This is not the first time we have written about moral hazard in the context of marginalising, if not completely discriminating against, sections of society. But thanks to resurgent Covid, even before Omicron was discovered, in the last three weeks the process has suddenly accelerated. Alongside the widespread re-introduction of general curtailments of freedoms in Europe in response to the rapid spread of the Delta variant potentially overwhelming national health systems (to which the complicating factor of Omicron has only added urgency), a sharp focus has been placed on targeting those who are either unvaccinated or who are unable to produce proof of vaccination.

 

First, in countries such as France, the Netherlands and Belgium, it was to make it increasingly difficult for those people to socialise publicly or travel on public transport. Then Greece, Austria and Germany took steps to make it a criminal offence to refuse to be vaccinated, a move supported by EU Commission President, Ursula von der Leyen and her appeal to EU member states that such measures should be applied across the bloc. Elsewhere, in the United States, the outgoing Mayor of New York has introduced new policies prohibiting unvaccinated New Yorkers from being able to attend their place of work (that on top of President Biden’s decree several months ago that all public sector workers’ employment was conditional on being vaccinated—“no jab, no jaaab”). In the corporate sector, it was reported that the international mining company Anglo American declared that in the new year, any unvaccinated employees, or those refusing a vaccine, would be sacked.

 

In most of these cases, there has been no public consultation and there is little carrot on offer, merely a great big stick (though Boris has intimated the need for a ‘national conversation’ as to whether vaccination in England should be compulsory). While many will resent the impositions, there will be others who fully support them. A canter through the letters-to-the-editor columns of any quality broadsheet newspaper in the UK will find plenty of informed comment both in favour and against. But on whichever side of the argument one finds one’s sympathies, what should be troubling everyone who lives in a democracy is the rapid and, in many cases, prolonged erosion or suspension of civil liberties by diktat, and the consequent cumulative effect of the democratic deficit. We have already seen swift backlashes to such draconian measures on the continent as demonstrations in cities such as the Hague, Brussels and elsewhere turned violent and, in one case in Holland, not only were such abatement measures as water cannon, tear gas and baton rounds used to control demonstrators, but live ammunition too, a dangerous development on every level.

 

It is literally the case that governments play with fire under such circumstances, and it is unusual for there not to be a political reaction. But the long-term corrosive effect is that, as the democratic deficit widens (and there will be many complex factors contributing to it such as migration, or the economic and social divisions created between the ‘haves’ and the ‘have-nots’ arising from the asset inflation from a decade’s worth of quantitative and ultra-low interest rates, a policy determined by appointed central bankers not directly accountable to the electorate) and voters feel increasingly disenfranchised, disillusioned and dismissed, so politics tends to become more and more polarised, both to the right and the left. The potential outcomes become less predictable. In the UK, Brexit was arguably the result of such reactions.

Investment perspective: the pernicious effect of politics 

From an investment perspective, does this matter? Certainly. Whatever is laid out in manifestos, it is governments’ actions which set the tone, and such tone will most usually be reflected in economic, fiscal and international policy.

 

In Greece and Italy, the near economic anarchy and fiscal incontinence arising from unstable political systems and a succession of populist governments all in their own peculiar ways tending towards the unhinged, have both had a profound effect on eurozone monetary and fiscal policy. In the US, on the political right the phenomenon of Trumpism led to his trade wars with any major competitor which threatened US jobs and which had a trade surplus with the US (China, Japan, Germany, Mexico); latterly on the left the increasing influence of such socialists as Bernie Sanders, Elizabeth Warren and Alexandria Ocasio Cortez helping drive the ‘progressive’ domestic social reform agenda with all the connotations for taxes and accumulating national debt. In France, taking a concerted rightwards lurch as the left crumbles, an upswing in French nationalism is dominating the agenda and political positioning ahead of the April Presidential election; depending on the outcome, France’s relationship with Brussels may be called in to question. In Germany, the very first policy of the new left-leaning Traffic Light Coalition installed this week is likely to be criminalising a not insignificant minority of the population for exercising their right to choose not to have an anti-viral cocktail jabbed in their arms: is this setting the tone of a liberal administration or one prone to repression and centralised control?

 

As with so many macro forces, the effects might be imperceptible. But make no mistake, over time, they are reflected in the pricing of risk (the US 10 Year government bond is the recognised global proxy for the accepted ‘risk-free’ rate of return: i.e. the rate of return investors expect from a riskless investment of 10 years’ duration; the current yield is 1.48%, nearly a point-and-a-half higher than the Federal Reserve deposit rate). One should not underestimate the high-level investment impact of the long-term social and political as well as economic effects of the pandemic, and how governments have reacted to it.

 

The Jupiter Merlin Portfolios remain long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.

The value of active minds – independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

Fund specific risks

The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. The Jupiter Merlin Conservative Portfolio can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolios’ expenses are charged to capital, which can reduce the potential for capital growth.

Important information

This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. For definitions please see the glossary at jupiteram.com. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Company examples are for illustrative purposes only and not a recommendation to buy or sell. Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ are authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM or JAM. 28365