June 2021

Posted by Anton Murray Consulting on . Posted in 2021

There is an international trend towards the mitigation of modern slavery which is also being implemented recently across Asia-Pac, and has an impact on staffing within financial services firms and also affects their suppliers. According to the International Labour Organization, more than 40 million people globally live and work in slave-like conditions, with over 15,000 of these individuals residing in Australia. The CV19 pandemic has further highlighted potential risks within this space, as many European nations in particular look to implement legislation beyond the soft mandatory reporting and due diligence guidelines encouraged by the UN and OECD.

The financial services industry is a high-risk sector, constantly exposed to the detriments of modern slavery, human trafficking, domestic servitude, deceptive and forced labour and debt bondage. In order to combat these illegal and immoral activities, Australia enforced new legislation under their own Modern Slavery Act‘An Act to require some entities to report on the risks of modern slavery in their operations and supply chains and actions to address those risks, and for related purposes’.

The legislation requires large Australian and foreign entities conducting business in Australia to report annually on the potential risks occurring in their operations and supply chains, and the active processes they are undertaking to address and prevent modern slavery. The Australian Modern Slavery Act is explicit that those grossing over $100m in annual revenue should produce yearly reports to the public on potential modern slavery amongst their business dealings. Whilst the Act may fall short of its imperative trajectory to combat illegal slavery activities, it is the overarching influence of the larger banks, superannuation funds and mining operations to display transparency of risks in their business and be the dominant voice combating modern slavery. There is a reliance on these particular Australian organisations to openly declare integrated programs in their business which monitor, identify and address money laundering and financing terrorism, thorough customer vetting and reporting of suspicious transactions. Failure to do so puts the organisation at risk of criminal offences.

While the Modern Slavery Act was introduced a few years ago, we are now seeing financial services firms implement policies to reduce modern slavery in all its forms, and work with their suppliers to ensure that the industry works to eliminate such issues across every location in the region.

May 2021

Posted by Anton Murray Consulting on . Posted in 2021

Semiconductors make up the brains of many items we use daily. They are especially important in consumer electronics, computing and the auto industry, and Taiwan remains the clear world leader in semiconductor technology and production. The main component of semiconductors, silicon, has faced a recent supply crisis with increased demand for these sorts of products. The immediate need to manufacture Covid-19 vaccines has added further pressure to the supply and price of silicon, with its use in the manufacture of vaccine vials. The pandemic further forced factories to close, resulting in customers delaying their purchases, and this was followed by a miscalculation by many industries, particularly the auto industry, on demand for semiconductors. As an example, Apple accounts for $58 billion a year in semiconductor sales, and was forced to delay the launch of the new iPhone due to the shortage of semiconductors. The semiconductor manufacturing process is also intricate and expensive. Factories take a number of years to build with multi-billion dollar capital costs, as the US is learning as they rapidly seek to build a domestic semiconductor capacity.

Geopolitical tension surrounding Taiwan is creating a global reliance on a unique product in a hotly disputed location in the region. The US has begun the process of becoming less reliant on imported chips from Taiwan, although this will take time and availability of high-quality semiconductors from non-Taiwan sources will be a slow process. Further, demand for semiconductors is rapidly increasing as every country adds more interconnectivity and complexity to the devices that we use and the cars we drive.

Global dependence on Taiwan for the production of semiconductors is an interesting regional geopolitical flashpoint in Asia-Pac that affects financial services and, notably, highlights the importance of Taiwan to both China and the US. As the US and the EU rapidly seek to diversify away from Taiwan semiconductor reliance, there will be heightened interest in this small north-east Asian island who in 2021 are still ‘holding all the chips’.

April 2021

Posted by Anton Murray Consulting on . Posted in 2021

The emergence of Non-Fungible Tokens [NFTs] is an interesting evolution of the blockchain digital asset environment. NFTs are being sold for increasingly large amounts to attribute value to unique digital assets, notably in the art space. Christies held a recent auction for Everydays: The First 5,000 Daysa set of 5,000 images by artist Beeple [aka Mike Winkelmann] for an incredible US$69m, which was a strong signal to the art community that NFTs had arrived with a bang.

