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Video: Understanding risk in relation to your investments

Wednesday, November 15th, 2017

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How to track down a ‘zombie’ Child Trust Fund

Wednesday, November 15th, 2017

Launched by the Labour government in 2005, A Child Trust Fund (CTF) was given to every child born on or after 1st September 2002 until just over nine years later at the start of 2011. CTFs were then replaced by Junior ISAs (JISAs) at the start of the austerity period. However, recent research has revealed that around 900,000 CTFs have since become ‘zombie’ accounts, lost and forgotten about in the intervening years.

If your child was born between 1st September 2002 and 1st January 2011, they will definitely have a CTF. How much is in there is dependent on a number of factors. At the start of the scheme, every child received a £250 voucher from the government, with children from lower income families receiving another £250 on top of that. This could be paid into either a cash account or an investment CTF by a parent. There was then a further government top-up when the child turned seven; friends and family could also pay into the CTF up to an annual limit, set at £4,128 in 2017/18.

The top up for seven-year-olds was axed and the initial voucher reduced to £50 in 2010, before the scheme was scrapped altogether the following year. How much is held in your child’s fund will therefore depend on when they were born during the CTF period, as well as how much growth the money has seen in the years since the money was paid in.

After sitting in limbo for a number of years since 2011, from April 2015 it’s been possible to transfer a CTF into a JISA, meaning that any money being held in your child’s name can now be invested as you see fit. If you have the paperwork for your child’s CTF you can contact the provider directly to start the process, otherwise you can use the Government website to locate any CTFs held by your children.

Once you’ve found your child’s fund, you’ll need to decide what to do with the money within it. One option is to move it into a JISA, which has the same annual investment limit as a CTF and protects your child’s money until they turn 18, at which point it becomes theirs. A JISA also has the added benefit of becoming an adult ISA once your child reaches their 18th birthday, whereas a CTF simply pays out a lump sum.

You’ll also need to choose whether to opt for a cash or stocks and shares JISA, so it’s a good idea to do some research into the best JISAs available on the market. If you’re unsure of what to go for, seeking professional financial advice is a good idea to ensure your child’s money is in the best place to grow for them. That way they’ll be able to see the value of good investment and enjoy a valuable nest egg as they enter adulthood – which is, of course, what the CTF was originally intended to do.

Too late to start saving?

Wednesday, October 11th, 2017

Not beginning to save towards your retirement until you reach your fifties would not so long ago have been considered leaving matters far too late to put anything meaningful away for your life after work. Previous generations saw building a pension as something to do over an entire career, with contributions throughout your working life coupled with investment growth being the only way to ensure your retirement pot was substantial enough to provide for you throughout your retirement.

However, whilst compound interest still means that anything put away at the start of your career will see some serious growth by the time you need it much later in your life, the reality today for many young people is that they simply have very little to invest when they first begin work. Many may find that they won’t be able to begin saving seriously until they reach middle age.

The reasons for this are several. First of all, your wages are statistically likely to reach their peak for women during their forties and for men in their fifties. Secondly, as the average mortgage term is twenty-five years, most people who bought their home in their twenties are likely to have finished paying it off by the time they reach their fifties. A third key reason is the declining cost of raising children. Whilst it’s unlikely that you’ll stop giving them financial support completely, if you’ve had kids in your twenties or thirties it’s probable that the cost of providing for them will have gone down a great deal by the time you’re heading towards 50.

With considerable tax relief on both ISA investments and pensions, it’s now possible to build a healthy retirement fund even if you only start saving in your fifties. For example, someone with no existing savings, earning £70,000 annually, who started saving the maximum permitted yearly amount of £40,000 at age 50 could amass a pension pot of £985,800 by the time they turn 67, assuming a 4% annual return after charges.

£40,000 a year might sound like a huge amount to save every year, but this amount includes the generous tax relief enjoyed by pension savings. Our £70,000 earner would only need to put away £27,000 of their own money in order to reach the £40,000 contribution, whilst a basic rate taxpayer would need to contribute £32,000 to achieve the same.

So, whilst it’s sensible to begin saving as early as you can, it is possible to begin putting money away when you reach middle age and ensure you have enough to provide for yourself later in life. The last ten years of your working life can reasonably be seen as some of the most important in terms of preparing for your retirement.

October market commentary

Wednesday, October 4th, 2017

Well, we’re still here. Despite the seemingly best efforts of the leaders of the United States and North Korea – the world is still turning. But September was a month of ‘another day, another North Korean rocket flying over Japan’ and it ended with Kim Jong-un threatening to explode a nuclear bomb over the Pacific. Small wonder that South Korea is creating a special military unit with only one aim, which does not bode well for Kim.

Meanwhile, central bankers have warned that, well… they seem to have lost $13tn. The Bank for International Settlements has warned that this amount may be missing from global balance sheets because, apparently, international standards do not require such a trifling sum to be included. The authors of the report say that the debt ‘remains obscured from view’ – which rather makes $13tn sound like your TV remote.

