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The winter of 2020 is one that few will wish to remember. The human cost of COVID has touched most of us in some way, while the insidious impact of lockdown has hit everyone hard. Despite a significant recovery in the latter part of the year, UK economic production still contracted an extraordinary 8% in 2020.

It is sobering to pass the one year anniversary since the first lockdown and apposite now to review the current COVID situation in the UK.

Back in November, tiered restrictions were just starting to bring the second wave of infection under control when a new variant emerged initially in Kent. This new variant proved to be up to three times more virulent and began to spread uncontrollably across the country. New cases soared to a peak of 80,000 in a single day in early January, one of the highest infection rates in the world.

Since January, the picture in the UK has changed dramatically. The chart above shows the 7-day moving average of cases plummeting from 60,000 to around 5,000 a day currently. This may still sound like a high number, and indeed it's higher than the peak of the first wave in 2020; however, this overlooks another critical factor – the number of tests being conducted.

In April last year, the average number of tests was c30,000 a day, with nearly 18% of all tests returning positive. The testing rate now is regularly in excess of 1.8 million tests a day and the percentage of positive tests has fallen to just c0.3%, illustrated by the orange dotted line in the chart above. This is about as close to zero as it is likely to get while we are testing on such an extraordinary scale.

Thankfully, we see a near identical pattern when we look at hospitalisations and patients in ICU; this is illustrated in the chart below, with hospitalisations plotted on the left hand scale and ICU beds plotted on the right hand scale.

Unsurprisingly, the peak in hospitalisations came toward the end of January, about 3 weeks after the peak infection rate, with the peak in ICU patients about a week after that. Hospitalisations peaked at c40,000 patients or roughly double the peak from the first wave. Fortunately, ICU patients only modestly exceeded the previous peak, reflecting an improvement in the treatment options and patient outcomes.

Since then hospitalisations have fallen dramatically, mirroring almost precisely the drop in new cases with around 5,000 COVID patients and 680 in ICU, although these numbers are likely to drop significantly further still over the coming weeks.

I am pleased to note that these improvements have also fed through to the UK’s mortality figures. The previous chart illustrates UK weekly mortality (the blue line) relative to the five year average (the grey range). The yellow shaded area shows the numbers where COVID 19 was mentioned on the death certificate.

The impact of COVID is abundantly clear in UK mortality rates; however, it is also apparent that excess deaths, the level of deaths above average, was much higher in the first wave than over the winter. Indeed, whilst COVID related deaths have been of greater number during the second wave, the level of excess deaths, while significant, is not as extreme as we might have anticipated. It is likely that this is because COVID deaths have largely replaced other respiratory and flu related deaths during the winter months.

In line with falling case rates and hospitalisations, deaths from COVID have dropped dramatically this year to levels not seen since the summer. Indeed, deaths have fallen to such an extent that excess deaths have turned negative, meaning that mortality is now significantly lower than the five year average for this time of year. This is excellent news.

What has happened in the UK to result in such a remarkable turnaround and what can we expect over the coming weeks as a third wave of infection is growing in Europe? The answer is very clear and very stark; vaccination.

The UK has achieved a quite astonishing rate of vaccination roll-out, with around 5% of the population vaccinated every week since January. Despite criticism at the start, it is now accepted that delaying 2nd doses was the optimal strategy and at the time of writing, has allowed the UK to vaccinate close to 60% of the entire adult population that includes the top 10 most vulnerable risk categories.

The impact this is having on cases, hospitalisation and deaths is illuminating. The chart above shows the percentage of the population that have received both 1st and 2nd dose vaccinations and we see this increasing steadily through the population. Above this the yellow line shows the estimated percentage of deaths averted by vaccination. This increased very rapidly as the most vulnerable groups received their 1st doses, passing the 50% mark as early as mid-January. By the middle of February this had increased to 90% and has now reached as high as 97% of projected deaths averted as a direct result of vaccination.

This is a truly extraordinary achievement and completely changes the outlook.

Governments will rightly move cautiously to unlock economies for fear of yet further waves of infection, but if vaccination proves as effective as these projections suggest then the prospects look good for the summer. The next few weeks will prove decisive for the UK. The level of infections is almost certain to rise as restrictions are gradually lifted, but the real test will be whether the rate of hospitalisations and ultimately deaths continue to fall as a proportion of cases.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Over the last 4 years, we’ve been building a team capable of bringing our digital corporate banking proposition, Capital International Bank, to life. Now on the cusp of opening the bank’s virtual doors to new clients, we’ve been putting the final pieces of the puzzle in place by adding to our front office team.

