Match and mix

How hybrids have upturned evolutionary theory

The origin of species is more complex than Darwin envisaged


In 1981 peter and Rosemary Grant, a husband-and-wife team of evolutionary biologists, spotted something odd on Daphne Major. Every year for the previous decade they had travelled from Princeton University to this island in the Galápagos, to study its three endemic tanager species, part of a group known colloquially as “Darwin’s finches”. 

On this occasion their eyes were drawn to an unusual male that sported dark feathers and sang a unique song. Genetic analysis later identified him as a large cactus finch, probably blown in from Española, another part of the archipelago that is over 100km away.

Intrigued, the Grants followed the castaway as he explored his new home. They watched him mate with a local female medium ground finch. That produced five fit, healthy offspring. Those offspring were also surprisingly sexually selective. A single male excepted, they and their descendants mated only among themselves—and they have continued to do so ever since.

Despite this heavy inbreeding, the hybrids (two of which are pictured above) have been successful. They have carved out a niche in which they use their size and their deep beaks to exploit the large woody fruits of the Jamaican feverplant, which grows locally. 

They have, to all intents and purposes, become another species of Darwin finch, of which 13 were previously recognised. Though they do not yet have a Latinised scientific name, they are known to all as the “Big Bird” lineage.

Heretical thinking

This story would once have been considered deeply implausible. Evolution’s orthodox narrative does not suggest that hybridisation is how new animal species emerge. But, as genetic testing has proliferated, biologists have been confronted with an unexpected fact. Hybrids are not an evolutionary bug. They are a feature.

That knowledge is changing the way people think about evolution. The neat family trees envisaged by Charles Darwin in one of his early notebooks (see picture below) are turning into webs, and the primacy of mutation in generating the variation which natural selection then winnows is being challenged. 

The influx of genes accompanying hybridisation creates such variation too—and the harder people look, the more important that seems to get. Hybridisation also offers shortcuts on the long march to speciation that do not depend on natural selection at all. As the example of the Big Bird lineage shows, instead of taking millennia to emerge, a new species can appear almost overnight.

        As Darwin saw it


In truth, all this had already been recognised for simple organisms like bacteria. These exchange genes promiscuously between both more and less related individuals. But bacteria were unknown when Darwin came up with natural selection, and, ever since then, the subject of speciation has been dominated by examples drawn from animals and plants. 

To recognise that what is true for bacteria is also true for these multicellular organisms has profound implications, not least for how human beings understand their own origins. It seems appropriate, then, that the birds whose diversity helped inspire Darwin still have evolutionary tales to tell.

The conventional view of evolution is that mutations happen at random. Maladaptive ones are then eliminated by competitive pressure while adaptive ones proliferate. The result, over long periods of time and assisted by populations sometimes being split up by external circumstances, is change which eventually crystallises into new and separate species.

That process does leave the door open to hybrids. The genomes of closely related species may remain sufficiently similar to produce viable offspring. But these genes often fit together less well than those of parents from the same species. As a consequence, even viable hybrids are frequently infertile (think mules) and are also at higher risk of developmental and other types of illnesses. 

In fact, infertility in male hybrids is so common that it has a name—Haldane’s rule. 

This sort of thing was enough to persuade most of Darwin’s 20th-century disciples that the need to avoid hybridisation was actually a driving force which caused natural selection to erect reproductive barriers between incipient species, and thus encouraged speciation.

There is, though, another way of looking at hybridisation. Mixing the traits of two parent species might actually leave their hybrid offspring better off. This is called hybrid vigour, or heterosis. 

The interplay of two species’ genes can even produce traits displayed by neither parent. 

This is known as transgressive segregation and the resulting hybrid may be surprisingly well adapted to a completely new niche, as was the case with the Big Birds.

Both the maleficent and beneficent effects of hybridisation are real. The question is, which wins out more often in practice? 

In plants, it is frequently the beneficent. This is a consequence of plants’ unusually malleable genetics. 

The nuclear genomes of complex organisms (animals, plants, fungi and single-celled organisms such as amoebae) are divided into bundles of dna called chromosomes. Such organisms are generally either haploid or diploid, meaning that each cell nucleus contains either one or two copies of every chromosome. 

Human beings are diploid. They have 23 chromosomal pairs, for a total of 46 individual chromosomes. But there are exceptions. 

Plants, for instance, are frequently polyploid—meaning that each nucleus contains copies in greater multiples than two. 

To take one example, Californian coastal redwoods have six copies. Since redwood cell nuclei have 11 distinct types of chromosome, they host a total of 66 chromosomes altogether.

Sometimes, polyploidy is a result of an organism’s genome spontaneously doubling. 

Often, though, it is a consequence of hybridisation, with the chromosomes of both parents ending up in a single nucleus. However it arises, polyploidy provides spare copies of genes for natural selection to work on while other versions of them continue with their original function. 

And if it is also the result of hybridisation, it brings the additional possibilities of heterosis and transgressive segregation.

On top of this, by changing an organism’s chromosome count polyploidy has another pertinent effect. It creates an instant barrier to breeding with either parent species. 

That gives a new, incipient species a chance to establish itself without being reabsorbed into one of the parental populations. The results can be spectacular. Recent evidence suggests, for example, that hybridisation between two plant species in the distant past, followed by a simple doubling of the number of chromosomes in their offspring, may be responsible for much of the extraordinary diversity in flowering plants that is seen today.

Plants seem to be easy beneficiaries of hybridisation. For many animals, however—and for mammals in particular—extra chromosomes serve not to enhance things, but to disrupt them. Why, is not completely clear. Cell division in animals seems more easily confounded by superfluous chromosomes than it is in plants, so this may be a factor. 

Plants also have simpler cells, which are more able to accommodate extra chromosomes. Whatever the details, animal hybrids appear to feel the effects of genetic incompatibility far more acutely than do plants, and are therefore less able to benefit from heterosis. 

Evolutionary biologists therefore assumed for a long time that hybridisation played a negligible role in animal evolution—and there was little evidence to suggest otherwise.

Advances in dna sequencing have changed that by letting people look under the bonnet of evolutionary history. This has uncovered a steady trickle of animals breathed into life entirely by hybrid speciation. 

They include some familiar names. The European bison, for instance, is the result of hybridisation, over 120,000 years ago, between two now extinct species—the ice-age steppe bison and the auroch. The latter were the wild antecedents of modern domestic cattle, and survived in Jaktorow Forest, in Poland, until 1627.

