Sustainable Development Goals (SDGs) and its Principles for Responsible Banking (PRBs) will certainly improve a firm’s corporate image, but this alone is not enough. Businesses will only be able to combine long-term success with a sustainable agenda if they fully align their values with those of their customers and society at large.
Sustainable development and responsible banking are primarily associated with the climate agenda, but in fact, they go far beyond that. This means businesses must not only reduce their environmental footprint, but also build honest and responsible relationships with customers, especially in the retail sector.
At Sovcombank, one of Russia’s largest private-sector lenders, there is an awareness that many banks have compromised their sustainable credentials by behaving recklessly when dealing with their retail customers. World Finance spoke with the bank’s CEO, Dmitry Gusev, about why the firm has chosen to prioritise financial education for its customers and continues to place great value on responsibility across its loan products.
Businesses must not only reduce their environmental footprint, but also build honest and responsible relationships with customers
How will the company restructure its business model to meet the SDGs and PRBs?
There has been no need for us to make any drastic changes to our business strategy since we have always followed similar principles to those espoused by the SDGs and PRBs. However, the first step for any bank involves assessing the status quo and identifying long-term goals and objectives. We have already undergone a third-party audit and approved some long-term goals – the key point is that they have to be feasible. In the near future, we will announce our plans and report on their implementation as we go.
As a signatory of the PRBs, how will Sovcombank integrate these principles into its work with retail customers and corporate clients?
As part of our corporate lending business, Sovcombank is already financing several long-term energy saving, renewable energy and waste management projects. Currently, a large number of related government initiatives and programmes are underway in Russia, and we see ourselves as an active financial player in this market.
We are committed to financing projects that are aligned with our goals and obligations in following the SDGs and PRBs. Our experience has shown that this can go hand in hand with the bank’s interests and prospects. In particular, we will assist our customers in relation to financing projects that aim to reduce their environmental impact. As far as our retail services are concerned, we create market products that are affordable for our customers and that foster smart spending habits.
We want our customers to minimise interest expenses relating to their daily needs, and save that money to purchase or renovate a house, or buy a car. Our Halva instalment card is the product of choice for these customers. We also make a point of educating our clients on all things credit, which is our top priority as a responsible lender.
What was the Russian regulator’s reaction to your initiative? Are there going to be any concessions or additional requirements?
Amid increasingly strict legislation and tighter reporting and disclosure standards, businesses the world over are moving towards practices that take account of environmental, social and humanitarian issues.
Russian companies are at the start of their environmental, social and governance (ESG) journeys, but Sovcombank is among the trailblazers that have already implemented ESG principles. There are currently no laws or regulations relating to sustainable business practices in Russia; some market players participate in ESG projects on a voluntary basis but, as time passes, regulation will become more standardised, forcing lenders to operate with sustainability in mind.
What specific areas has Sovcombank focused its sustainability efforts on?
Transparency and corporate governance are important strands of our sustainability principles. As the bank has grown, it has stayed true to its belief that businesses must be open with all stakeholders regarding their operations and performance. We believe that investing in the future is hugely important. As such, we offer support in terms of advice and bespoke services to help Russia’s SMEs flourish.
We are acutely aware of the importance of responsible lending. Our network of retail branches is aimed at supporting low-income customers in underbanked areas throughout Russia. By providing public access to educational materials, we also demonstrate our commitment to improving financial literacy across the country.
Could you talk about the potential offered by green bonds?
Green bonds offer a fantastic way for investors to make money with a clean conscience. Globally, the US is leading the way in terms of green bond issuance (see Fig 1), but with the release of its first green bond in December, Russia is making moves to catch up. There is a great deal of excitement surrounding the green bond offer by SFO RuSol 1, suggesting that the Russian market is receptive to sustainable investment options.
Today’s more environmentally conscious world makes it easier than ever to pursue green policies while maintaining a healthy bottom line
Although it would be nice to think that companies will commit to environmentally friendly practices simply out of a sense of duty, profit is a huge motivator. Fortunately, renewable technology represents a significant growth market that is already attracting investor attention. Green bonds represent another way for businesses, investors and the planet to prosper – it’s a win-win situation.
What green products is Sovcombank currently working on?
We are working on several green products. One of them involves the development of a renewables project that securitises revenue streams from two solar power stations, with around RUB 5bn ($76.1m) worth of green bonds issued in the local market. The special purpose vehicle set up to finance the project has already secured a credit rating from Russian agency ACRA and received the relevant green certification, representing another milestone for ESG progress in Russia.
How much of an impact has the ESG trend had on global markets?
ESG initiatives were one of the major concerns in the business world last year, and their importance resonated throughout various markets – to a greater degree in Europe than the US, and increasingly in Russia. Partly, this was driven by environmental considerations, including climate change and rising pollution levels.
While ESG is not a new topic, there has been a noticeable shift towards using capital markets to mitigate the risks of global warming, not only in developed markets but in emerging economies too. The ESG trend offers a means for businesses to diversify their investor base and attract specialised green investors, as well as to boost efficiency and align corporate practices with international standards.
What specific developments are taking place in the Russian market with regards to ESG initiatives?
A number of developments have occurred in the Russian market, including state-led programmes to modernise and develop problematic sectors, such as waste management, recycling and metallurgy. This testifies to the fact that the sustainable finance market is evolving to tackle the challenges of creating a more sustainable future.
It is fair to say that in rouble markets there are not enough dedicated green investors, while on the hard currency side there are many. The latter have ESG mandates within their portfolios and habitually invest in green products; they are often prepared to pay a premium because of additional subsidies or tax discounts they may receive in their home countries for investing in ESG products.
What role should regulators play with regards to ensuring the ESG space is accessible to all?
Regulation in the Russian ESG space is currently in the very early stages. Still, there are already a few dozen companies and agencies that are licensed to hand out sustainability ratings that are closely aligned with global practices. Now, there needs to be greater demand for these products from the investment community. This can be achieved either through tough restrictions, such as mandatory ESG targets, or by positive incentives, such as subsidies.
The government and market regulators are paying close attention to the ESG sector and are becoming more engaged with its development, which we expect to continue this year, perhaps with additional stimuli in the shape of subsidies and green infrastructure projects, such as water irrigation systems and renewable power stations.
How important is it that green proposals also take into account shareholder interests and profit?
Sustainability does not mean pursuing environmentalism at all costs. Businesses still have to take their revenue streams and customers’ interests into consideration in order to safeguard their long-term prospects. Fortunately, today’s more environmentally conscious world makes it easier than ever to pursue green policies while maintaining a healthy bottom line.
We have long believed that sustainability can form part of a successful business strategy and have therefore incorporated a number of ESG initiatives into our operations.
What is your view on ESG implementation in global financial markets? Is a green strategy viable today?
Globally, businesses are becoming the driving force behind the climate agenda. It has already been noted that private investors are shifting to investment decisions that have ESG considerations at their heart. Today, if a company enters a capital market with a sensible corporate social responsibility policy and a robust ESG platform, it is likely to help attract investors.
