Written by Charlie Thomas, CIO and Co-Manager of the EdenTree Green Future Fund
The horrific events in the Middle East in early October have added significant uncertainty to the backdrop for geopolitics, the global economy and financial markets.
The conflict has already influenced the stance of the US Federal Reserve, which has indicated a pause in its rate hike cycle, taking some of the heat out of the bond market. However, tighter rate policies are already crimping demand in the UK and Europe, and potentially higher oil prices caused by the Israel-Hamas conflict are likely to be a further drag on economic activity.
For investors, the risks of further bouts of volatility remain high, and we continue to maintain an elevated cash buffer in the EdenTree Green Future Fund that will provide a level of optionality should assets become mispriced.
We are also monitoring the possible fallout of the political uncertainty in the US on the delivery of Biden’s flagship IRA policy, as well as the politicization of environmental initiatives in the UK, where the Government’s green policy U-turns appear irresponsible.
Moreover, we do not expect meaningful progress at the forthcoming COP28 conference in UAE, with debate likely to centre on what a “phase-out” of fossil fuels might actually involve. The term “unfettered” has become more entrenched in discussion about the future of fossil fuels on the back of strong industry lobbying for great reliance on yet-to-be proven carbon capture and removal technology. The glacial progress on loss and damage will also be a key subject of debate at the climate talks.
This backdrop has provided a reminder that the green revolution will be far from linear, but it remains firm, in our view.