Something similar is true of the Atlantic Clymene dolphin. Genetic analysis has revealed that this cetacean, which roams the briny between west Africa, Brazil and the Gulf of Mexico, owes its existence to a hybridisation that happened between two globe-trotting others, the striped dolphin and the spinner dolphin.

At least one hybrid animal, moreover, traces its ancestry to three species. Genetic analysis shows that Artibeus schwartzi, a Caribbean fruit bat, is a result of hybridisation, within the past 30,000 years, of the Jamaican fruit bat (Artibeus jamaicensis), the South American flat-faced fruit-eating bat (Artibeus planirostris) and a third, as yet unidentified animal, which researchers speculate may now be extinct.

A different kettle of fish

It also appears that, as in the case of flowering plants, hybridisation can fuel explosive radiations of novel animals. The best-known example is the case of the cichlids of Africa’s Great Lakes—particularly Lake Victoria, Lake Tanganyika and Lake Malawi. Great Lake cichlids are a group of thousands of closely related fish, famous for their panoply of shapes, sizes and colours (see picture). Each is adapted to a different depth and ecological niche.

     Gone fishing


Cichlids’ evolutionary history has long puzzled biologists. Lake Victoria, in particular, comes and goes with the climate. Its current instantiation is less than 15,000 years old. 

In evolutionary terms this is the blink of an eye, but in that time the lake’s cichlids have diversified into more than 500 species.

The reason is hybridisation. Using genetic analysis to place Lake Victoria’s cichlids within the broader cichlid family tree, researchers have discovered that they descend from a tryst between two distinct parental lineages, one that swam in the Congo and the other in the Nile.

The value of being such a genetic mosaic is apparent from the history of one of the best-studied cichlid genes, which encodes a protein called long-wave-sensitive opsin that is found in the retina of the eye. This protein determines the eye’s sensitivity to red light. That matters because red-light levels decline steeply in deeper water. 

Consequently, fish which live at different depths need eyes that are tuned differently from one another.

The cichlid lineage from the Congo had eyes which were optimised for clear, shallow water. Nile-lineage vision was more attuned to the deep and murky. Hybrids were able to chop and change these genetic variants to produce a range of sensitivities to light. 

This let them colonise the full depth of the water column in Lake Victoria as it developed. The new lake, for its part, offered the cichlids a host of empty ecological niches to fill. The result was a sudden and explosive process dubbed “combinatorial speciation”.

Elsewhere in the natural world, combinatorial speciation seems to have contributed to the striking diversity of Sporophila, a genus of 41 Neotropical songbirds, and of the munias, mannikins and silverbills of the genus Lonchura, a group of 31 estrildid finches that ranges across Africa and South-East Asia. 

Nor is it just in vertebrates that this phenomenon rears its head. Heliconius, a genus of 39 flamboyant New World butterflies, also owes its eye-catching diversity to combinatorial speciation.

Raining cats, dogs and bears

These findings muddy Darwin’s concept of speciation as a slow and gradual process. 

Biologists now know that in the right circumstances, and with the help of hybridisation, new species can emerge and consolidate themselves in a mere handful of generations. 

That is an important amendment to evolutionary theory.

It is nevertheless true that, for animals, hybrid speciation in its full form remains rare. It requires an unlikely congruence of factors to keep a new hybrid population reproductively isolated from both parental species. 

The survival of the Galápagos Big Bird lineage, for example, involved physical isolation from one and strong sexual selection against the other.

More commonly, an incipient hybrid population is reabsorbed by one or both parental species before it can properly establish itself. The result is a percolation of genes from one species to another, rather than a full hybrid. 

This is called introgressive hybridisation—or, simply, introgression. DNA analysis of a long list of closely related animals shows that this version of hybridisation is far more common than the full form. 

It may even be ubiquitous.

The North American grey wolf, for example, owes its gene for melanism—the deep black fur displayed by some wolves—to introgression from domesticated dogs brought 14,000 years ago from Asia by America’s first human settlers. 

In wolves that inhabit forests this gene has undergone strong positive selection, suggesting it is adaptive. The most obvious explanation is that melanism provides better camouflage in the stygian depths of North America’s woodlands. Alternatively, female wolves may simply prefer their males tall, dark and handsome.

Panthera—the genus to which most big cats belong—is yet more impressive in the scope of its introgressive entanglement. It has five members: lions, tigers, leopards, snow leopards and jaguars. These have long been known to interbreed successfully in captivity, yielding crosses called ligers (lion x tiger), jaglions (jaguar x lion) and so on. 

But recent analysis shows that this has also happened in the wild. Researchers have identified at least six past introgressive episodes in the genus, with every member involved in at least one of them.

The most promiscuous of the five appears to be the lion. Gene variants have percolated between lions and tigers, lions and snow leopards, and lions and jaguars. There is also evidence that at least some of this gene flow has been adaptive. 

Three lion genes incorporated into jaguar genomes are known to have been strongly selected for. Two of these are involved in vision—specifically, they help guide the development of the optic nerve.

Genetic analysis also reveals a long history of hybridisation between polar bears and grizzlies, the largest of their brown bear cousins. It is not yet clear whether this has had adaptive value—but it may soon have a chance to prove itself. 

As climate change warms the polar bear’s Arctic home, the species may have to adjust rapidly. A splash of grizzly, a group used to more temperate climes, might help that happen.

The best-studied case of introgression in animals is, though, closer to home than wolves, big cats and bears. It is looking back at you from the mirror. The most up-to-date evidence suggests that Homo sapiens arose more than 315,000 years ago from gene flow between a series of interlinked population groups spread across Africa. 

Whether these populations were different enough to be considered distinct species is still debated. In the grasslands of the African Pleistocene, however, these ancestral groups were not alone. Their world was interspersed with a menagerie of other hominins. And interspecies mating seems to have been rife.

My family and other hominins

Several members of this human menagerie appear to have descended from Homo heidelbergensis, a species that spread through eastern and southern Africa around 700,000 years ago before crossing the Middle East into Europe and Asia. 

This species—a possible ancestor of the progenitor groups of Homo sapiens—also gave rise to at least two others, the Neanderthals (Homo neanderthalensis) and the Denisovans (Homo denisova). 

The former survived in Europe until 28,000 years ago, while the latter, an Asiatic group, lasted until roughly 50,000 years ago.

Other hominin species around at the time emerged directly from Homo erectus, a more primitive creature that was also the ancestor of Homo heidelbergensis and which, a million years beforehand, had blazed a similar transcontinental expansionary path to that of heidelbergensis. 