Three new faces recently arrived at Capital ready to assist our clients as Client Engagement Analysts. We spoke to Natalie Parker, Danny Howard and Gareth Jones to find out more about them and their new roles.  

First off, what was it that made you decide to apply for your new role?

I had heard that Capital was the place to be and that everyone who worked there enjoyed it. I decided to go onto the Facebook page, and it seemed like perfect timing! I stumbled across the Client Engagement Analyst role, applied straight away and here I am!

I’d heard feedback from current colleagues on what a great place Capital is to work. I started following Capital on Linkedin and was blown away by the company’s culture.

I could see that Capital was thriving and with the bank set to take off, I was drawn in by the potential. It’s great to be able to play a part in the journey.

What will you be doing in your new role?

Within our roles, we will be supporting clients through their onboarding journey, ensuring their experience is as smooth and efficient as possible.

We will be their first point of contact not just through the onboarding process but also once their accounts are up and running. This means we will be getting to know clients quite well and building long-term relationships.

Our role is to make sure clients receive the best digital banking experience. Communication is key for me and I am looking forward to wowing clients with our service levels and showing them what the banking platform can do.

Sounds like you will be getting to know our clients quite well. You must enjoy talking to and meeting new people. Is there anyone you would really like to meet one day?

All the cast of F.R.I.E.N.D.S without a doubt. I have so many questions!

For me it’s Tyson Fury. I think his story is unbelievable. It just goes to show that you can be one of the toughest people in the world yet still face difficult times and have to fight to overcome them.  

Anne Boden, the CEO and founder of Starling Bank. I have been following her journey for quite some time and her motivation, passion and the hurdles she has overcome within her career are really inspiring.

You mentioned that you will be helping clients to onboard onto Capital’s new banking platform. What is it that excites you about Capital’s approach to banking?

 One thing I have learned while working in banks is that the onboarding process tends to be lengthy. The way that Capital plan to cut this down will no doubt impress clients.  

I agree. From working in other banks previously, the exceptionally fast digital onboarding will be a real game changer.

I’m impressed by the self-service aspect. The interface is easy to use and simplifies the whole process for clients.

Capital International Bank will use new technology to bring something unique to corporate clients. If you could have any piece of technology what would it be?

I think it would have to be the DeLorean from back to the future.

 Something from the Marvel Universe like Ironman’s suit or his car!

A VR Headset so I could spend my spare time in lockdown pretending to be on holiday!

It’s a very exciting time for the Group, but what are your own goals both personal and professional for the next few years?

Professionally, one day I would like to have my own team. This would allow me to support people and teach the skills that I have learned from many different people over the years. On a more personal level, I would love the opportunity to become a mum one day. I have created a happy home for myself and whoever is around me.

I am looking to further my knowledge within the banking industry and continue working towards my investment management certificate.

My personal goals are to keep being myself and to keep broadening my own knowledge. My professional goals would be similar. I want to continue pushing myself to be the best I can be.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

To mark International Women’s Day 2021, we asked the wonderful women of Capital to tell us about the females who inspire them to achieve extraordinary things every day.

Natalie Parker - Client Engagement Analyst

Positive thinking is everything.

My mum is someone who inspires me. From a young age I was taught understanding, compassion, to stand up for what I believe in and to treat people how I would like to be treated.

My Mum has experienced such loss in her life including losing her daughter, yet with this great loss, she has taught others (myself included) to be kind always, appreciate every moment and that no one knows what someone is going through in their personal lives.

She believes in self-love, wellbeing and that a “stomp” is good for the soul. I asked her once why she does this everyday and she said “walking is good for the happy hormones; my daughter can’t so I do those miles for her”.

She has made friends with other bereaved women and families and I know she has given them a friendship that only someone who has unfortunately gone through the same things can. She has inspired me to be the best version of myself and to find the good in every day even when I have to search a little harder.

Candice Coetzee – Senior Project Manager

Power to the women!

Wonder woman inspires me - ethics, integrity, kindness and leadership. While she is a fictional character, she has become a reality for many women, as an inspiring and indomitable human.

She embodies a realistic (minus the superpowers), strong and healthy place of being that I think lots of women aspire to, not just within themselves but for their families too.