Throw in the devastating effects of Hurricanes Harvey, Irma and Jose and September was a month where it was difficult to find any good news. At least with it being Party conference season there may be some positive policies announced: although it could be said the Prime Minister is clinging to a life raft with the sharks circling, as she makes her major speech.

UK
September saw the Labour Party getting together in Brighton, which could either be viewed as a triumph for Jeremy Corbyn and his ‘government in waiting’ as they outlined a clear vision for a stronger, fairer Britain or a party that would bankrupt the country within three months of taking office, depending on your view.

Meanwhile, the Conservatives are in Manchester, as Theresa May seeks to re-assert her authority following the disastrous General Election campaign. Having spent virtually all the election campaign deriding Labour’s ‘magic money tree’ Theresa May seems to have, well, magically found one at the bottom of her garden. Student loans, Help to Buy, lifting the public sector pay cap, £1bn to keep the Democratic Unionists onside… Philip Hammond’s Autumn Budget – now scheduled for 22nd November – is certainly going to be interesting.

Away from the Westminster plans and plots, the month started well as figures for August showed that UK manufacturing had hit a four month high, and later in the month it was reported that it had moved up one place in the ‘league table’ to become the 8th largest in the world. Unfortunately, the service sector couldn’t match this progress as the August figures recorded the slowest growth for 11 months.

Nevertheless, UK unemployment continues to fall – it is now down to 4.3%, down from 4.4% in the previous quarter and the lowest level since 1975. However, wages continue to stagnate, and with inflation hitting 2.9% many people are still seeing a fall in real wages.

What of interest rates? The month started with a suggestion from the Bank of England that there would be no rises for ‘at least a year:’ however by the end of the month Governor Mark Carney was expecting a rate rise “in the near term” – which could apparently be as early as November.

…And there was more gloom to end the month as credit ratings agency, Moody’s, downgraded the UK’s credit rating from Aa1 to Aa2, following earlier downgrades by the other major agencies. UK growth for the second quarter of the year was also revised down to 1.5% from an earlier 1.7%.

How did all this translate to the stock market? The FTSE 100 index of leading shares was down just 1% in September, opening the month at 7,431 and closing at 7,373.

Brexit
News for the Brexit part of the commentary this month wasn’t hard to come by. ‘Michel Barnier vows to ‘educate’ UK over consequences of leaving’: ‘May has accepted a £50bn exit bill’: ‘Europe to block Brexit trade talks until December’: ‘May goes to Canada to seek trade deal’… And so it goes on: but as in previous months, the end result seems to be very little progress, despite Theresa May’s speech in Florence.

It was thought that progress might well speed up after the German elections but as you will read below, these have been anything but decisive, and Angela Merkel will have plenty of domestic issues to consider before she thinks about Brexit.

In the same way that the Labour Party are now apparently ‘war-gaming’ a run on the pound should they come to power, so the Government are supposedly doing the same with the prospect of ‘no deal’ by March 2019. It is looking increasingly likely…

Europe
The big news in Europe was the German elections, held on the last Sunday in September. They were largely seen as rubber-stamping another four years as Chancellor for Angela Merkel: four more years with ‘Mutti’ leading Germany and – by extension – Europe.

In the event, the Christian Democrat vote was down nearly 10% to 32.9%: the Social Democrats recorded their worst result since the war, with just 20.5% of the vote, and in third – with 12.9% of the vote – was the right-wing anti-immigration party, Alternative fur Deutschland (AfD).

Where did that leave Merkel? Substantially weaker: the Social Democrats have gone into opposition to lick their wounds, and Merkel is likely to be left with what is scathingly referred to as ‘the Jamaica Coalition.’ Based on the colours of the respective parties, this is a coalition between the Christian Democrats, the Free Democrats (roughly equivalent to the Liberals in the UK) and the Green Party.

Will it work? There could be months of wrangling, with Greens leader Katrin Goring-Eckardt saying in a TV debate, “Naturally there’s a lot that divides us. I’m not sure that we will succeed.” Does this leave a vacancy for a new de facto leader of Europe? French President Emmanuel Macron certainly seems to think so…

Despite this uncertainty, there was good news as the ECB predicted the fastest Eurozone growth since 2007, forecasting economic growth of 2.2% for this year It’s unlikely this figure will be repeated at Ryanair as the company pulled off one of the biggest PR disasters of recent times, cancelling any number of flights thanks to not organising their pilots’ holidays properly. The bill won’t reach the $30bn that the emissions scandal has supposedly cost Volkswagen but you suspect that the company will take a long, long time to recover.

At least, there were no shades of Ryanair for Europe’s leading stock markets: the German DAX index closed September up 6% at 12,829 and the French market jogged happily along in its wake, rising 5% to finish at 5,330.

US
The damage done to the Caribbean and the southern states in the US by the recent hurricane season has been well-documented. One estimate now puts the repair bill in Texas at $180bn following Hurricane Harvey.

