Don’t say ‘just don’t go online’ because adults wouldn’t do that if something happened in the real world. If you got followed home, it’s not like [they would say]: “Hey, stop leaving the house.” Help the person understand that it wasn’t their fault and try to help them through it – be a shoulder to cry on, but don’t try and affect their social life personally. (15-year-old girl)
Young people are often reluctant to involve adults in their online lives. Many fear that parents and teachers will misunderstand or “overreact” in response to what they mostly regard as normal, unproblematic behaviour and experiences. Others say they are frustrated by adults who “trivialise” their experiences.
Over the past eight years, I have had extensive discussions with (mainly) teenagers from a diverse range of social and economic backgrounds, ethnicities, sexual orientations and genders about their experiences of social media and messaging apps. A lot of those I speak to initially try to downplay any issues. They make it clear they like being online and know how to handle any problems that may come up.
But when I ask them to tell me more about these problems – while remaining neutral and interested rather than appearing judgmental – it’s almost like the floodgates open. They want to talk about the things they don’t like and struggle with; they just worry that they’ll get into trouble if they are too honest.
Some describe a relentless stream of abuse and hate that can “ruin” the experience of being online. One 14-year-old girl says there is “so much sexism, racism, homophobia” which she thinks is wrong, but at the same time just an inevitable part of being online. A 14-year-old boy discloses: “Sometimes they’ve been racist to me … Racist comments [in] messages from other people.”
Some LGBTQ+ girls tell me about the extent of hate they experience online:
[There’s] a lot of bullying … it’s coming from both adults and other children, [even] in safe spaces. There’s group chats online where people are added and it’s purposely [so people can] hate them.
But they also point out that “in the real world”, people don’t accept their sexuality and gender identity either. Most still want to stay online despite the risks because at least there is the chance of connecting with like-minded others. Yet they often seem quite despondent about how to support each other online and challenge bad behaviour, knowing it’s risky to do so.
Similarly girls, and boys too, seem almost to have to accept being sent unwanted and unsolicited sexual content as a condition of being online. “I think you just sort of keep quiet about it,” one 12-year-old girl tells me, suggesting that calling out such behaviour could have awful consequences if the sender then tells their friends.
What’s clear from all my discussions is that most young people regard reining in the big social media platforms as only part of the solution. They see the issues as social in nature – going beyond just being an online problem but as part-and-parcel of their wider lives. As one 14-year-old girl puts it: “It’s not social media which is the issue … it’s society and how we are taught.”
Legal but harmful
The content of the UK government’s new Online Safety Bill is both complex and controversial. The reported removal of a section dealing with “legal but harmful” content published by the largest and “highest-risk” social media platforms has attracted widespread criticism in some quarters, but strong support among those who regard the bill – which must be finalised by the summer of 2023 – as a threat to free speech.
In theory this measure relates to adults, as children are already protected from viewing harmful material by “under 18” gateways. However, many of those criticising the removal of this section are still deeply concerned about children’s ability to view legal but harmful content.
The coroner’s report into the death of 14-year-old Molly Russell in November 2017 concluded that her viewing of social media content had contributed in “more than a minimal way” to her death. The senior coroner, Andrew Walker, said the material Russell had viewed “shouldn’t have been available for a child to see”. In response, her father Ian Russell suggested that social media firms should “think long and hard about whether their platforms are suitable for young people at all”.
This story is part of Conversation Insights The Insights team generates long-form journalism and is working with academics from different backgrounds who have been engaged in projects to tackle societal and scientific challenges.
There have been numerous other examples of young people coming to harm as a result of online experiences including after being bullied or having sexual images shared online. According to the UK’s media regulator Ofcom, more than a third of children aged eight to 17 have seen something “worrying or nasty” online in the last 12 months, while one in three lie about their age to access adult-rated content on social media. Consuming content on video-sharing platforms such as YouTube and TikTok is the most popular online activity for children, with 31% having posted content they’ve created – most commonly on TikTok.
Social media platforms have age restrictions but most lack robust mechanisms to enforce them – the user just has to enter a date of birth, which they can make up. The Children Commissioner’s 2020 survey found that over half of children aged 11 to 13 and over a third of those aged eight to ten reported using platforms despite not being old enough.