Wendy Oliver - Relationship Manager

I am inspired by women who are honest, true to themselves and don’t fear the views of others.  

My sister follows her traveller heart and has created a life full of wonder and experience. Settling in Hong Kong to fly off to so many places, as well as devoting herself to teaching children and volunteering in poor countries.  

My mum devoted her life to children, her own, and fostering/caring for many others.  She has been living with breast cancer since September 2019, but does so with a positive, determined attitude and won’t be beaten.  

My nana has just celebrated her 100th birthday.  Born into poverty in the 1920’s, she worked in the Mill towns of Lancashire, raised 4 children by herself. She now has over 25 grandchildren, great grandchildren and great great grandchildren!

I also find Baroness Lady Michelle Mone very inspiring, I read her daily social media posts. They provide food for thought and recognise that anything is possible with determination.

Inner strength, empathy, compassion and determination are my superpowers. Women rock!

Donna Proctor – Risk Manager

My inspiration is Erika Abrahams, the Executive Director and founder of Animal Aid Unlimited.

She relocated her family from Seattle to Udaipur India and has dedicated her life to protecting and re-educating on animal welfare. Their missions to help over 7,000 animals a year include animal rescue and hospital, neutering, street treatment, inoculation and a sanctuary.

Erika has worked endlessly to have out-dated laws changed, unravel political bias and corruption, campaign for donations and funding and to promote awareness via their social media platforms. Her philosophy is “Little things add up, so just do something…anything, do it repeatedly and make small changes.”

René Walker – Senior Relationship Management Consultant

I grew up having my inspirational mother as my role model. Being a single mother to myself and my brother, she did everything she could to ensure that we had everything we needed. Working in a pressured sales environment, regardless of her circumstances, she managed to be on top of her targets each month. They often had to audit her status because she was so brilliant at what she did!

Times were tough, but she managed to pull through with school fees, food, clothes and I truly admire her for how strong she is.

Everything I do in my daily life and at work is because of the important lessons that she has taught me. She is my daily drive and I hope to soon be teaching the same standards and morals to my daughter on the way.

Hendrika Goussard – Financial Controller

I find inspiration in the sentiment of the poem ‘How I became a Warrior’ by Jeff Foster. I take great motivation from the poem which encourages us to become warriors by uplifting ourselves.

The following is just a short section of the longer poem:

In the depths of my wounds,

in what I had named “darkness”,

I found a blazing Light

that guides me now in battle.

I became a warrior

when I turned towards myself.

And started listening.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Listeners to the South African Budget speech on 24th February must have been a little surprised.

Against the backdrop of the Covid-19 pandemic and an expected decline in South African GDP for 2020 of 7.3%, tax concessions were not expected. Yet it was announced that company tax was being reduced by 1% to 27% in 2022 and that an increase in the tax brackets of 5.15% (which is below the current CPI of 3.2%) effectively results in a tax relief of around 2%.

Some may think that Finance Minister, Tito Mboweni, should have kept company tax unchanged, raised tax brackets by the inflation rate and then used the extra revenue to reduce the cost of vaccines and other Covid-19 costs. However, when viewed against the 5-year medium term budget plan, these adjustments are “small potatoes” as there are much bigger issues at stake.

The 5-year plan

It’s important to remember that the 2021 Budget should not be viewed in isolation, but as part of the 5-year plan and long-term strategy being implemented by the government.

Additionally, the State of the Nation Address (SONA) should be viewed as a policy statement that dovetails with this 5-year plan. On 11th February 2021, President Cyril Ramaphosa outlined a number of achievements from the past year and summarised his plans to boost the economy, including “massive” spending on infrastructure.

Surely then the 5-year plan must provide revenue to finance the SONA’s “Wishlist” or the whole exercise becomes a political charade? Which then raises the very important question of where will the revenue come from to finance these huge spending projects?

The elephant in the room

Looking at the Government’s revenue vs expenses, it’s clear that spending has exceeded income for many years, and this is expected to continue in coming years.

The deficit has been financed by increased borrowings and it’s this increased government borrowing that was the elephant in the room. The current level of debt is close to R4 trillion and is expected to increase to over R5.2 trillion by Feb 2024. Tito Mboweni made a quip in his speech about the fact that there are 12 zeros in a trillion, and, with a current debt of R4 trillion, it’s a huge elephant and it’s still growing!