NFTs are a form of electronic identifier, that helps attribute and allocate ownership of a digital collectible. Notably, often the digital asset can quite freely be viewed online and replicated. As a further example, recently Jack Dorsey auctioned his first tweet [“just setting up my twttr”] for US$2.9m, sold via Ether, and in good form Mr Dorsey donated the proceeds to charity. It’s reasonable to question the value of NFTs, such as this first tweet from the CEO of Twitter. Although in the digital age, this could perhaps be compared to a hard copy signature from William Shakespeare.

Artists in all formats are now exploring and testing their value in the digital asset space, with recording artists Kings of Leon selling their upcoming album in NFT format, while Aussie band Flume recently sold an NFT of 90 seconds of music paired with a video clip in March for a staggering $66k in Ether. Notably the video paired with Flume’s music is freely available on YouTube, but owned via an NFT by the new owner @nobody.

In an amusing NFT stunt, that the artist himself probably would have appreciated, an original Banksy was burned and destroyed on a livestream video, with the art-destroying-performance sold as an NFT for $380k. This was the same print, “Morons”, that Banksy famously shredded live at auction in 2018, with a caption on the print “I can’t believe you morons actually buy this”. So this NFT sale perhaps represents a circular, cynical statement on the impermanence of art. Clearly if real art is being destroyed with the video digital asset file being sold for more value as an NFT than the original physical form [the original Banksy screenprint was bought for $95k] we are in confusing times in the digital art world.

The NFT phenomenon can be viewed broadly as a digital form of collection or ownership. In the same way that art sales can at times reach baffling heights, NFTs are offering a platform for buyers with a wallet full of Ether or Bitcoin to display their wealth through digital ownership, regardless of real-world value. Perhaps to the buyers and collectors of NFTs, that’s sort of the point. NFT buyers are probably not expecting the digital asset to increase in value but are rather seeking to signal affluence in the digital age, or to confer value of their wealth via BTC or ETH.

In any case, the emergence of NFTs, especially in the digital art space, is an interesting asset class that is evolving and gaining in prominence.

March 2021

Posted by Anton Murray Consulting on . Posted in 2021

The last year has taught us many things, one of which is that ESG-related investing is here to stay. Fund Managers, Superannuation Funds and Investment Managers have all hired people into sustainability and corporate governance roles if they didn’t already exist, and pressure from investors is getting stronger to ensure that investments are sustainable. In recent months we’ve seen individual customers demanding more of their Super Funds and a generational shift in attitude towards investment policies. As we prepare globally for a huge intergenerational transfer of wealth in the realm of $30 trillion, millennials are making their concerns heard, and wanting them to be reflected in the way they invest. Furthermore, late last year it was found that the Task Force on Climate-related Financial Disclosures (TCFD) framework, first released in 2017, had become the most common benchmark for companies reporting in high-risk sectors.

Citizens around the world are becoming more conscious of ESG-related issues, but that does not always translate to big business feeling or acting the same way. Demanding more of funds and the big firms they invest in, is a clever way of making changes to the way business is done. But this seismic shift in the way we collectively manage our investments makes sense for companies, too. Analysis by Fidelity International concluded that during the pandemic crisis of 2020, firms with high sustainability ratings outperformed those with lower ratings. The pandemic accelerated pressure on business regarding ethical investments, and as investment in sectors such as healthcare increased as a result of Covid-19, a shift took place in the way firms conducted business and the demands on these firms from their customers. Fidelity mentioned a specific focus on the ‘S’ of ESG. After Covid-19 swept the globe, companies needed to focus on their people and “the societal responsibility of businesses in a global crisis”. This ESG-focused trend is being seen globally. The NYU Stern Center for Sustainable Business recently reported that “we’ve seen an exponential increase in ESG and impact investing as evidence builds that business strategy focused on material ESG issues goes hand-in-hand with high-quality management teams and improved returns.”

So this is good news for the planet, our collective conscience and for business. So where to from here? UBS recently stated they believed to see “increased targeted investment in the areas of climate, resource scarcity, diversity, food and agriculture, and healthcare, among others, as society rebuilds post-pandemic and investors seek return opportunities through solutions to these large-scale challenges.” Super Funds are all over the financial services news of late, making big changes to the way they’re conducting business. Just last week Cbus Super awarded a $240 million mandate to UK group Impax Asset Management that will focus on sustainable investing opportunities and protecting the savings of its members from climate risk. Cbus has also pledged to reach net-zero emissions by 2050. This is the post-pandemic megatrend of 2021 and we expect to see this pressure on investment firms and funds to continue across the industry this year and beyond.