The local descendants of erectus were largely displaced by heidelbergensis when it arrived. But some holdouts survived in corners of the Old World that heidelbergensis never reached. These included the islands of Flores in Indonesia and Luzon in the Philippines. 

It was here that diminutive Homo floresiensis and Homo luzonensis—the island “hobbits”—lasted, like the Denisovans, until 50,000 years ago. There were probably isolated descendants of even older cousins too. 

At least one is known, Homo naledi, which predated the emergence of Homo erectus and still roamed southern Africa around 230,000 years ago.

This grand hominin circus ultimately came to an abrupt end. The record in Africa is opaque. But in Europe, Asia and Oceania it is clear that the arrival of modern humans coincided with a great vanishing of local hominins. 

Whether through disease, competition for scarce resources or perhaps even genocide, a few thousand years of contact with Homo sapiens was enough to snuff out every other hominin species.

Ghosts from a distant past


Even a few millennia, though, proved enough for Homo sapiens to get to know its cousins intimately. The record of these romantic entanglements remains in the DNA of almost everyone alive today. In 2010 a team led by Svante Pääbo of the Max Planck Institute’s campus in Leipzig published the first draft sequence of the Neanderthal genome. 

This led to the discovery that stretches of Neanderthal DNA constitute 1-4% of the modern human genome in all populations outside sub-Saharan Africa. 

That is consistent with a string of hybridising liaisons in Europe, the Middle East and Central Asia from around 65,000 years ago.

Neanderthal inheritance helped Homo sapiens adapt to the demands of the environments of these unfamiliar places. There seems to have been strong selection, for example, in favour of Neanderthal genes related to skin and hair growth. 

These include bnc 2, a gene linked to skin pigment and freckling that is still present in two-thirds of Europeans. There also appears to have been selection for Neanderthal-derived genes that deal with pathogens. Some govern the immune system’s ability to detect bacterial infections. Others encode proteins which interact with viruses.


The Denisovans, and their contribution to Homo sapiens, were another of Dr Pääbo’s discoveries. In 2009 one of his team sequenced dna from a fossil finger bone excavated from Denisova cave in the Altai Mountains of Siberia. This bone turned out to belong to a previously unknown species that was then named after the cave it was found in. 

Physical specimens of this species remain rare. 

Examination of living people, however, reveals that stretches of Denisovan dna make up 3-6% of the genome of contemporary Papuans, Aboriginal Australians and Melanesians. Many Chinese and Japanese also carry Denisovan dna, albeit at lower rates.

As with Neanderthals, this inheritance has brought advantages. The Denisovan version of a gene called epas1 modulates production of red blood cells, which carry oxygen. 

This helps modern Tibetans to survive at high altitudes. Denisovan tbx 15 and wars 2 similarly help Inuit survive the harsh cold of the Arctic by regulating the amount of metabolic heat they produce.

We contain multitudes

That the Denisovans could lurk in modern human dna yet leave so little fossil trace has caused geneticists to wonder what other ghosts they might find. The genomes of sub-Saharan Africans, in particular, reveal evidence of at least one further entanglement. 

In 2012 a genomic analysis of members of the Baka, Hadza and Sandawe, three groups of people of ancient lineage, suggested an archaic introgression. In 2016 a deeper analysis focused on the Baka pinpointed this to within the past 30,000 years. This February, a study of members of two other groups, the Yoruba and Mende, confirmed that between 2% and 19% of their genomes can be traced to an unidentified archaic species. 

Whether this is the same as the one which has contributed to the Baka, Hadza and Sandawe is unclear, but it appears to have diverged from the line leading directly to Homo sapiens not long before the Neanderthals and Denisovans—an African Neanderthal, if you will.

The same genetic tools have revealed deeper ghosts, too. Denisovans show signs of hybridisation with a “superarchaic” lineage—perhaps Homo erectus itself. This makes up 1% of the species’ genome. 

About 15% of this superarchaic inheritance has, in turn, been passed on to modern humans. There is even evidence of a minute genetic contribution to African populations by a similarly superarchaic relative.

To be human, then, is to be a multispecies mongrel. As the example of the big cats in particular shows, though, Homo sapiens is not, in this, an exception. 

Hybridisation, once seen as a spear-carrier in evolution’s grand theatre, is rapidly becoming a star of the show. Meanwhile, Darwin’s idea of a simple, universal family tree is relegated to the wings.

In its place, some experts now prefer the idea of a tangled bush of interconnected branches. But this, too, is an imperfect comparison. 

A more fitting analogy is a frayed rope. Species are braided from individual strands. Where evolution proceeds in an orthodox Darwinian manner, braids unravel, strands split and new species result. But the rope does not fray neatly. 

Filaments of introgression criss-cross from braid to braid and, occasionally, two tangle to form a new braid altogether. This is a more complex conception of evolutionary history, but also a richer one. 

Few things in life are simple—why should life itself be?

 The Stock-Market Disconnect

The best explanation for why stock markets remain so bullish despite a massive recession is that major publicly traded companies have not borne the brunt of the pandemic's economic fallout. But having been spared by the virus, they could soon find themselves squarely in the sights of a populist backlash.

Kenneth Rogoff


CAMBRIDGE – Why are stock-market valuations soaring when the real economy remains so fragile? One factor has become increasingly clear: The crisis has disproportionately affected small businesses and low-income service workers. 

They are essential for the real economy, but not so much for equity markets. True, there are other explanations for today’s lofty valuations, but each has its limitations.

For example, because stock markets are forward-looking, current stock prices may reflect optimism about the imminent arrival of effective COVID-19 vaccines and radically improved testing and treatment options, which would allow for a more limited and nuanced approach to lockdowns. 

This outlook may be justified, or it may be that markets are underestimating the likelihood of a severe second wave this winter, and overestimating the efficacy and impact of the first-generation vaccines.

A second, and perhaps more convincing, explanation for today’s stock market performance is that central banks have pushed interest rates down to near zero. With markets convinced that there is little chance that rates will rise in the foreseeable future, prices of long-lived assets such as houses, art, gold, and even Bitcoin have all been driven upward. 

And because tech firms’ revenue streams are tilted far into the future, they have benefited disproportionately from low interest rates.

But, again, it is not clear that markets are correct in anticipating a never-ending continuation of low interest rates. After all, the long-term adverse supply effects, particularly from deglobalization, may linger long after global demand has recovered.