And with the deficit being exacerbated by Covid-19 in the 2020/21 period, Mr Mboweni clearly stated that increasing government debt results in higher taxes and also means that spending will be redirected from important areas to service the debt.

Why then is he going down the high-risk road of increasing government debt further in coming years?

Going for broke

The accepted understanding of the term “going for broke” is going all in or risking everything in an all-out effort.

It would certainly appear that Mr Mboweni is following the Keynesian model of lowering taxes and increasing government spending to revive the economy after a significant shock.

He is not really doing much on lowering taxes but is planning on “massive” spending. Much needed maintenance and improvement in energy, water and roads is necessary to place the economy on a sound footing.

In his SONA, Mr Ramaphosa initiated the rolling back of the government monopoly on energy production. This is a huge step forward for those individuals and companies keen to generate their own energy, an example being the new Ford assembly plant producing Ranger bakkies that is expected to be self-sufficient in energy. This initiative could substantially reduce load shedding, or completely eliminate it in coming years.

South Africa has one of the best roads and rail infrastructures in sub-Saharan Africa and spending in this area will help to keep the country as one of the most attractive entry points into Africa.

The government is also working on other structural changes to aid foreign investment and reduce red tape.

Another huge positive for the economy is the strong recovery in commodity prices since about April 2020. South Africa has substantial natural resources and is primarily a commodity producing and exporting country. The top 5 exports by value are:

• Platinum

• Motor Vehicles and parts

• Iron Ore

• Coal

• Gold

Export earnings for the economy and higher taxes for the fiscus will be a major boost for the country in 2021 and possibly beyond.

The above factors do reduce the risk of Mr Mboweni’s strategy, but Covid-19 has changed the world’s outlook significantly. With vaccines being rolled out globally there is hope that the pandemic will be brought under control, provided that the vaccines are effective against the emerging new strains of the virus.

Much uncertainty remains: what will happen if the commodity cycle runs out of steam, or if Covid-19 waves continue as the virus mutates?  It seems unlikely that South Africa will begin to reduce its borrowing anytime soon.

IMF loans or privatisation

South Africa has recently taken a loan of $4.3b from the IMF to help it manage the fall-out from Covid-19. As this was a Covid-19 loan, there are few conditions attached, but any further IMF loans will certainly come with conditions. And these conditions could significantly reduce the government’s ability to manage the economy as it wishes and could lead to a series of austerity budgets, belt tightening all round and several years of hardship.

Another alternative would be to further borrow from China or possibly privatise or sell off some state assets, though it’s debatable as to how much value is left in the State Owned Enterprises (SNO’s) after several years of mismanagement.

The jury is out

There are a number of positives in the short term but significant risk and uncertainty in the medium term. And with the South African’s government track record of delivery versus promise, for now, the jury is out.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Investors are currently facing unprecedented times with the current pandemic. It’s flipped markets upside down, impacted interest rates and wreaked havoc on the way we conduct business.

In addition to the many challenges presented by the pandemic, many investors reside in countries where the domestic economic situation is challenging, the political environment is unstable, or the domestic currency is volatile. With declining personal income tax, pressure from both trade unions and state-owned enterprises as well as the impact of Covid-19 on the public purse, South African investors will be eagerly awaiting the Finance Minister’s delivery of the 2021 National Budget Speech at the end of February.

When do investors need to consider international tax?

When South African  investors accumulate wealth, they often start to look for opportunities to invest a portion of this wealth outside of the South African market. This allows them to access harder, more stable currencies in jurisdictions that have strong regulatory regimes and established legislation.

This is a natural step as they seek to diversify risk away from their home market, exploit more opportunities for growth and stability and potentially set up a pot of wealth offshore that can be tapped into should they need to leave their home country.

Whilst this may seem daunting, it is in fact relatively straightforward to achieve. However, without careful planning, it can also be quite easy to unwittingly leave yourself open to some expensive international tax issues. An example of this is Situs.

Situs tax

In law, the situs of property is where the property is treated as being located for legal purposes.

Property is not just physical property but also investments, including shares, collective investment schemes and structured products. So, investments incorporated in the United States, or in the United Kingdom, are considered situs assets and as such will attract inheritance tax (IHT) in the UK and federal estate tax (FET) in the US. This is commonly known as situs tax.

It should be noted that situs is not just restricted to the UK and the US but it is these locations, which often form the bulk of an offshore investment portfolio for South African investors.