Of course, children and young people (my term for 13 to 17-year-olds) vary a lot in how they talk about the issues and in their levels of critical awareness and digital literacy. But in this “post-digital era” where the use of social media is taken for granted by children as young as 12 and in some cases ten or younger – hearing their perspectives is a critical part of understanding how best to monitor and regulate the online landscape. In this article, children and young people talk candidly about what they think the most pressing issues are – and how they want to be supported as they navigate the risks that can arise.
Everyone has perfect makeup and perfect bodies and you think: why isn’t that me? (13-year-old girl)
The idea that online spaces can be fun, informative and uplifting but also fractious and divided has emerged time and again in my discussions with young people. Some girls have been quite animated telling me about the fun they have with each other sharing dances and lip syncs on TikTok “around the world”, with the aim of “trending” and reaching as many viewers as possible.
Many are quite dismissive of any negative impacts, and breezily say that it’s just about enjoying themselves. They maintain that online spaces can include more diverse representations and “body positive” content, while pushing back against fears over narrow concepts of beauty and overly curated lifestyles.
But they also describe seeing streams of abuse and “shaming” as they scroll through posts and comments – some of which is directed toward them personally. Girls tell me about being “hated on” including about their bodies and appearance:
The way I’m dressed: people will just tell me to go kill myself and slit my wrists but it’s just something you can’t escape. If someone dresses in a smaller dress or with cleavage showing, they are called a slut and told they’re asking for it. However you look, you’ll be made fun of for it.(15-year-old girl)
Even those who think such comments are funny or insignificant at the time can be worried about digital footprints and so-called “cancel culture”:
If you said something maybe a couple of years ago … people will bring that up now and then, like, cancel you for it. They will constantly hate on you [even if] your opinion on it has changed … I know now from when I was young my opinions on many things have definitely changed. (15-year-old girl).
Many of the girls I speak to suggest this “toxic” environment is more of an issue for vulnerable girls who may “get anxiety” or develop an “eating disorder”. But as we talk more, some admit to struggling themselves and, like this 15-year-old girl, can seem quite downbeaten by it all:
People might see someone online and compare themselves – and think they need to lose weight and start changing their eating habits. Then gradually it becomes like a routine – they start changing their eating habits and then it can sometimes become so extreme.
Among the most commonly expressed fears for young people today is that teenage girls are being exposed to relentless images of the “perfect body” and pro-diet culture messaging on social media – and that this is damaging their self-esteem and body image.
One group of 13-year-olds I speak to seem quite conflicted – they want to present themselves as “savvy” about what is and isn’t real, and the way that people use social media to portray “perfection”. They are perfectly aware that what they see online isn’t “real” – that it constitutes the “highlights reel” of someone’s life. But they also look quite despondent when talking about how it makes them feel about themselves personally:
You see a lot of people who look so pretty and perfect but it’s so hard to tell because they’re on social media and they could have used Photoshop or filters. And then you kind of look at yourself in the mirror and you’re like, I don’t look like them.
The role of adults
In my work with young people, I’m mindful of not simply listening uncritically to what they say. While I need to be non-judgmental and open-minded if I’m going to get them to open up, I also need to try to make sense of the ways that young people may themselves behave in harmful ways online, either putting themselves or others at risk.
Many of those I speak to seem to think it’s just common sense that involving adults is not desirable. These 15-year-old girls explain how differences in what adults and young people think is “normal” and “acceptable” can close down dialogue:
A lot of adults have strong opinions about sharing things with other people online. If they don’t approve of sharing pictures and stuff, they think that’s bad – but, like, it’s normal and a good way to have a good time.
I think they’re not very familiar with how we use modern technology. Adults might have heard of, say, a bad incident that happened with one particular person. But I don’t think that means the app generally is unsafe.
In the right environment, however, many young people do want to talk about what they see and experience online. Like this 15-year-old girl, they want to be understood and taken seriously:
If you go and tell a teacher, sometimes they might not take it seriously because it’s, like: “Oh, it’s on the internet – it’s not affecting you in real life.” [So] they don’t think it’s a problem.