A third explanation is that in addition to providing ultra-low interest rates, central banks have directly backed private bond markets – representing an unprecedented intervention in the case of the US Federal Reserve. These private bond purchases should not be thought of as monetary policy in a conventional sense. Rather, they resemble a quasi-fiscal policy, with the central bank acting as an agent for the Treasury in an emergency situation.

As such, this particular intervention is likely to be temporary, even though central banks have not yet succeeded in telegraphing that fact to markets. Despite sharply elevated macroeconomic volatility and a rising supply of corporate debt, interest-rate spreads over government debt have actually narrowed in many markets, and the number of major corporate bankruptcies to date remains remarkably low considering the magnitude of the recession.

At some point, markets will be disabused of the notion that taxpayers will cover everything indefinitely. Central banks are ultimately constrained in the amount of risk they are allowed to assume, and the belief that they still have an appetite for taking on more could be challenged if a severe second wave arrives this winter.

While these three explanations offer some insights into why stock prices are rising at a time when the real economy is heading south, they tend to miss a big piece of the puzzle: the economic pain inflicted by COVID-19 is not being borne by publicly traded companies. 

It is falling on small businesses and individual service proprietors – from dry cleaners to restaurants to entertainment providers – that are not listed on the stock market (which leans more toward manufacturing). 

These smaller players simply do not have the capital needed to survive a shock of this duration and magnitude. And government programs that have helped keep them afloat for a while are beginning to lapse, raising the risk of a snowball effect in the event of a second wave.

Some small-business failures will be seen as part and parcel of the broader economic restructuring that the pandemic has triggered. But plenty of otherwise viable businesses also will fail, leaving large publicly traded companies with an even stronger market position than they already had. 

In fact, that is yet another reason for the market euphoria. (True, some large businesses have filed for bankruptcy protection, but most – not least brick-and-mortar retailers – were already in trouble before the pandemic).

Further underscoring the unequal impact of the pandemic, government tax revenues have not fallen by nearly as much as one might expect, given the magnitude of the recession and record post-war unemployment levels (or, in Europe’s case, the massive outlays to pay furloughed workers). The reason, of course, is that the job losses have been concentrated among low-income individuals who pay less in taxes.

But today’s elevated stock markets face risks that are not only economic, including but not limited to the significant possibility of an unprecedented political crisis following the US presidential election this November. 

After the 2008 financial crisis, there was a widespread backlash over policies that seemed to favor Wall Street over Main Street. This time, Wall Street will again be vilified, but populist wrath also will be directed toward Silicon Valley.

One likely outcome, especially if the ongoing process of deglobalization makes it more difficult for corporations to shift their operations to low-tax countries, will be a reversal of the trend decline in corporate tax rates. That will not be good for stock prices, and it would be a mistake to think the populist response would stop there.

Until lofty stock-market valuations are underpinned by a broad-based recovery in both health and economic outcomes, investors should not get too comfortable with their outsize pandemic profits. What goes up can also come down.


Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.

Answering the Question of Iran

The U.S. can’t truly leave Iraq without dealing with Iran.

By: Allison Fedirka


Earlier this week, the U.S. special representative for Iran said Washington would keep putting additional pressure on Iran in the days and weeks ahead. 

He also said that Iran had reached a moment where it recognized it could not indefinitely withstand such pressure and would have to either sign a new nuclear deal with Washington or abandon its regional strategy – that is, using proxies to carve out a sphere of influence to the Mediterranean Sea. 

The U.S. and Iran spar verbally all the time – and sometimes violently – but there’s reason to believe there’s bite behind Washington’s barks, and that tensions may soon intensify again.

The U.S. wants to reduce its global military footprint, especially in the Middle East, as it pivots to the Indo-Pacific. The ideal outcome would be a light security presence in certain hotspots that can be quickly scaled up in case of emergency. Though Washington has already done much in that regard, Iran’s presence in Iraq complicates the withdrawal. 

The U.S. doesn’t want to leave a country it has been at war with for nearly 20 years just to see Iran gain more political and security control there than it already had. 

Tehran’s nuclear ambitions, moreover, threaten to destabilize the region, and an unstable region will be more difficult to vacate. 

Squaring away the U.S. military departure from Iraq along with the Iraqi economy’s reconstruction efforts means finding a way to reduce the threat of Iranian influence. In other words, time is winding down to settle the status of Iran.


In light of an uptick in rocket attacks conducted by Iran-backed Shiite militias against U.S. targets, there are now signals coming out of Iraq suggesting what the U.S. plan is. 

A strong military response by the U.S. is a nonstarter; it would be counterproductive to withdrawal efforts. 

But Washington can use political pressure, economic incentives and smaller-scale security moves to support Baghdad cracking down on the militias. For example, Washington appears ready to follow through on its threat to relocate its embassy in the Green Zone if security there remains suspect. 

There were also reports from Kurdistan late last week that U.S. coalition airstrikes against the Islamic State in northern Syria also hit targets belonging to the Popular Mobilization Forces, the loose collection of Iraq’s Shiite militias, in Anbar province. (The PMF initially confirmed the story but later denied it.)

Baghdad seems to have acquiesced to U.S. demands. Iraqi Prime Minister Mustafa al-Kadhimi called for the creation of a military and security commission to investigate the recent rocket attacks, particularly those targeting U.S. assets. 

National Security Adviser Qasim al-Araji will oversee the investigation and report results directly back to the prime minister in 30 days. 

However, curbing Iranian influence among Iraqi militant groups will rely on the Iraqi federal government’s ability to stand on its own against militias sympathetic or financially beholden to Tehran – something the Iraqi government has been unable to do thus far.

Meanwhile, there are signs that Israel, a critical ally in the U.S. coalition against Iran, is also increasing pressure on Tehran. It has taken more responsibility for military strikes against Iranian proxy forces, largely because they are positioned along Israel’s borders. 

Just last week, Israeli Prime Minister Benjamin Netanyahu accused Hezbollah, the Lebanese militia, of maintaining a missile storage facility in a suburb of Beirut, which, if true, could lead to an Israeli attack. (Tactically, Israel is in a tough spot. It cannot afford to sit idly by, but attacking a site such as the one Netanyahu identified would cause mass civilian casualties and all but guarantee war.) 

For its part, Lebanon is trying to maintain the status quo with Israel, as evidenced by its agreement to reengage with U.S.-mediated maritime and land border talks. But talks have broken down before, and there’s no guarantee that these won’t either.