Situs can create not only unnecessary tax liabilities on a person’s demise, but it can also create complex international tax reporting during a person’s lifetime, particularly where the assets are held in a trust.


Another international tax issue to consider is Probate, a tax which raises itself as an issue when heirs or will executors seek to take control and distribute the wealth from an estate. This is because probate is usually required in order to complete the administering of the estate and for the transfer of ownership from the deceased to the heir to take place.

How does probate work?

Probate is a problematic issue because it costs money (it usually requires a lawyer). Secondly, it takes time, generally a lot of time. Finally, probate normally needs a lot of patience with form-filling, record keeping and administration. All of this can be particularly challenging at what is typically a difficult time for a family coming to terms with a bereavement.

Avoiding probate and situs

While trust and company structures, as well as offshore life assurance policies, can offer some relief from both the issue of probate and situs, they often come with drawbacks. The potential disadvantages include restricted investment choice, additional costs, an additional layer of communication, additional servicing complexity and other challenges.

However, there is potentially a more straightforward solution to use in connection with a client’s required investment strategy, which can help in solving situs issues, provide tax efficiency and assist to minimise costs, such as legal fees.

Please get in touch with us here so that we can discuss the solutions available to you, including Kinesis, a one-stop flexible investment contract and platform solution via CIG.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

Myth: ESG portfolios underperform

Gone are the days when ESG was considered a niche approach to portfolio management, restricted to tree-hugging, barefoot investors passionate enough about the impact of their investments that they would be willing to sacrifice strong returns.

ESG has opened up to the masses and as heart-warming as it would be to solely put this down to a moral and ethical shift in society, if the returns were not hitting the mark, we would not have seen the steady increase in ESG demand that has occurred in the last 15 years (see below graph).

It is a common misconception that ESG portfolios underperform. In 2019, investment research firm Morning Star surveyed the performance of 745 Europe-based sustainable funds and concluded that the majority of ESG strategies performed better than traditional funds over one, three, five and ten years.

Looking at seven categories of ESG funds, in the ten years leading up to 2019, the Morning Star study revealed that not only did a greater number of sustainable funds survive than their traditional counterparts (72% vs. 45.9%), but over the decade, nearly 59% of the surviving sustainable funds outperformed their non-ESG counterpart.

Capital’s ethical portfolio, Fusion ESG, is an actively managed portfolio consisting entirely of ESG funds with a focus of positive impact strategies and resource sustainability. As illustrated below, Fusion ESG has a near 10-year track record of performance that compares well with the ARC Balanced PCI benchmark.

Myth: Sustainable investing is based on exclusion strategies

Exclusion strategies use predetermined criteria to decide which stocks should be excluded from an ESG portfolio. Within these strategies, stocks are screened out because of the negative impact of their business activities on the planet and society. This is a method that has been used for decades but remains largely subjective; there is no algorithm for determining whether a stock is inherently ethical.

For a more objective approach, as part of their equity research, some investment managers (Capital International included) give a numerical ESG rating based on analysis of corporate activities from an ESG perspective.

This approach helps to put a quantitative process in place to establish a view on whether an asset meets the manager’s criteria or whether the asset should be excluded from a portfolio with an ESG mandate. The method however is still prone to qualitative judgement calls.

Inclusion strategies on the other hand select stocks based on their positive impact. As we can see from the below diagram, this approach is much rarer than negative screening; it has however become more common in recent years.

We have also seen an emergence of ‘best in class’ selection which, while often grouped with positive screening, is in fact quite different. A best-in-class asset describes the top ESG performer within a given sector. This however does not necessarily mean that the stock is a positive impact stock; it could simply be the best of a bad bunch.

With investment managers employing such a range of stock selection strategies, investors can easily be misled when looking into ESG options. Asking the right questions and gaining a good understanding of your chosen provider’s strategy is therefore key in ensuring the impact of the portfolio meets your expectations.

Source: https://responsible-investors.com/2019/04/09/global-sustainable-investments-reached-30tn-in-2018/

Myth: ESG can only be applied to equities

Whilst the majority of ESG strategies consist of equities, as illustrated above, ESG bonds have existed for a long time and the market is growing.

In 2019, 479 green bonds were issued globally, representing a 25% year-on-year increase. This momentum did not slow in 2020 with a record of $50 billion in green bonds issued in September alone.