Few appear to think the solution is coming offline altogether. Well-worn narratives of “stranger danger” shape implorations from adults to ensure social media profiles are private and that young people only speak to those online who they already know offline. Yet such advice is completely contrary to the way in which meeting new people online is, rightly or wrongly, an entirely normal way for young people to expand their social circles:
I followed mutual friends and started replying to their stories: “Oh, you look pretty, this and that.” And then I got added into group chats and you had a laugh … It’s nice to get to know new people. (14-year-old girl)
During lockdown when otherwise unable to spend time with people, this 17-year-old boy says he was especially thankful for being able to meet new people online:
[During the pandemic] everybody was so far apart, it didn’t really matter where someone lived … because you couldn’t see them. I got to meet a lot of people through social media that I didn’t know in person.
The Office for National Statistics (ONS) found that 30% of children aged 10-15 in England and Wales have accepted a “friend request” from someone they don’t know, and 17% have spoken to or exchanged messages with someone online who they’ve never met in person. Around 2% say they have done so with someone they thought was their age but later found out was much older, and 5% have gone on to meet up with someone they first communicated with online.
But the interplay of risk and reward means young people don’t simply want to be told not to interact with new people online. They consider this advice a “scare tactic” and seem frustrated about such messages:
School has taught us to understand the dangers but I think it comes with some kind of self-assessment when you’re actually talking to them. Otherwise, if you don’t add anyone and you don’t get to meet new people online, then you’re stuck with the people that you already know so you can’t expand your social circle. (16-year-old girl)
Many young people say they feel more confident and comfortable when talking to new people online than “IRL” (in real life). Some also feel that online communication with friends provides freedom from the usual pressures and scrutiny – for example, as one 14-year-old boy confides, when developing romantic interests because “online it is more private”.
But the same boy goes on to say that communicating online can be risky because “with your messages … that information gets passed around”. Many I’ve spoken to, both girls and boys, seem conflicted about the potential harms of using social media. But they don’t want to give up the benefits just to avoid the risks.
How young people feel about sexual content
While most young people are more reluctant to talk about their experiences of sex online, this does also depend on whether they will be judged for doing anything “wrong”. Once reassured, many talk quite openly about being sent unwanted and unsolicited sexual content – perhaps because they think it’s not their fault and can’t be told off for it.
Many seem almost resigned to being sent unwanted and unsolicited sexual content. The notorious “dick pic” – mainly sent to girls both by boys they know and, worryingly often, by older men they don’t know – is something that some girls have got used to. They are often visibly frustrated, angry and disgusted by these experiences and want to get them off their chest:
On Snapchat where you add someone and before you start a conversation, they’ll just send explicit photos. (15-year-old girl)
I feel like the girls have just gotten used to it [being sent dick pics], and it’s really disgusting to see. (14-year-old girl)
According to the ONS, 11% of children in England and Wales aged 13-15 report having received a sexual message (69% in the form of a photo or image) in the last 12 months. Girls aged 13-15 are significantly more likely to have received sexual messages than boys (16% vs 6%).
Reporting rates are low. Young people tend to just block the sender if it’s an older stranger – easy enough because “it’s done with”. But then, as one 14-year-old girl says: “It plays in your head for a bit [because of] the amount of times it has happened.”
If it’s a boy they know who has sent the message or picture, it can become complicated because of their concerns about boys “getting annoyed” if they report it and get the boy into trouble. Here, I often see more embarrassment and awkwardness – even among very young girls:
I think you just sort of keep quiet about it [and] try to avoid them … Imagine if they go to their mates [to say you’ve complained] – it’s really awkward. (12-year-old girl)
If they find out you reported it, they have a go at you saying: “Oh my god, you’re too uptight, why would you do this to my mate?” … And then it would go round school and I would think: “Maybe I am too uptight.” (16-year-old girl)
Many girls say they have to deal with being asked for nude images – risking being abused by a boy if they say no, and shamed and ostracised by peers if they say yes and then the images are “leaked”. There’s the familiar double standard that boys take pleasure from these images while the girl carries the risk:
It’s almost like an ego or self-confidence thing. If you were to say no to doing something then they’ll pin that on you, instead of [thinking] what they did was wrong. Then they’ll insult you or say something just to give themselves more confidence again. (16-year-old girl)
Ironically, some girls tell me about learning from TikTok videos how to refuse nude requests in a light-hearted way. Some describe fake boyfriend snaps as “lifesavers” – they feel that while they do not expect boys to respect them, they will respect another boy. These girls are almost laughing and joking around as they recount using these techniques, despite knowing it is a problem that they cannot just say no.