Two other developments together suggest that a move against Iran may be near. The French Foreign Ministry announced Oct. 1 that the European-led maritime surveillance mission’s mandate to operate in the Strait of Hormuz has been extended through 2021. 

Though the mission is not directly part of the U.S. pressure campaign and these waters have been relatively quiet in the past few months, that the statement was made at all shows that the potential for escalation still exists.

More directly related is the Oct. 6 statement from an official of Iran’s Ministry of Economic Affairs and Finance that Tehran was struggling to pay overtime, bonuses and pensions. The government had been selling surplus properties to acquire the needed funds to make ends meet, but the parliament temporarily stopped the practice on legal grounds. 

Whatever the case may be, the government is clearly hurting financially, and though it has the tools to temper public unrest, political patronage and protection come much easier with a fuller treasury.

It’s not entirely clear what more, if anything, the U.S. has in store for its maximum pressure campaign against Iran. Washington relied nearly exclusively on economic and diplomatic sanctions lately, so much so that it’s hard to imagine what else is left to sanction. 

It’s also unclear if Israel is truly prepared to move on Iran beyond airstrikes in Syria – or what would have to shift to change Israel’s mind. What is clear is that the U.S. has to settle the Iran question before it vacates Iraq, and that in the meantime, the Iranian people will bear the brunt of the suffering.  

As Luxury Watch Sales Slow, One Retailer Speeds Up

A stellar performance at Watches of Switzerland can’t be taken as a sign of a wider recovery for the travel-dependent industry

By Carol Ryan


Plunging tourist demand for luxury watches hasn’t held back one specialist retailer—quite the opposite. Unfortunately, there is little chance that its larger peers can mimic the performance.

Shares in Watches of Switzerland, a multi-brand seller taken public by buyout firm Apollo in June 2019, rose 22% in morning trading Tuesday. The company increased its sales and profit guidance following remarkably strong sales to date during its second quarter, which ends on 25 Oct. Sales for the first 10 weeks of the period are up 20% compared to the same weeks of 2019.

The company has experienced the same collapse in international business seen across the luxury-goods sector. Sales made to tourists and in Watches of Switzerland’s airport stores shrank to less than 10% of total revenue in the current quarter, down from one-third this time last year.




Exports of Swiss watches fell by 12% year over year, according to the Federation of the Swiss Watch Industry. / PHOTO: ARND WIEGMANN/REUTERS


Yet it is making up the difference, and then some, by selling to locals. This isn’t the case for the wider market: In August, exports of Swiss watches fell by 12% year over year, according to the Federation of the Swiss Watch Industry.

Watches of Switzerland’s footprint and focus are advantages for now. The company only has stores in the U.K. and U.S., where it has courted local customers. 

Even in more normal times, sales to Chinese nationals were under 10% of the total, compared to as much as 40% for a major luxury brand. Large listed watchmakers Swatch and Compagnie Financière Richemont, which owns Vacheron Constantin, are both taking a heavy hit in their empty European and Hong Kong boutiques now that the Chinese aren’t traveling.

Local clients are still keen to spend on the right brand. Watches of Switzerland makes around 60% of its sales from three of the best in the industry: Rolex, Patek Philippe and Audemars Piguet. 

Long waiting lists for these companies’ products keep a floor under demand. As all three manufacturers are privately owned, Watches of Switzerland is the only way for investors to get exposure to their healthy sales growth.

Of course, a retailer will never achieve the same margins as a big luxury watch manufacturer—one reason why Watches of Switzerland’s shares trade at 20 times next year’s earnings, compared to 36 times for Richemont. 

The retailer’s high exposure to the U.S. market may also be a drag as political turbulence rises ahead of the November election. 

Yet other listed companies in the Swiss watch business will struggle to show the same resilience in this crisis.

A new cold war: Trump, Xi and the escalating US-China confrontation

In the first of a series, Gideon Rachman explores how the rivalry between the two superpowers is starting to feel eerily familiar

Gideon Rachman in London

        © FT montage; Getty. Then: Truman vs Stalin. Now: Trump vs Xi


“From Stettin in the Baltic to Trieste in the Adriatic, an ‘iron curtain’ has descended across the continent.” Winston Churchill’s speech in Fulton, Missouri, in March 1946 is remembered as a key moment in the outbreak of the cold war.

If future historians are ever looking for a speech that marked the beginning of a second cold war — this time between America and China — they may point to an address by Mike Pence delivered at Washington’s Hudson Institute in October 2018. “China wants nothing less than to push the United States of America from the western Pacific . . . But they will fail,” the vice-president declared. “We will not be intimidated and we will not stand down.” Pointing to China’s political system, Mr Pence argued: “A country that oppresses its own people rarely stops there.”

For students of the first cold war between the US and the USSR, some of this sounded eerily and worryingly familiar. Once again, the US is facing off against a rival superpower. Once again, a military rivalry is taking shape — although this time, the main theatre is the western Pacific rather than central Europe. And once again, the conflict is being framed as one between the free world and a dictatorship. To add to the sense of symmetry, the People’s Republic of China, like the Soviet Union, is run by a Communist party.

Even in the past few months, the deterioration in relations between the US and China has rapidly gathered pace, against the backdrop of a feverish election campaign in the US. Military tensions in the Pacific are rising. Taiwanese officials say the September exercises by the Chinese military within its air defence buffer zone were the most significant threat to its security since Beijing launched missiles into the seas around the island in 1996. The US has a commitment to help the country defend itself.


The US has moved aggressively to block Chinese technology firms, such as TikTok and Huawei — from expanding their international operations, or buying US-made computer chips. China and America are even indulging in tit-for-tat expulsions of journalists.

And coronavirus, which originated in China, has devastated the global economy and led to more than 200,000 deaths in America. President Donald Trump, who is currently in hospital after testing positive for the virus, has made it clear that he holds the government of China directly responsible for the pandemic.

In another confrontational speech that will probably be remembered by historians, secretary of state Mike Pompeo warned in July that five decades of engagement with China had been a failure.

“If we don’t act now, ultimately, the [Chinese Communist party] will erode our freedoms and subvert the rules-based order that our free societies have worked so hard to build,” he said, speaking at the Californian library of Richard Nixon, the president who reopened ties with Beijing during the cold war. “The old paradigm of blind engagement with China simply won’t get it done. We must not continue it. We must not return to it.”

New uncertainty

For Joseph Nye, a professor at Harvard University and former senior Pentagon official, US-China relations are now “at their lowest point in 50 years”.