Green bonds have existed from as early as 2007, with one of the earliest examples established by the World Bank the following year. This particular fund supports projects that mitigate climate change or help people affected by its consequences. Since its inception, the World Bank has issued more than 13 billion USD in green bonds through more than 150 transactions in 20 currencies.

In more recent times, Agence France Trésor (the body which manages government treasury in France) launched its first green sovereign bond. Created in 2017, its initial issuance volume totalled seven billion euros. Following suit, UK Chancellor, Rishi Sunak, announced earlier this month that Britain will issue its first ever green government bond in 2021, after seeing an increased demand for fixed income investment opportunities that support environmentally friendly initiatives.

Myth: Sustainable investing is just a trend

There has been a steady growth in ESG demand over the last 10 years which can largely be attributed to an increased awareness of ethical issues. Both individuals and governments have woken up to the state of the planet and are finally taking action to minimise their impact.

This shift in attitude in society and government is mirrored in investor behaviour. A survey conducted by private bank Brown Brothers Harriman (BBH) found that in the next five years, almost a fifth of ETF investors intend to have between 21% and 50% of their portfolio invested in ESG funds.

It is not just an attitude change that is seeing ESG interest soar. The frameworks around ethical investing are developing quickly and companies currently managing to conceal a few nasty, non-ESG truths will soon be left with nowhere to hide.

Earlier this year, the WEF published a white paper on ESG which highlighted 21 core metrics and 34 expanded metrics for measuring ESG impact. The paper was compiled with input from the big four accountancy firms as well as more than 140 global business leaders. This development is potentially transformative for investors. As investment managers begin to adopt the metrics as part of their ESG screening processes, companies seeking investment will be compelled to disclose the true impact of their business activities or face being starved of capital. This shift could see even the old industrial giants change their ways in a bid to avoid being forced out of the market.

Are you interested in ethical investing? Click here to find out more.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

Last week the severity of the UK’s economic situation was spelt out by the Chancellor of the Exchequer, Rishi Sunak, in his Spending Review.

The Spending Review is a periodic assessment outlining public expenditure priorities and the government’s plans to finance these. Usually, they are given over a five-year period. However, the present lack of visibility means this one was only for the next twelve months.

The outlook was not pretty, although the delivery by the suave Sunak was as polished as one would expect.

Quentin Letts in The Times described the experience as follows: ‘Sunak speeches are warm, relaxed, a bubble bath with Schubert on the wireless. There is something aromatherapeutic about the voice with its honeyed inflections. He started his statement at 12.45pm but soon one was feeling drowsy. Which was perhaps as he intended when it came to the two trickier moments: the pay freeze for civil servants, and the overseas aid haircut.’

Some of the figures alluded to were astounding, even mind-boggling, though we already had a vague idea of the scale. The budget deficit this year will be £390bn, or 19% of GDP, about double the deficit in 2008 after the financial crisis.

The UK economy will fall by -11% in 2020/21. The debt to GDP ratio is expected to be 104% - in other words the amount of debt will be bigger than the size of the economy. Under the optimistic scenario this could be 94%, but under the pessimistic scenario – with lockdowns persisting and no swift rollout of the vaccines – this could be as high as 124%.

The budget deficit is still likely to be £100bn per annum in 2024/5, or double the deficit in the previous 2019/20 fiscal year. To reduce this to £50bn per annum (the amount that debt can rise on an annual basis without the debt to GDP ratio increasing), tax rises or spending cuts of £48bn a year will be needed.

Nothing was said about tax rises or spending cuts at this stage, and thankfully they aren’t immediately necessary.

But there was some bad news in the public sector pay freeze, and the cutting of foreign aid from 0.7% of GDP per annum to 0.5%. Also, some £10bn also seems to have been lopped from departmental spending plans.

Despite positive news on defence and infrastructure spending, overall it looks like the first signs of another period of austerity appearing.

Tucked away in the small print was a change to the Retail Price Index (RPI), the old method for calculating inflation, that will be of interest to investors.

The plan is to change the main inflation index to CPIH, or the Consumer Price Index adjusted for Housing, that includes owner occupiers' housing costs.

The RPI measure has tended to be 0.8% per annum higher than the CPIH measure over time, mainly because the former is an arithmetic rather than a geometric calculation. RPI is used for calculating student loan interest, pensions, benefits and the interest on index linked Gilts, so the change will affect many people.

In future, owners of index linked Gilts will get increased interest and redemption values calculated on the lower CPIH measure. However, the Chancellor will only introduce the change from 2030, or ten years from now. There had been fears that the change could be introduced as early as 2025, so there was a degree of relief.

