Axa will no longer invest in the tobacco industry: the French insurance giant will sell €184 million of shares and gradually reduce its €1.6 billion bond holdings in the sector. No surprise, given Axa’s role as a health insurer and the oft-repeated statistic that smoking kills six million people a year; indeed, you might think any health-related investor would have taken the decision years ago. Except that cigarette-makers have been stellar stock market performers since the beginning of the century: British American Tobacco’s shares have multiplied in value a dozen times while paying rich dividends, and Imperial Tobacco (now Imperial Brands) has been almost as good. MSCI’s global index of tobacco shares has outperformed equities generally three times over for the past decade.
And that creates a conundrum, especially for pension-fund managers. Tobacco is legal; smokers persist, of their own free will, despite health warnings. But to the extent that smoking has declined in the UK and other parts of the developed world, it is a factor in the rising longevity that challenges the pensions industry. Funds need high-yielding investments in order to pay out for longer, but those such as Calpers (the Californian public workers’ pension scheme) that took an early decision to shun tobacco measure the opportunity loss in billions.
Axa ducked that issue by arguing that tobacco is a ‘sunset industry’ because ‘more and more countries are going to put controls on it’. Health campaigners, by contrast, talk of a ‘global epidemic’ driven by lack of controls and health warnings in the developing world. The heaviest consumption is in China, the former Soviet bloc and southern Europe (with far more women smokers these days) and other emerging nations are ripe for exploitation — for example, by selling cigarettes one at a time rather than in packs, to capture younger and poorer customers. Far from sailing into the sunset, Big Tobacco (which is also investing heavily in ‘vaping’ for western markets) almost certainly has another decade of high returns ahead.
Prominent investors like Axa that are conscious of their ethical reputation may divest, but hedgies, libertarians and those who keep their investment choices quiet will continue to buy and hold. The fact is that top-performing portfolios are highly likely to have tobacco in them; the successful fund manager Neil Woodford keeps BAT and Imperial among his largest holdings and once said that his biggest mistake was not to have bought more. If you’re troubled by the idea of funding your retirement by passive smoking, as it were, then I suggest you quiz your wealth manager as to exactly how much of it is hidden behind all those opaque fund products he’s put your money in.
Europe’s real flashpoint
On the European front, we have all made the mistake of taking our eyes off Greece. Here, Remain and Leave bombard each other with bogus stats and scare stories; in northern Europe, they shake their heads at the Brits and worry about the rise of the right; to the south, Spain is the shining recovery story. But Greece? That problem was parked — wasn’t it? — when the third bailout was agreed last summer.
Not so. We seem to have forgotten the unshrinking mass of debt, the reluctance to enact reform, the bitter resentment towards Germany, and the differences of view between IMF officials looking at objective reality and EU negotiators determined to keep the single currency intact. These factors, festering all the while, came into the open again this week when eurozone finance ministers met in Brussels.
On their table was the IMF’s ‘preliminary debt sustainability analysis’, which dismisses the possibility of Greece achieving the 3.5 per cent primary GDP surplus that was assumed in last year’s bailout formula; even 1.5 per cent would be a stretch. On current indications, says the IMF, Greece might end up with ‘gross financing’ costs of 60 per cent of GDP by 2060 — and it’s obvious that this impossible trajectory can only be altered by deep debt relief, which Germany refuses because it equates to direct fiscal transfer. The flashpoint for the tensions that will one day break the European project apart is not in Vienna or Paris or on Boris’s battlebus, but where it has been since 1 January 2001, the day Greece was fraudulently ushered into the euro.
Better hair day at ITN
I applied to be economics editor at ITN but I gather I was rejected on grounds of balance: they were looking for someone with better hair than politics editor Robert Peston. That must explain the appointment of Noreena Hertz, an academic with striking looks but minimal broadcasting experience. This former ‘Miliband fellow’ at the LSE had her previous moment of fame in 2001 as the author of The Silent Takeover: Global Capitalism and the Death of Democracy. In the era when trade talks and summits from Seattle to Genoa were regularly disrupted by protests against corporate evil, Hertz’s book played to that theme and staked a claim to radical sisterhood with Naomi Klein, the Canadian activist who was the nearest thing to a thought-leader of the anti-globalisation movement.
But their collective message never amounted to anything more substantive than the slogan on Seattle rioters’ placards which called for capitalism to be replaced by ‘something nicer’. Then, a few months later, came 9/11. Thereafter the anti-globalisers gradually fell silent, their obsession with ‘the exploitative power of global brands’ exposed as self-righteous attention-seeking in a world of far darker threats — while weightier thinkers such as Martin Wolf (Why Globalisation Works, 2004) elucidated the case for capitalism’s defence.
I’d have to say it has never occurred to me to wonder what Noreena was thinking about the big issues of the intervening years. But who knows, perhaps she and Pesto will become the Richard and Judy of the bienpensant metropolitan left.