There is even a fear that, as in the cold war, the world could increasingly divide into two blocs — one that looks to Washington and one that looks to Beijing. That may sound implausible in a world of globalised supply chains. But, especially in the tech sector, there are signs that this is already starting to happen.

As the Huawei case illustrates, the US is now clearly leaning on its allies to cut tech ties with China — and, in some cases, such as in Britain and, to an extent, Germany, the pressure is working. China, however, is also building its own global network of influence through trade and its Belt and Road Initiative — which could involve loans and investment of up to $1tn in infrastructure development outside China.

Henry Kissinger, the former US secretary of state who helped bring about the rapprochement between the US and China in the 1970s, said last year that Beijing and Washington were now in the “foothills of a cold war”.

If China’s growing technological prowess has captured US attention this year, its defence capabilities are also driving the growing anxiety. China’s rapid military build-up has altered the balance of power between Beijing and Washington. The Chinese navy now has more ships than the US navy — and they can all be concentrated in the western Pacific. China has also developed a formidable range of missile and satellite weaponry that could threaten American aircraft carriers and disrupt the US military’s communications.

In a recent article, Michèle Flournoy, who is tipped as a possible US defence secretary if Joe Biden wins the presidential election, worried that “dangerous new uncertainty about the US ability to check various Chinese moves . . . could invite risk-taking by Chinese leaders”, adding: “They could conclude that they should move on Taiwan sooner rather than later.”

Since President Xi Jinping came to power in 2012, China has become more assertive overseas and more authoritarian at home


Ms Flournoy’s recommendation is that America should strengthen its military capacity, so as to restore deterrence. The fact that a prominent Democrat is taking this position points to an important aspect of the new US-China rivalry: it will not disappear if Mr Trump loses the White House in the presidential election.

There is no doubt that the current US president uses much more confrontational language with China (and indeed most countries) than any of his predecessors. Mr Trump’s single-minded focus on the US trade deficit with China and his protectionist policies are also distinctive. 

But Mr Trump may have helped to bring about a permanent shift in orthodox opinion in Washington. Daniel Yergin, an economic historian, notes that “while Democrats and Republicans hardly agree on anything today in Washington, one thing they do agree on is that China is a global competitor and that the two countries are in a technology race”.

A Biden approach to China would place more emphasis on American alliances than the Trump administration, and would probably make less use of tariffs. The Democrats would also look to work with China on climate change. But a Biden administration would not alter the basic premise of the Trump policy — which is that China is now an adversary.


In Beijing, this move towards a “cold war mentality” is decried — and is often attributed solely to America’s supposed refusal to accept a multipolar world. It probably is the case that there is a bipartisan determination in Washington to retain America’s status as “number one”. But the Chinese view skates over the extent to which Beijing itself has contributed to the emergence of a second cold war.

Since President Xi Jinping came to power in 2012, China has become more assertive overseas and more authoritarian at home. Beijing’s construction of military bases across the South China Sea has been perceived in Washington as a direct challenge to American power in the Pacific. 

Constitutional changes that would allow Mr Xi to rule for life, the crackdown in Hong Kong and the mass imprisonment of the Uighur minority have all driven home the message that China is becoming more dictatorial — dashing any remaining hopes in Washington that economic modernisation in China would lead to political liberalisation.

Winston Churchill delivering his speech ‘The sinews of peace’ at Fulton, Missouri, in March 1946 is remembered as a key moment in the outbreak of the cold war © Popperfoto via Getty


An increasingly wealthy, illiberal and aggressive China is much easier to see as a dangerous rival that needs to be confronted. In public the Chinese leadership continues to decry the “zero-sum thinking” of the Americans. 

In private, however, the Xi leadership seems to regard the US as a dangerous rival, intent on overthrowing Communist party rule. As long ago as 2014, Wang Jisi, a well-connected Beijing academic, wrote that China’s leadership was preoccupied by “alleged US schemes to subvert the Chinese government”.

If continuing rivalry between the US and China is inevitable, how do the two sides match up?

It is generally acknowledged that the military gap between Washington and Beijing has narrowed considerably. But the US has a network of allies that China cannot replicate. There is no “Beijing Pact” to rival the Warsaw Pact that once bolstered the Soviet Union. 

On the contrary, other key powers in the Indo-Pacific region are treaty allies of the US, including Japan, South Korea and Australia. And India, while it is not a formal ally of the US, is likely to tilt towards Washington following the recent deadly confrontations between Indian and Chinese troops on the two nations’ disputed border.

     US president Donald Trump, left, has made it clear that he holds the government of China directly responsible for the coronavirus pandemic © Andy Wong/AP


However, if America stood aside in the event of a Chinese assault on Taiwan, then the US alliance system might not survive the shock. Conversely, if the rivalry between Beijing and Washington never escalates into military confrontation, then China has other assets it can deploy. It is the largest trading partner for more than 100 nations; compared with 57 nations for America.

China is also a plausible rival to the US in a tech race. It is clear that some Chinese tech firms are vulnerable to cut-offs of key American components — in particular computer chips and semiconductors. On the other hand, China is ahead in certain technologies, such as mobile payments, and it is a formidable competitor in other areas such as artificial intelligence and medicine.

A scientific rivalry between America and China is certainly reminiscent of the US-Soviet rivalry, which was driven by a space race.


Vice-president Mike Pence said at Washington’s Hudson Institute in October 2018: 'China wants nothing less than to push the United States of America from the western Pacific . . . But they will fail' © Jacquelyn Martin/AP


Integrated rivals

But while the parallels between the current US-China rivalry and the start of the cold war are striking, there are also some important differences. The most obvious is that the economies of the US and China are deeply integrated with each other. Trade between China and the US amounts to more than half a trillion dollars a year. 

China owns more than $1tn of US debt. Important American companies rely on making and selling their products in China. Manufacture of the Apple iPhone is built around a supply chain based in southern China. There are more Kentucky Fried Chicken restaurants in the PRC than in the US.

This economic intertwining has also created a degree of social convergence. China may be run by a Communist party, but its major cities are throbbing with commercial life, private enterprise and western brands, and could never be mistaken for the grey uniformity of Soviet Russia. 

“Chinese society is more similar to American society than Soviet society ever was,” Yale University historian Odd Arne Westad noted in Foreign Affairs magazine.

There are also strong scientific and educational ties between China and the US. Mr Xi’s daughter was educated at Harvard. Stalin’s daughter was not sent to Yale.

