To create change, investors need to commit to action
Canada is spearheading the launch of an alliance of global institutional investors that collectively manage more than $6 trillion. The goals of this as-yet unnamed group, tagged a “G-7 leadership initiative,” are to boost commitment to global progress on climate change, infrastructure and gender equality. Noble causes all, but none are within the sphere of competence of the admittedly powerful co-sponsors. They include investing giants Caisse de dépôt et placement du Québec, the Ontario Teachers’ Pension Plan Board (Teachers) and the California Public Employees’ Retirement System (Calpers). Calpers, once the gold standard for shareholder activism, has retreated to a sole focus on investment returns.
It’s a fair guess that the dozen or so players in this group will fall short of achieving much of consequence in their targeted challenges, given their indifference to meaningful change in a field in which they do have competence: corporate social responsibility (CSR). The Caisse, Teachers and kindred spirits routinely take the “Wall Street walk” of simply selling stocks in firms whose morality is suspect, rather than digging in for a fight against misguided CEOs and their abettors on boards of directors.
If it’s to achieve relevance, this amalgam — endorsed by no less than Prime Minister Justin Trudeau — is best advised to redouble its CSR efforts. It could use its large equity stakes in the likes of Suncor Energy Inc., McDonalds Corp. and Royal Bank of Canada to push for expanded Suncor investment in alternative energy, for instance, or wholly nutritious food at Mickey D’s and gender equality in promotion at the Big Five banks. The cudgel would be threatened votes against overly generous executive pay packages if substantive CSR progress isn’t forthcoming. U.S. Fed rate hikes should help Canada Watch for the U.S. Federal Reserve Board to raise its benchmark lending rate this week at its next policy meeting. And it’s likely we’ll see two more Fed hikes this year.
The U.S. central bank doesn’t have much choice.
The U.S. economy is on fire, by the standards of mature economies, with torrid GDP growth of 4.5 per cent in Q2.
The jobless rate, at 3.8 per cent, is well into full-employment territory, the point at which there’s upward pressure on wages, and shortages of skilled labour become acute.
Higher U.S. interest rates will, of course, drive up borrowing costs at home and abroad — bad news for slow-growth economies India and Indonesia, whose central bankers have asked the Fed to be cautious about raising rates.
Brazilian industrialists in that currently troubled economy have voiced the same concern.
But the Fed, while listening, is compelled to raise borrowing costs in order to contain domestic U.S. inflation, which by some measures has overshot the same 2-per-cent threshold used by the Bank of Canada. Whatever concerns Fed chair- man Jerome Powell has about damage to America’s export markets are tempered by his belief that the effect of U.S. monetary policy on emerging markets is “often exaggerated,” as he reiterated in Zurich last month.
Higher U.S. borrowing costs will further strengthen the greenback at the expense of the loonie. That should make Canadian exports, sold mostly to the U.S., more price-competitive. That might not be enough to offset the damage done to Canada’s steel and aluminum sectors by the Trump administration’s steep tariffs imposed this month, but it will help ease the losses.
Five factors that could spur global growth Investing guru Mohamed A. El-Erian helpfully identifies five threats to global growth over the next year or two. In the latest edition of Bloomberg Businessweek, the former CEO of Pimco — the California institutional investor that manages about $1.7 trillion (U.S.) — cited these worldwide problems: public distrust in political leaders; policy paralysis among leaders lacking the resolve to tackle tough issues; poor understanding of challenges such as chronically sluggish productivity growth; the post-Great Recession withdrawal of central banks from protecting the financial markets from themselves; and the spectre of trade wars.
Now let’s consider some factors that could boost global economic growth.
1. China opens at least some economic sectors to unrestricted — that is, genuine — foreign competition. For instance, offshore investment would no longer be tied to partial Chinese state ownership.
2. The European Union thinks twice about rejecting the approximately $380 billion (C) in debt relief requested by Italy’s new populist coalition government, whose planned economic stimulus could finally pull the country out of its 18-year stagnation in per capita GDP growth.
3. The British Parliament rejects the Brexit deal negotiated by Prime Minister Theresa May’s government, triggering a second referendum on EU membership. The sensible outcome to be expected from another vote would remove the spectre of a U.K. breakup, boost foreign investment and strengthen the pound, reversing the post-Brexit rise in the cost of living for everyday Britons.
4. Bitcoin, dubbed “rat poison squared” by Warren Buffett, goes away, freeing up money and mind-space for constructive activity.
5. U.S. President Donald Trump abruptly resigns, citing understandable exhaustion, and about two-thirds of the economic uncertainty on the planet disappears with him.