February 2021

Posted by Anton Murray Consulting on . Posted in 2021

Over the last month we’ve been following media coverage of the unprecedented equity market story of GameStop (NYSE: GME), a bricks and mortar video game retailer listed in New York. There are a number of themes at play, too many to cover in a short piece, but we wanted to take a look at what has been happening.

Some hedge funds took the view that GameStop’s retail model is outdated and not viable for the future. They took up short positions over a period of time with the thought that the business would be in steady decline. Then we saw retail activist members of Reddit group WallStreetBets and others join the story. These retail investors came together forcing the price up in a dual attempt to short squeeze the hedge funds who were betting on the stock’s demise, while also looking to make quick dollar gain. The frenzy forced the stock up to historic levels, with increases at one stage of up to 2000%. The hedge funds with short positions were pushed to buy the stock back at higher prices than the borrowed stock they had already sold.

One Australian hedge fund manager reacting from a professional manager’s perspective noted that there was a growing risk in single stock short positions due to social media and retail investors who are fans of particular listed businesses or who wish to act like the WallStreetBets group. This is evident in the speculation that follows Tesla and anything that Elon Musk tweets or mentions on social media.

The retail activists would argue that hedge funds take bets everyday on listed stocks and there is no difference between the actions of either. However, where hedge funds employ professional investor types, retail investors in these forums can be anyone. Some professional day traders, mums and dads, activists and those who wish to get rich quick and follow the latest trend. The recipe for disaster is high. While the worst that can happen to a hedge fund is they go out of business or need a capital injection, retail investors can be left with absolutely nothing. This is particularly true if they have borrowed capital or put their life savings into something on the whim of a Reddit thread. A recent Bloomberg article opined that there was evidence that retail investors were buying and selling GME stock in almost equal measure, debunking notions that the retail frenzy was solely causing the stock price rally. The author also stated, ‘If you’re manipulating GameStop stock, you’re in trouble, but on current evidence I am not all that convinced that anyone is’. The online phenomenon doesn’t look like something that will go away, now that retail investors have seen the impact they can seemingly have on stock prices and on the big hedge fund end of town.

What is right or wrong is hard to say, but the expectation of some form of regulatory response is there. Whether this will alter behaviour or safeguard vulnerable actors remains to be seen, but it seems certain that professional investors will need to take into account the risk that this type of event can and will happen again.

January 2021

Posted by Anton Murray Consulting on . Posted in 2021

The sensational final innings win by the Indian cricket team in the final Test at the Gabba was an exceptional come-back from adversity after they were convincingly beaten earlier in the summer in Adelaide. Although not everyone is a cricket fan, this was a heart-warming tale of courage and tenacity. While the media has made much of the Australian captaincy problems, this misses the point and takes away from the exceptional resilience by the Indian cricket team to work through harsh quarantine conditions, losing many of their first-string players to injury and winning without their Captain who returned home, not including harsh sledging from the Aussie fans.

Even without a pandemic, it’s very difficult to win away from home in Test cricket. However, if you throw in forced quarantine and strict bio security bubbles, it certainly becomes more complicated. The Indian team began in Adelaide confidently but were decimated in a single innings, bowled out for 36; one of the lowest test innings scores ever recorded. Following this woeful end to the match in Adelaide, their enigmatic captain Virat Kohli went home to welcome a new child to his family. Without one of the best batsmen in the world, Kohli’s absence created great anticipation for an Australian whitewash.

After the Adelaide loss, the squad was hit by numerous injuries to its frontline bowling attack. The following 3 Tests surprised many with an unlikely victory in Melbourne, a courageous draw in Sydney, leading to the final Test in Brisbane at the Gabba…

The final innings of the Brisbane Test, and the series, saw the depleted Indian team face a barrage of knocks including batsman Pujara being struck several times in the body and helmet. Full of inexperienced players, the team was set a massive total on a deteriorating wicket that they expected to at best hold on for a draw. However, they dug in, held their nerve and came through with an unlikely win in the last few overs of play.

What can we take from this? Cricket may not be everyone’s cup of tea but the fact that we were able to fall back on some traditional summer sport was somewhat soothing after a difficult year. The Indian team displayed tremendous courage and resilience to comeback from the demoralising Adelaide loss to win the series. The microcosm that is sport can bring the larger world into perspective and bring some much needed relief and relaxation.

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