China is also a plausible competitor to the US in a tech race, reminiscent of the US-Soviet rivalry driven by a space race © Aleksandar plaveski/EPA-EFE


Given the levels of economic and social integration between the US and China, some scholars argue that the cold war may not be the best historical analogy — although some of the other potential comparisons are no less alarming. 

Margaret Macmillan, who has written a history of the origins of the first world war, thinks the “more important parallel is the UK and Germany before 1914”. 

This was a classic great power rivalry between an established and a rising power. At the time, some argued that the extent of economic integration between Germany and Britain made war both irrational and unlikely. But that did not prevent the two nations sliding into hostilities.

Mr Westad, an expert both on China and the cold war, points out that, unlike the Soviet people in 1946, the Chinese have enjoyed 40 years of peace and prosperity. 

Therefore, “in a crisis, the Chinese are more likely to resemble the Germans in 1914 than the Russians after the second world war — excitable, rather than exhausted,” he says.

A yearning to test and demonstrate national strength is certainly visible in nationalist circles in China. Hu Xijin, editor of the Global Times newspaper, tweeted in July that China “is fully capable of destroying all of Taiwan’s military installations within a few hours, before seizing the island shortly after. Chinese army & people have such self-confidence.”

The Chinese navy now has more ships than the US navy, and they can all be concentrated in the western Pacific © Reuters


Another historical analogy, less discussed in the west but often heard in Tokyo, is the clash between Imperial Japan and the US that reached an endpoint in the second world war. As a senior Japanese diplomat sees it: “The Chinese are making the same mistake we made, which is to challenge American hegemony in the Pacific.” 

But at the time of Pearl Harbor, the Japanese economy was just 10 per cent the size of America’s. China, by contrast, now has an economy that is two-thirds the size of America’s — and larger when measured by purchasing power.

There is one further aspect in which the comparison between modern China and the Japan of the 1930s is suggestive. Imperial Japan argued that it was liberating Asia from western imperialism (countries invaded by the Japanese, such as China and Korea, did not see it that way). 

There is a similar hint of a “clash of civilisations” in some Chinese nationalist discourse — in which the rise of China is portrayed as ending centuries of domination of the global order by white, western nations.

The Anglo-German rivalry and the US-Japanese confrontation culminated in war. But they broke out in an age before nuclear weapons. By contrast, the threat of nuclear annihilation defined the cold war. 

Perhaps as a result, US and Soviet forces never clashed directly during the cold war, although they often battled through proxies. Yan Xuetong, a prominent scholar at Tsinghua University in Beijing, has argued that fear of nuclear conflict makes it unlikely that China and America will ever go to war — which would make the current US-Chinese confrontation more like the cold war, than the run-up to the two world wars.


Michèle Flournoy, tipped as a possible US defence secretary if Trump loses the election, said the US should strengthen its military capacity to restore deterrence . . .  © Mark Wilson/Getty

. . . suggesting the new US-China rivalry will not disappear if Democrat Joe Biden enters the White House  © Kevin Dietsch/Bloomberg


Strength of systems

But perhaps the most intriguing comparison is about how the cold war ended, rather than how it began. The contest was not settled on the battlefield or in space. In the end, it was determined by the relative resilience and success of the two societies — the US and the USSR.

Ultimately, the Soviet system simply collapsed under the weight of its own internal problems. (Ironically, this was the fate that Communists had long predicted for the capitalist system). The USSR’s fate vindicated the strategy first sketched out by the American diplomat George Kennan, who in 1946 had advocated the patient containment of Soviet power while awaiting the system’s ultimate demise. Kennan also argued that the vitality of America’s own system would be crucial in any contest with the USSR.

It is this last comparison which should disquiet the Americans and their allies most. 

The current presidential election threatens to provoke a crisis in the American democratic system of a sort that has not been seen since the 19th century. 

Even if the US achieves the peaceful transition of power that Mr Trump has failed to guarantee, the Trump era has revealed social and economic divisions that have turned America inwards and damaged the country’s international prestige.

A yearning to test and demonstrate national strength is certainly visible in nationalist circles in China © Thomas Peter/Reuters


The spectacle of the Trump-Biden contest has strengthened the sense in China that the US is in decline. Eric Li, a trustee of the China Institute at Shanghai’s Fudan University, inverts the cold war analogy — by casting the US as the USSR, in the grip of an “existential brawl between two near octogenarians”, referring to Mr Trump and Mr Biden. 

“Remember [former Soviet rulers] Brezhnev, Andropov and Chernenko?” By contrast, according to Mr Li, “China today is the opposite of what the USSR was decades ago. It is practical, ascendant and globally connected.”

For all the confidence of pro-government intellectuals in China, like Mr Li, there is no doubt that Mr Xi’s China also has significant internal problems. As Mr Westad notes, it is “a de facto empire that tries to behave as if it were a nation-state” and the strains are showing from Hong Kong to Tibet to Xinjiang. But the PRC has also demonstrated an economic prowess that the USSR never possessed.

If the US and China are indeed embarking on a new cold war to determine which country will dominate the 21st century, the vitality of their domestic systems may ultimately determine who prevails.

The three pillars

Why, despite the coronavirus pandemic, house prices continue to rise

Monetary policy, fiscal measures and buyers’ preferences explain the unlikely boom


During the global recession a decade ago, real house prices fell by an average of 10%, wiping trillions of dollars off the world’s largest asset class. Though the housing market has not been the trigger of economic woes this time, investors and homeowners still braced for the worst as it became clear that covid-19 would push the world economy into its deepest downturn since the Depression of the 1930s.

That pessimism now looks misplaced. House prices picked up in most middle- and high-income countries in the second quarter. In the rich world they rose at an annual rate of 5% (see chart 1). Share prices of developers and property-traders fell by a quarter in the early phase of the pandemic, but have recovered much of the fall.

Some markets are fizzing. In August house prices in Germany were 11% higher than the year before; rapid growth in South Korea and parts of China has prompted the authorities to tighten restrictions on buyers. 

In America growth in the median price per square foot accelerated more quickly in the second quarter of 2020 than in any three-month period in the lead-up to the financial crisis of 2007-09. Three factors explain this strength: monetary policy, fiscal policy and buyers’ changing preferences.


Consider monetary policy first. Central bankers around the world have cut policy rates by two percentage points on average this year, reducing the cost of mortgage borrowing. Americans can take out a 30-year fixed-rate mortgage at an annual interest rate of just 2.9%, down from 3.7% at the beginning of the year. 

Studies suggest a strong link between falling real interest rates and higher house prices. Some borrowers can afford to take out bigger mortgages; others find it easier to manage their existing loans. 