What is changing is the methodology. There will still be something called RPI, but from 2030 it will use the methodology of CPIH, and from that date both measures will in effect be the same, rather than RPI being higher each year.

It seems that for index linked Gilts maturing up to that date there was something in the small print restricting any change to the methodology of calculation. Nevertheless, the change means there may be Court litigation on the part of linker owners ahead.

The DMO, or Debt Management Office, has said it will continue selling RPI linked debt in future, so as to avoid a splintered market where some of the index linked debt is tagged to RPI, and some to CPIH.

Index linked debt was first sold in the early 1980s after the inflation splurge of the 1970s, and now comprises about a quarter of total UK government debt.

Doubts about the future calculation of RPI have seen sales of linkers drop to just 6.8% of total debt sales this year, compared with an average of 22% over the previous 20 years.

Whether the new-found clarity, and slightly lower long term returns in prospect, result in continued diminution of appetite for linkers remains to be seen.

But one would have thought that they will continue to prove a useful hedge against unexpected inflation for many people – even after 2030.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

There could only really be one subject for this week’s column.

At the time of writing on Friday it looks almost certain that Senator Joe Biden will become the 46th President of the United States, taking the office for the Democratic Party.

While the situation, widely expected, looked uncertain on election night, the impact of subsequent postal voting (the Democrat support tended to use absentee mail ballots rather than voting in person) has swung it round in Biden's favour.

Key ‘rust belt’ states, including Wisconsin and Michigan, returned to the Democrat fold, while Arizona, which has been Republican for over 70 years, turned ‘Blue’.

At the time of writing, it looks as if Georgia, Pennsylvania, and Nevada will also go Biden’s way.

President Trump will in all likelihood be litigating in several states, but while there may be the odd recount, this is unlikely to change the final result. The position may be unclear for a few weeks, but it is likely that when the Electoral College votes on December 14th it will be for Biden.

The real story is that the ‘Blue Wave’ failed to occur, and that the swing to the Democrats, and away from the Republicans, did not materialise.

The Republicans look as if they will hold on to the Senate, while the Democrat majority in the lower house, or House of Representatives, is actually reduced rather than increased as expected.

The Democrat lead as predicted by the polls looks to be massively overstated. Going into the election, even as recently as Monday, the lead nationwide was supposed to be well into double digits. In reality, Joe Biden has polled 2-4% more of the popular vote than President Trump.

The upshot is that, where we might have been talking about what a ‘post-Trump’ world would look like, the new world may not be so different from the old one. And it is certainly conceivable that Trump could run again in 2024, when he would be about the same age that Biden is at present.

Normally, at this point in the cycle, the outgoing President is referred to as a ‘lame duck’, on the basis that he has little time, and little opportunity, to achieve much in the way of policy.

However, at present it seems appropriate to wonder if Joe Biden will be a ‘lame duck’ President over the next four years.

It seems highly unlikely, at this stage, that he will have the votes or support to put through any of his campaign objectives, from $2 trillion in Green infrastructure spending, to increasing the minimum wage, to ‘packing’ the Supreme Court, to adding on extra states like Puerto Rico or the District of Colombia, to increasing corporate taxes back to previous levels, or to taking away the Senate powers of ‘filibuster’.

He will likely have to resort to ‘executive orders’, whereby the President can bypass Congress in the implementation of policy, as Obama and Trump did. He may even have to include some Republicans in his Cabinet, which would not go down well with the left wing of the Democratic Party.

So from a stock market point of view, there are clear advantages in the stalemate, or gridlock, which has resulted. Stalemate was the condition of the latter years of the Obama administration, and the second two years of Trump’s presidency, all of which saw the stock market performing well. This may be the case again.

At the same time, Joe Biden’s more conciliatory stance towards China, NATO and Europe, and more ‘internationalist’ approach to politics will go down well in global diplomatic circles.

In the short term, a Biden Presidency may not be great from a UK perspective, with the UK’s chances of getting a free trade deal with the US better under Trump than Biden. However, the outlook over this may improve with time.

The US stock market is up 7.5% over the past week. There were fears that a delayed result could result in a stock market rout, but the opposite has been the case thus far.

As we saw at the 2016 election, worst fears realised don’t always result in the movements in stocks anticipated.

From an investor’s point of view, the situation looks reasonably positive at present.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.