The Conversation is commissioning articles by academics across the world who are researching how society is being shaped by our digital interactions with each other. Read more here
And while it’s often assumed that boys are happy to consume porn, a lot of the boys I’ve spoken to – aged 12 and upwards – don’t like being sent this content and, like the girls, just block the senders. When I’ve spoken to boys about porn more generally, I have found lots of nuance and variation in their perspectives. They often want to talk at length about the confusion and insecurities they feel.
Many seem quite innocent in how they talk about what they are watching, which is a contrast from the nature of the porn they describe seeing and the regularity with which they are watching it. They are worried for themselves, it seems, but don’t know how to make sense of it or where to go for help.
The role of algorithms
Many young people bemoan the social media algorithms and platform design features (also known as “affordances”) that make trying to stay in control of their online experiences so difficult. Some suspect that algorithms “elevate” the most argumentative and abusive content and exchanges, and want social media companies to do more in this regard:
Social media platforms should be more strict with people. There are all these bad comments but [the people posting them] don’t get punished. (15-year-old boy)
However, many of my interviewees point out that the algorithms are “gamed” by young users, and appear fatalistic that such issues can ever be solved:
There’s a setting on Twitter where you can block certain words to reduce the likelihood you might see this stuff … but they don’t count out the synonyms.“ (15-year-old girl)
The dynamics of "likes” and “follows” reinforces the idea of there being an agreed-upon standard for aspiration. This 13-year-old boy is almost cynical in his exasperation about how social media works:
It’s a cycle. Once that person’s likes rise, unless they do something really stupid or something that a large majority of their fans or followers disagree with, then they’re going to keep rising. It’s a bit of a cycle – it’s quite subconscious: “Oh, I should like them.” And then that amounts to another like and then another person says: “I wish I had got even more.”
Young people think that the design of the platforms motivate people to engage in negative behaviour online to gain likes and follows. Those I speak to seem to think this is common but also annoying and unhealthy:
People like to post [school] fights in their [Snapchat] stories just to get views … so more people see it. (15-year-old girl)
Many understand that this can promote unreliable content-sharing and “fake news”, because people “want to start something big and they want everyone to be discussing it … people can twist the headline around, make it look more eye-catching …” (12-year-old girl)
Some say they try to make decisions about the social media they use to avoid content and people that cause problems. According to Ofcom, while most 12 to 17-year-olds are confident they can tell what is real and fake online, only 11% correctly selected the components of a social media post that were genuine, and 22% of 12 to 17-year-olds were unable to detect a fake online social media profile.
Overwhelmingly, though, most young people tell me that introducing more regulations for the major social media platforms can only ever be part of the solution for the issues they encounter. They don’t just want technological solutions but broader solutions regarding the way people behave both on and offline. A 15-year-old girl talks thoughtfully about the most constructive way to deal with being sent a dick pic, saying: “If you block someone, it won’t solve the bigger issue of people thinking they can still do this:
Your instant reaction would just be to remove [the sender]. But maybe instead of that, you could just be like, no it’s wrong – speak up instead of just removing it … You might be scared but once you actually do it, you’ll probably feel a sense of accomplishment because you’re actually helping, like you’ve resolved the issue and it would help a lot of other people as well. (15 year-old girl)
But many, such as this 14-year-old boy, sound fatalistic about the prospects of social media companies changing the online environment for young people:
I don’t think there’s anything they can really do. It’s just that people need to be a bit more careful about what they’re posting online on social media.
A 13-year-old girl talks about a transgender friend who is "active on social media” and experiences a lot of abuse. Her advice?
Just don’t post anything … If you want to avoid that situation, you could still have the social medias but don’t post, just text friends.
While many young people think such advice is common sense, it also speaks to an unfairness in the ways that different young people have to act online to keep themselves safe. Some young people may feel shut out because they cannot be open about who they are or what they think.
An impossible situation?
Some boys I speak to think that sharing homophobic jokes in private WhatsApp groups is not a problem, although they know they might get into trouble if other people find out. One 17-year-old boy is dismissive about the significance of sharing such messages:
Some boys do extreme jokes that cross the line for homophobia. They’ve got into a lot of trouble [but] it’s just laughed off [with friends] – it’s just kind of funny. [I’m] not bothered in that respect.
But many other young people feel more targeted and at risk. A group of LGBTQ+ girls describe “a lot of bullying” coming from both adults and other young people. While some say they still feel safer online than in real life, they complain that “your online space is being negative to you as well”. Ultimately, one suggests:
There’s nothing [you] can do without getting made fun of at this point. No matter what you say or do, you get some form of hate for it, so you may as well just let it happen.
