As we all grimly expected, the Covid 19 pandemic is now working its way through hotspots in the developing world.

We’ve heard about ‘challenges’ and possible under reporting in Russia but what about the other former Soviet Union nations?

Renaissance Capital put out a quick note yesterday on this subject, prompted by news that Kazakhstan intends to tighten its restrictions, with the possibility that Uzbekistan might be next. The table below sums up the local dynamics, but my attention was drawn to the one country in green (presumably doing well): Georgia, which seems to have contained the virus without country wide tightening. Worth noting that Georgia Capital, one of my adventurous favourites, still trades at a cavernous discount to NAV.

Next up Cannabis.

 Last year this sector was hot, but it obviously had a bit a downer as investors over reached. Then Covid came along and all bets were off. In the rebound the sector seems to have done OK. There are now two listed ETFs in London tracking this space in their own unique way – details are below. Note that in the last 3 months both have rebounded over 40%.

  • Rize Medical Cannabis and Life Sciences – TER: 0.65% – Ticker: FLWG – 1 month -3%, 3 months 41.8%
  • HanETF Medical Cannabis and Wellness – TER: 0.80% – Ticker: CBDX – 1 month -5.44%, 3 months 43.9%

Matt Bottomley at Canaccord over in Toronto keeps a watchful, experienced eye on the sector and his latest monthly note (Cannabis Monthly June 2020) reinforces a point I’ve been making for some time: – the Canadian equity scene is still over extended whereas the real growth potential is in the fast growing US market.

According to Matt, the Canadian cannabis names “generally under-performed during June, with our Canaccord Genuity Canadian Cannabis Index (CGCCI) down ~(8.9%) for the month with most Licensed Producers (on average) giving back a little more than half of their gains from May. In addition, our CGGCI underperformed the broader Canadian equity market and venture exchange in June, which were both up MoM by ~2.1% and 11.9%, respectively. “

News flow seems fairly sparse but what news did come out, tended to reinforce the overextended analysis, resulting in consolidation and rationalisation. For instance  Aurora Cannabis (likely the #2 player in Canada by market share) continued to announce various transition initiatives.

By contrast for the third month in a row, the Canaccord Genuity US Cannabis Index (CGUSCI)” in June outperformed its Canadian counterpart. Although our CGUSCI was down ~(3.0%) MoM, we note that over the past ~90 days, most US operators (particularly those that are adequately capitalized) have seen their valuations increase by >45% (on average) from their 2020 lows.”

Overall headlines were generally encouraging, with M&A continuing to track along; positive sales trends in Illinois’ newly enacted recreational market (which based on May data is now operating at a state-wide revenue run-rate of ~US$530M); and Michigan adult-use sales eclipsing medical contribution for the first time. It’s also worth noting that a majority of US operators received ‘Essential Service’ designations by state regulators (particularly for medical), and Matt notes that “ most companies in our coverage have not had any service interruptions to date”.

Last but by no means least ESG ETFs !

We’ve already commented that ESG funds have had a great crisis but the winning streak was always likely to end sooner or later.

Evidence for this turns up in a report by SocGen’s ETF team r looking at the latest creation and redemption numbers: Japanese equity ETFs are a surprise winner (at long last) but net inflows on ESG ETFs were the lowest ytd.

A report out this week from analysts in the US for DB spells out why the positive momentum is flagging. Their analysis is in a report entitled “ESG through the pandemic” which shows that investors “have severely curtailed their investment into ESG funds over the last three months”. Two other highlights from the comprehensive report:

  • Suddenly everyone cares about employees! “At the beginning of 2020, the hottest ESG topic was climate change. Since the covid-19 outbreak, that has been supplanted in the US by ’employee wellness’ (up 48 per cent) and ‘accounting practises’ (up 38 per cent). Other ESG topics that have increased in prominence are ‘supply chains’ (up 18 per cent) and ‘social inclusion’ (up 16 per cent). Net flows into ESG-themed ETFs have more than halved since the virus outbreak.” My emphasis added
  • ESG outperformance continues, sort of. “In terms of performance, European and Japanese funds have outperformed their respective markets, whereas the performance of US and ‘Global’ funds has been closer to that of their markets European and ‘Global’ ESG-themed ETFs have significantly different holdings compared to the benchmark in their respective markets”