Monthly Letter — November 2022

The Bloomberg US Aggregate index company comprising a range of dollar debt has dropped by around 13% so far this year— it’s worst year in decades. And the real insult is that bonds have failed in one of their most basic tasks in a portfolio: they have fallen at the same time as stocks.”

— Katie Martin, Financial Times

As 2022 draws to a close, we reflect on a time where the only constant has been uncertainty. It feels like a while ago, but the year started with Covid-19 infections at all-time highs, fears of the new Omicron variant, and countries around the world rolling out their vaccination programs as quickly as possible. In February, our attention quickly shifted to the Russian invasion of Ukraine, and the potential for a global conflict which could involve nuclear weapons. Inflationary rates at 4-decade highs were the next topic of discussion, with market participants arguing whether it was transitory or permanent in nature. As a natural response, we saw central banks around the world enter a rate-hiking phase, at a pace not seen before by anyone under the age of 42 years old.

Back to the here and now. November closed with the European Central Bank’s council weighing the risks of growth and inflation in the region. At 10%, price pressures are well above the ECB’s 2% goal, however retail sales have been falling. Public stock markets have taken their most severe hits in a generation or more. Geopolitical tensions are on investors’ minds — with a myriad of difficult scenarios.

In contrast, we have seen that emerging economies have coped with rate hikes surprisingly well. That is in stark contrast to the early 1980s when Latin American countries fell behind on their dollar debts, plunging them into a crisis. Next came Mexico’s “tequila crisis”. And then the 2013 “taper tantrum”, panicking foreign investors who bailed out of Brazil, India, and Indonesia. It has been pointed out that the fundamentals for many emerging markets are now demonstrating decent growth, bigger reserves and “deeper capital markets”. Sounder fundamentals have helped emerging markets defy history, but “vigilance” is the watchword.

In response to the ever-changing world around us, at AGC we continue to do what we know best — supporting small-and-medium sized businesses around the world, particularly women owned businesses. Irrespective of what the macro-economists say, the livelihoods of many small business owners are dependent on being able to access affordable working capital solutions.

Recently, during an investment trip to some of our partners in Latin America, our Investment Director observed an even higher need for working capital. Local bank funding has dried up post-Covid. Businesses are now having to revert back to pre-Covid normalities, where traditional funders have large collateral requirements, inflexible funding solutions, and bureaucracy resulting in unnecessary time delays. More now than ever, local businesses are looking for fair access to finance from international funders. AGC is perfectly placed to work with our financial partners to provide this support when it matters most.

In investor news, during November we onboarded a new European investor — a private family office with capital that originates from two young entrepreneurs who started their fledgling online retailing business as students a number of years ago. Now, operating as an international online retailer with headquarters in Benelux, the company offers a large selection of every-day consumer products — from home and garden items through to furniture and sporting goods.

We also recently welcomed an additional investment from one of our very early investors — a former Capital Group colleague of our founder and an early supporter of her vision to get financing into the hands of SMEs all over the world. In the early days, a small group of Janet McKinley’s friends and former colleagues provided catalytic capital and made a demonstrable contribution in enabling us to embark on our mission — we remain ever grateful. We look forward to further extending our reach as investors join us in support of small businesses around the world run by hard-working women.

In other news, we are delighted to announce that we have become members of the 2x Collaborative, a group of the world’s leading investors committed to investing with a gender lens.

For the upcoming holiday season and the New Year, we would like to wish you all the very best. Due to public holidays, our office in London will be closed on December 26th and 27th and January 2nd. We will be reachable at all other times.

Regards,
Sudha

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