It seems these girls feel they have to stay online despite the risks because at least there is the chance of connecting with like-minded others who may be able to provide support. In this sense, they seem to be navigating an impossible situation, and are both angry about the risks they face but also resigned to them.
Across different aspects of online life – as with real life – pleasure and pain intersect for young people. It may be both “funny” and “dodgy” to watch an argument play out among peers online, or to send content that they may get in trouble for if unintended audiences find out. Risk-taking is a normal part of adolescence, but in the digital age it can come with consequences that may be more significant than was the case for previous generations.
Young people both want to look at aspirational content but are ambivalent about how it makes them feel about themselves. They want to connect with new people online but are tired of encountering abusive and hateful content and being sent unwanted sexual content. Boys, particularly, are drawn to pornography online but often feel confused about what they see. Known peers may be involved in risky behaviour online but it may feel compulsory, or even desirable, to take part either directly or as a witness.
Big tech cannot solve these tensions and dilemmas of adolescent life alone. Tackling them requires what is sometimes referred to as a “post-digital” approach that considers risk and harm along a continuum that spans both real and online life, rather than treating the latter as a delineated category that can be dealt with through big tech tools and regulation alone.
Young people have always bullied each other, compared themselves unfavourably with idealised cultural representations of “perfection”, and explored and expressed their developing sexualities in ways that have worried the adults around them. The point is to identify how the design of social media platforms has entrenched and potentially reshaped patterns of vulnerability.
Above all, the tensions in young people’s willingness to involve adults (they both want support they can trust but fear being judged and punished) need to be resolved. Conversations may need to be less concerned with eradicating a particular risk, and more with establishing a dialogue whereby young people feel able and willing to come for help when they need it. Otherwise, as this 12-year-old girl observes:
I think almost everything I know about social media comes from social media. [Adults] just go back to the very basics that everyone already knows. It’s kind of wasting time when they could be telling us something we don’t know.
Columnist Peggy Noonan wrote that Santos was “a stone cold liar who effectively committed election fraud.”
And now Santos has taken the dramatic step of removing himself temporarily from the committees he’s been assigned to: the House Small Business Committee and the Science, Space and Technology Committee. The Washington Post reports Santos told his GOP colleagues that he would be a “distraction” until cleared in several probes of his lies.
Santos’ lies may have gotten him into hot water with the voters who put him in the House, and a few of his colleagues, including the New York GOP, want him to resign. CBS News reported that federal investigators are looking at Santos’ finances and financial disclosures.
But the bulk of Santos’ misrepresentations may be protected by the First Amendment. The U.S. Supreme Court has concluded that lies enjoy First Amendment protection – not because of their value, but because the government cannot be trusted with the power to regulate lies.
In other words, lies are protected by the First Amendment to safeguard democracy.
So how can unwitting voters be protected from sending a fraud to Congress?
Any attempt to craft a law aimed at the lies in politics will run into practical enforcement problems. And attempts to regulate such lies could collide with a 2012 Supreme Court case United States v. Alvarez.
The Supreme Court rejected the government’s argument that lies should not be protected by the First Amendment. The court concluded that lies are protected by the First Amendment unless there is a legally recognized harm, such as defamation or fraud, associated with the lie. So the Stolen Valor Act was struck down as an unconstitutional restriction on speech. The court pointed out that some false statements are “inevitable if there is to be open and vigorous expression of views in public and private conversation.”
Crucially, the court feared that the power to criminalize lies could damage American democracy. The court reasoned that unless the First Amendment limits the power of the government to criminalize lies, the government could establish an “endless list of subjects about which false statements are punishable.”
In Alvarez, the Supreme Court expressed concern about laws criminalizing lies in politics. It warned that the Stolen Valor Act applied to “political contexts, where although such lies are more likely to cause harm,” the risk that prosecutors would bring charges for ideological reasons was also high.
The court believed that the marketplace of ideas was a more effective and less dangerous mechanism for policing lies, particularly in politics. Politicians and journalists have the incentives and the resources to examine the records of candidates such as Santos to uncover and expose falsehoods.
The story of George Santos, though, is a cautionary tale for those who hold an idealized view of how the marketplace of ideas operates in contemporary American politics.
