At The Turn of ’23

We’re at the halfway stage for 2023 already and it’s been a busy year thus far, particularly if you’re Andrew Bailey.

Performance wise, we’ve seen the FTSE 100 lose around 1% of its value, the FTSE 250 is down by 4.5%, whilst across the Pond the Dow Jones and S&P are in a very different place, up by 3% and 15% respectively! (maybe that’s an unfair comparison though, as the S&P is pretty well governed by tech stocks, with 25% of the index weighting governed by just 7 tech companies).

In the FX market, sterling is up over 4% year to date against the dollar and about 3% versus the euro. The best performing currency globally is the Colombian peso, which is up 17.5% and at the other end of the spectrum, you’d be hard pushed to choose between the Turkish lira or the Argentinian peso, which have both shed about 30% of their value in the last six months – expand that timeline to five years though and Argentina is the bigger loser, having lost 90% of the currency’s value to the dollar, compared to Turkey at 80%.

In the M&A space, deals that involve UK companies are down by more than 50% compared to last year and are at the lowest levels since the first half of 2016. This isn’t just a UK issue though, but as appears to be the trend of late we’re getting the worst of it! Globally deal volume is down by almost 40%, though they’ve still managed to get $1.3trillion in transactions over the line. This is being driven by two factors; rising rates making costs of capital higher and therefore the crazy valuations and blank cheque investments that were prevalent a couple of years ago just aren’t there anymore. There’s also a negative feedback loop in the PE space, where IPO’s have slowed down, which means cash isn’t getting released back to PE firms to make other investments and buy from other funds, which in turn ties up their cash and prevents them investing.

In other news: Thames Water are bringing in Sir Adrian Montague as chairman and hoping his skills can help to get them back on track. Sir Adrian is an incredibly safe pair of hands, having led FTSE100 companies, led previously tricky turn arounds and was previously dubbed Gordon Brown’s most trusted advisor. As a bridge between government and industry, the hope is that he can work with shareholders and bondholders to avoid the company being nationalised (whether temporarily or permanently).

Staying in the City

The Bank of England has laid out some proposals on reforming insurance industry regulations. It’s a complex and contentious situation, but the long and short of it is that the government want to relax rules that were carried over from our time in Europe which would unlock tens of billions of pounds that could be invested in UK infrastructure projects – which sounds great, but is certainly not without risks and previously the Prudential Regulatory Authority were at loggerheads with the government about the extent to which rules should be relaxed, but have been overruled by the Treasury (so what could possibly go wrong?!). The Times has a lot more detail on this and we’d expect this to be a big subject of debate as further plans are laid out later this year.