Landlords are willing to pay more for property, because yields on other assets have dropped. In both America and Britain, mortgage lending is running at post-financial-crisis highs.

That is not to say that it has become easier for everyone to borrow. In fact, obtaining a mortgage has become harder for many. Brokers, fearful of the long-term economic impact of covid-19, have pulled back on riskier lending. British banks, for instance, are offering fewer high-loan-to-income mortgages. 

In America few loan officers at banks said they were tightening lending standards before the pandemic; now 60% do. In contrast with previous periods of strong house-price growth, there is little evidence of lax lending standards.

Fiscal policy, the second factor, may therefore be more important in explaining buoyant prices. In a normal recession, as people lose jobs and their incomes fall, foreclosures drag house prices down—not only by adding to the supply of houses on the market, but also by leaving ex-homeowners with a blemish on their credit history, making it harder for them to borrow again. 

But this time governments in rich countries have preserved households’ incomes. 

Handouts through wage subsidies, furlough schemes and expanded welfare benefits amount to 5% of gdp. In the second quarter of the year households’ disposable incomes in the g7 group of large economies were about $100bn higher than they were before the pandemic, even as jobs disappeared by the millions.

Other measures directly support the housing market. Spain, for instance, has allowed borrowers to suspend their mortgage repayments. Japan’s regulators have asked banks to defer principal repayments on mortgages, and the Netherlands temporarily banned foreclosures. 

In the second quarter the number of owner-occupied mortgaged properties that were repossessed in Britain was 93% lower than in the same period in 2019, the result of policies that dissuade repossessions. In America foreclosures, as a share of all mortgages, are at their lowest level since 1984.

The third factor behind the unlikely global housing boom relates to changing consumer preferences. In 2019 households in the median oecd country devoted 19% of spending to housing costs. 

With a fifth of office workers continuing to work from home, many potential buyers may want to spend more on a nicer place to live. Already there is evidence that people are upgrading their household appliances.



People also seem to be looking for more space—which, all else being equal, raises house prices. Though the New York and San Francisco housing markets look weak, there is little wider evidence to support the idea that people are fleeing cities for the suburbs, at least in America. 

Data from Zillow, a housing marketplace, suggest urban and suburban property prices are rising at roughly the same pace; price growth in the truly get-away-from-it-all areas is actually slowing (see chart 2). 

It seems more likely that people are looking for bigger houses near where they already live. 

In Britain prices of detached houses are rising at an annual rate of 4%, compared with 0.9% for flats, and the market for homes with gardens is livelier than for those without.

Can house prices continue their upward march? Governments are slowly winding down their economic-rescue plans, and no one knows what will happen once support ends. But lower demand for housing may run up against lower supply. High levels of economic uncertainty deter investment: in America housebuilding has fallen by 17% since covid-19 struck. 

The experience of the last recession suggests that even when the economy recovers, construction lags behind. 

It may take more than the deepest downturn since the Depression to shake the housing market’s foundations.

Chile’s pension funds join global gold ETP rush

Rule change adds the products to the list of permitted alternative assets

Steve Johnson

The relaxation is part of a brace of reforms in Latin America that could help breathe new life into the region’s stuttering ETF industry © Dreamstime.com


Chilean pension funds have been given the go-ahead by the country’s financial regulator to invest in gold exchange traded products for the first time.

The relaxation is part of a brace of reforms in Latin America, alongside Brazil’s decision to allow cross listings of overseas exchange traded funds in the form of depositary receipts, that could help breathe new life into the region’s stuttering ETF industry.

Felipe Cousiño, a partner at Alessandri, a Chilean law firm, said the move was part of an ongoing relaxation of the rules around the pension industry, the most developed in the region with about $200bn of assets, two-thirds of Chile’s gross domestic product.

Once restricted to liquid assets, a 2018 reform allowed pension funds to invest in alternative assets, such as private equity, private debt and infrastructure and real estate funds, for the first time. Gold ETPs have now been added to the list, provided they meet various standards around size, manager experience and ratings.

In the past “the legislature saw commodities, or anything exposed to commodities, as unnecessarily risky for Chilean pension funds”, Mr Cousiño said, amid concerns over the potential for high levels of volatility.

Chile’s pension fund industry has often been viewed outside the country as a model for other emerging markets to follow, even being described as the “Mercedes-Benz” of retirement provision.



Introduced in 1981 as part of the free-market reforms of the Augusto Pinochet dictatorship, the system sees those in formal employment pay a mandatory 10 per cent of their wages, up to certain limits, into a defined contribution pension fund.

It has been copied by more than 30 countries across Latin America, south-east Asia and eastern Europe.

However many Chilean workers are now retiring on far less than they expected. Anger over the size of the payouts, as well as the fees taken by private pension fund managers, known as AFPs, was one of the drivers of a series of violent street protests that engulfed the country last year and left at least 19 people dead.

The problem of low retirement income is likely to be further exacerbated by a ruling earlier this year that allowed workers to withdraw up to 10 per cent of their accumulated savings in order to cope with the dislocations caused by the coronavirus pandemic, an option that most have taken up, Mr Cousiño said.

“In view of the relatively low returns that have been obtained by traditional investment products, the legislature and regulator have realised that it has become necessary to broaden the scope of eligible instruments for Chilean pension funds in order that they have exposure to other types of assets,” he added.

Given that the relaxation could increase diversification and add stability to pension funds’ net asset value, Mr Cousiño argued it was “a welcome development for the industry, seen as providing another element in its toolbox”.

AFPs, each of which can run up to five funds, structured to match different investment profiles, will now decide whether or not to embed gold ETPs in their portfolios.

Deborah Fuhr, founder of ETFGI, a consultancy, said she saw scope for the funds to take up this option. “This year the net inflows to gold have been very high. It’s seen as an inflation hedge and a safe haven. For a lot of investors in Latam, investing in gold has been something they want to do,” she said.

Globally, gold-backed ETPs saw net inflows of $55.7bn in the first nine months of 2020, up from $19.2bn during the whole of 2019 and shattering the prior record of $24bn in 2016, according to data from Bloomberg and the World Gold Council.

This helped pushed the gold price to an all-time high of more than $2,000 an ounce in early August, although it has since retreated a fraction to $1,916. 

Four ETPs have so far been approved by Chile’s pension regulator, Mr Cousiño said, three London-listed WisdomTree funds and State Street Global Advisors’ New York-listed SPDR Gold Shares (GLD).