Democracy has not had a long run when measured against the course of human history. From the founding of the American republic in the late 18th century until the advent of the modern era, there was a rough division of labor. Citizens selected leaders, and experts played a critical gatekeeping role, mediating the flow of information.
The election of George Santos illustrates the challenges facing American democracy. The First Amendment was written in an era when government censorship was the principal danger to self-government. Today, politicians and ordinary citizens can harness new information technologies to spread misinformation and deepen polarization. A weakened news media will fail to police those assertions, or a partisan news media will amplify them.
Justice Stephen Breyer’s concurring opinion argued that a different test should be used. Courts, Breyer said, should assess any speech-related harm that might flow from the law as well as the importance of the government objective and whether the law furthers that objective. This is known as intermediate scrutiny or proportionality analysis. It is a form of analysis that is widely used by constitutional courts in other democracies.
Intermediate scrutiny or proportionality analysis does not treat all government regulations of speech as presumptively unconstitutional. It forces courts to balance the value of the speech against the justifications for the law in question. That is the right test, Justice Breyer concluded, when assessing laws that penalize “false statements about easily verifiable facts.”
The two approaches will lead to different results when governments seek to regulate lies. Even proposed, narrowly written laws aimed at factual misrepresentations by politicians about their records or about who won an election might not survive the high degree of protection afforded lies in the United States.
Intermediate scrutiny or proportionality analysis, on the other hand, will likely enable some government regulation of lies – including those of the next George Santos – to survive legal challenge.
Democracies have a better long-term survival track record than dictatorships because they can and do evolve to deal with new dangers. The success of America’s experiment in self-government may well hinge, I believe, on whether the country’s democracy can evolve to deal with new information technologies that help spread falsehoods that undermine democracy.
Miguel Schor does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
Having not long finished the festive season and commenced a new year, many of us take the moments shortly after to reflect on the year that was, and also consider what we would like to see in the year ahead.
With that in mind I thought I would take a look back at 2022. Last year will likely be remembered for three key events, firstly it generally saw the world exit the pandemic cloud of COVID-19. Secondly, we saw the commencement of the war between Ukraine and Russia. Thirdly, we saw inflation return with a vengeance being quickly followed by one of the fastest tightening cycles in history by Central Banks. The official cash rate in Australia increased from 0.1 per cent in April 2022 to 3.10 per cent by the December meeting of the RBA.
This mix of events led to one of the strongest risk-off years we have seen since the Global Financial Crisis, there are few places for investors to find sanctuary with losses occurring across both growth and defensive assets alike.
Investor sentiment was broadly very negative during 2022, it is always a challenge for any growth (or risk) asset to perform well when the market doesn’t have an appetite for risk of any kind.
If we look specifically at the Australian small ordinaries index, its return for the calendar year of 2022 was negative 20.7 per cent. To give this context the ASX 100 declined by 3.9 per cent and the ASX 300 return was negative 6.1 per cent. It is fair to say that the risk on trade in Small Companies over the last few years moved into reverse in 2022. This was a consequence of the above macro factors, coupled with a more bearish investor and market.
What to consider for 2023?
In moving to our outlook for 2023 we need to initially consider the 3 points above and ask where we see them today and where they may evolve to over the next 12 months. With the final question being what impact this will have on equity market performance?
As a starting point it is fair to say that the impact of COVID-19 continues to pass and become more of a memory than a current issue. Even China who were the final strong hold have now moved to accept an existence with COVID-19 and they cope with re-opening and reintegrating with the rest of the world. As it stands today, we would expect the impact of COVID-19 to continue to diminish from here. One datapoint that has been interesting to follow over the pandemic has been a UBS Composite Supply Chain Indicator which is now in a strong downward trend and moving closer to pre-pandemic levels.
A second example where we can see this is in spot indexes for international container freight costs which are now off roughly 80 per cent from their peak 18 months ago. This is interesting as it was one of the early contributors to the increase in inflation. As a leading cause it is positive to see this returning to more normal levels.
Next, we move to the war in Ukraine, which continues to grind along, and will no doubt continue to influence energy prices and broader speculation. Having said that, although the outcome is unknown, this is what at times in markets is called a known unknown. We are all aware of what is happening, many governments and countries are working around it. This is best seen in Europe where they continue to diversify their sources and supply of Energy, along with continued fast tracking of non-Russian dependent infrastructure. Short of a shock surprise, this event we can largely say has been priced into markets.
Finally, inflation and interest rates have been a biproduct of the above two events. These two arguably caused the most disruption to equity markets in 2022. At the time of writing the most recent inflation data for Australia was released last week and came out higher than consensus expectations with trimmed inflation (removing the most volatile items) coming in at 6.5 per cent against an expectation of 6.1 per cent.
At this point most major market commentators have the belief that we are likely to see two further interest rate increases in the first quarter of this year. Post this timeframe the speculation begins to grow; a portion believe inflation is going to be more stubborn and require further effort from Central Banks. Other market commentators believe that the remaining two expected rate increases will be sufficient to manage inflation, particularly given the delayed transmission mechanism we have here due to the nature of Fixed Rates and their term to reset.
Some also believe we may see interest rates start to fall in late 2023, which would become a tailwind for equities, in particular some of the growth names which had the toughest performance over 2022.
What can we expect from small caps?
Looking through all of this noise and to our outlook for Australian Small Companies for 2023 we think as always the starting point is important. At a market level we started 20 per cent cheaper than the same point in the prior year. Further to this we have seen some earnings downgrades in some parts of the market, where others have proven to be far more resilient than expected. Sectors like the Resource sector managed to grow their earnings over 2022. So in some pockets, we find valuations from a fundamental perspective to be very attractive.
While there is a belief that interest rates have further to go, we still see some significant risks in the more speculative parts of the market. This is mainly around companies that will have little control over their earnings power in the next 12 months, or are less mature and as a result less capable to weather the economic conditions ahead. Increasing interest rates are also not favourable for building stocks, or some consumer stocks (although some of the high-quality names will be resilient and based on valuation look interesting).
Any companies that missed the market’s expectations on earnings were punished, if the company had to go as far as an earnings downgrade the market showed little mercy. We think this trend will likely continue into the February 2023 reporting season. These are risks we are aiming to avoid by assessing the quality of our investments and their earnings streams.
Looking further out, there is an argument that Australian Small Companies offer a significant investment opportunity for investors over 2023 if they wish to add some risk to their portfolios. They were the most sold down part of the market in 2022 so the valuation of this sleeve of the market looks attractive.
History tells us that once the economy has reached peak inflation, the peak of interest rates is usually not too much further into the future. If we do in fact only see two further rate rises from the RBA and inflation is contained then we will start to have a foundation that would be more solid and look to underpin a backdrop that would be conducive to a rally in equity markets.
As always we are not out of the woods and do expect some earnings challenges to come to the fore in February’s interim reporting season. Stock selection and active management will be critical to navigate this.
Should we see an improved outlook and also a reduction in interest rates later in the year we may start to see an improvement in investor and market sentiment. This is likely the final ingredient needed to see capital flows return more strongly to equities and in particular Small Companies.
Overall we continue to have a meaningful exposure to the Resource sector as we think that with China reopening and supply shortages still an issue for Europe in the medium term, coupled with the continued drive of decarbonisation that 2023 should be another supportive year for the sector.
We have quality exposures to structural growth companies that over a medium term investment horizon represent excellent value and are growing quality businesses. We believe we are closer to the end than the beginning of the inflation and interest rate story which over the course of 2023 we think will provide a favourable foundation for the market and the Montgomery Small Companies Fund.
LAWRENCE — As humanity tries to find its footing after the COVID-19 pandemic, the University of Kansas is taking steps to help ready the United States and the rest of the world for future global health crises.
Credit: A. Townsend Peterson
LAWRENCE — As humanity tries to find its footing after the COVID-19 pandemic, the University of Kansas is taking steps to help ready the United States and the rest of the world for future global health crises.
A. Townsend Peterson, a University Distinguished Professor of Ecology & Evolutionary Biology and curator of ornithology at the KU Biodiversity Institute and Natural History Museum, is part of a team of researchers that earned funding from the National Science Foundation to establish the International Center for Avian Influenza Pandemic Prediction and Prevention, dubbed “ICAIP3.”
The mission of the new multi-institutional center is to tackle grand challenges in global health with a focus on avian-influenza pandemic prediction and prevention. Most famously, the 1918 flu pandemic showed influenza viruses that start off in birds can kill millions of humans. But avian influenza, or “bird flu,” has triggered outbreaks around the world in recent years that killed billions of poultry and wild birds, as well as hundreds of people.
“The COVID-19 pandemic has been a wake-up call for the world, highlighting the importance of investing in public health and the basic science underpinnings of public health,” Peterson said. “It has had a scale of economic and public health impact that is unparalleled in our lifetime. This center would have ongoing viral monitoring around the world, but particularly in regions that tend to give rise to pandemic flu strains. We would have a predictive understanding of which types of new bird flu strains have pandemic potential. You can imagine the value of monitoring wild bird populations and seeing all the standing variation in flu viruses, and being able to say, ‘Hey, this one virus — this is what we need to watch.’”
The ICAIP3 center will be supported by the Predictive Intelligence for Pandemic Preparedness (PIPP) initiative, part of the NSF’s efforts to understand the science behind pandemics and build the ability to prevent and respond to future outbreaks.
“We need to be thinking big-picture when it comes to pandemics,” Peterson said. “COVID-19 is just one example of many diverse pandemics that have occurred throughout history. The Spanish flu, the plague pandemics, typhoid fever and avian influenza are all examples of diseases that have had a significant impact on human health and the economy. We need to be proactive in our approach to understanding and preventing these types of outbreaks, rather than waiting for them to happen and scrambling to respond.”
The total award for the PIPP project is roughly $1 million. Aside from KU, the ICAIP3 project has partners at the University of Oklahoma, where the work is headquartered, as well as the U.S. Geological Survey, the University of California-Berkeley and the World Health Organization Collaborating Centre for Studies on the Ecology of Influenza in Animals and Birds with St. Jude Children’s Research Hospital.
Peterson said the collaborators aim to apply for additional funding once ICAIP3 has succeeded as a proof-of-concept during its initial 18-month phase, structured to align with the PIPP aim to explore ideas for later competition for center-level funding.
The team will work to establish ongoing viral monitoring around the world, focusing most on regions that historically give rise to pandemic flu strains. The goal is to build understanding of the types of new strains holding pandemic potential and help predict and prevent outbreaks in coming decades.
Peterson and his collaborators will test available computer models that track “spillover,” where a disease can spread between animal species (“reservoir-poultry spillover” happens when wild birds give a disease to chickens, for example). Next, the team will work to improve these modelling approaches and run spillover simulations.
“If we do this well, what will come out is a model of the geographic, operational and individual-scale behavior of a pandemic-potential virus,” Peterson said. “Part of that potential is — does it stay just in one place? Or does it spread? If it does spread, does it take years, or does it spread in days?”
In essence, the KU researcher likened the work to devising an early-warning system to benefit researchers and public health officials as they decide where to devote resources for maximum effect.
With avian influenzas, part of this work must incorporate data about birds’ migratory patterns.
“You get some early warning of an outbreak going on and you say, ‘Okay, we’re pretty sure it’s a specific hypothetical virus — now, what are its most likely patterns of behavior?’” Peterson said. “How quickly will it leak from wild birds into domestic birds? If it’s coming from Asia, where would we expect it to appear in the U.S.? If you had this thing spread in the summer and get up to Siberia, then the jump may be way down into the U.S. because some of those birds think eastern Siberia is western Alaska and migrate south into the Americas in the fall. We would have a model that’s far better than what we have right now.”
Along with integrating huge amounts of disparate data into improved computer models, the collaboration will aim to build a community of researchers around a “One-Health (Human-Animal-Environment Systems) approach” they said is needed take on “the complexity, dynamics and the tele-coupling of HAES across multiple spatial and temporal scales and organization levels.” Peterson said he hoped the work also would strengthen the nation’s ability to track disease in birds and other species, as well as safeguard public health and prevent societal disruption.
“What in our lifetime has had the scale of economic and public health impact compared to COVID-19?” Peterson said. “Maybe 9/11, if you could count the war efforts after that. We’re too young to have lived through the World Wars, which probably were on the same scale here in America. But what, since then — can you think of anything? If you want a stronger America, you make an America that has a strong public health system that can respond to socially driven health threats like vaccine hesitancy. Measles was gone, polio was gone, but now they’re popping up in communities that are less well-vaccinated. And we’ll see more mosquito-borne diseases — like West Nile virus, Zika, chikungunya and dengue — all of which have recently emerged in the U.S. and each in a very different way.”