It seems heartless to turn from that to Facebook’s cash mountain – but I am duty bound to report that the company’s revenues and profits soared in the second quarter, with more than 2bn people now logging into the site each month. The firm’s revenues hit $9.3bn for the April to June period, up 45% year-on-year, as profits for the quarter rose to $3.9bn.

It was mixed news for Apple, as they suffered a ‘major data breach’ ahead of the launch of the iPhone X, but then unveiled a phone that was seen as a major leap forward and ‘the future of the mobile phone.’ Or in many cases, the future of parents asking their children for help…

Worryingly, Toys-R-Us filed for bankruptcy protection: with an increasing number of malls threatened with closure over the next five years, you have to ask if this is a straw in the wind – and whether Amazon and other online retailers will now do to out of town shopping what they have done to so many high streets in the US and the UK.

The Dow Jones Index chose to side with Facebook rather than Toys-R-Us, and it rose 2% in September to end the month at 22,405.

Far East
There were two significant events in the Far East in September. In Japan, Prime Minister Shinzo Abe called a snap general election, looking to take advantage of opposition disarray and seeking support for his hard line against North Korea. Abe said the election would be a judgement on his spending plans and his handling of the Korean crisis. The election is due to be held on 22nd October and at the moment Abe and his Liberal Democratic Party have a comfortable lead in the polls. Then again we have seen other leaders with healthy poll leads call snap general elections…

We have written previously in this commentary about China’s mounting debt and credit problems, and in September credit ratings agency, Standard & Poor’s, cut China’s rating by one point from AA- to A+. This was down to worries about the build-up of debt in the country and puts China on the same level as Ireland and Chile.

The downgrade comes just a month before the Communist Party Congress, which is held only twice every decade and sets economic policy for the next five years: at the moment the Chinese Government has a target of 6.5% growth for this year.

Other than that, the rulers in Beijing were in the mood for banning things: bike sharing apps have now been banned in Beijing thanks to traffic chaos and safety concerns, and the government is also planning a ban on both petrol and diesel cars ‘in the near future’ as China looks to curb pollution and boost its electric cars industry.

Boosted by the likely return to power of Shinzo Abe, the Japanese market led the way in the Far East, rising 4% in the month to 20,356. The South Korean market was also up, albeit by only 1% to 2,394, while China’s Shanghai Composite Index was virtually unchanged at 3,349. The Hong Kong market fell back by 1% to end the month at 27,554.

Emerging Markets
One of the interesting things about writing this commentary is how a story which seemed crucial at the beginning of the month has been almost completely forgotten about by the end of the month. So it was in Emerging Markets, as September started with the BRICS summit – a meeting of the leaders of Brazil, Russia, India, China and South Africa. Chinese leader Xi Jinping told the delegates that an ‘open world economy’ was needed, with ever-increasing trade liberalisation. He told delegates that, “The development of emerging markets and developing countries won’t touch anyone’s cheese, but instead will diligently grow the world economic pie.” With China committed to massive investment in Pakistan you suspect that China and India may be squabbling over rather more important matters than pie and cheese in the long term…

Away from the kitchen and on the stock markets it was a good month for the Brazilian market, which was up another 5% to 74,294. The Russian index also did well as it attempts to regain some of the ground lost earlier in the year: it was up 3% in September to finish at 2,077. Not such a good month for the Indian market though, which closed down 1% at 31,284.

After an excellent year for the ‘And finally’ section of this report, September was a disappointing month. No-one accidentally locked himself in a cash machine, no Chinese toilets demanded facial recognition before they’d dispense loo roll and – only just back from holiday – there was no need for the new leader of Europe to spend thousands on make-up.

But there was an encouraging story from the world of technology, where the winner of the UK’s James Dyson Prize for Innovation was engineering graduate Ryan Yasin and his concept of ‘clothes that grow with your children.’ This is fantastic news for hard-pressed parents – and not just parents of toddlers. September is the month when many teenagers start university: they face the harsh reality of student loans and their parents face the equally harsh reality of ‘kitting them out’ with pots and pans and possibly even a textbook or two.

But at least new clothes won’t be an issue if Mr Yasin’s prototype clothes go into production. Freshers’ Week should be something to behold as everyone wanders round in their Thomas the Tank Engine tops and Mr Tickle trousers…

Kids off to Uni? But have you been saving enough?

Wednesday, September 6th, 2017

Recent figures from the Institute of Fiscal Studies suggest that the average total debt incurred by today’s university students over the duration of their studies amounts to £51,000. The new figure comes as those in higher education see the interest rate on student loans rise to 6.1% in September, despite the Bank of England base rate remaining at its lowest ever figure of just 0.25%. The rise means that students will now typically have mounted up £5,800 of interest by the time they graduate. Total student debt in the UK has now risen to £100 billion, a figure higher than the nation’s total credit card debt.

The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives. Frustratingly, however, around two thirds of those who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest.

An alternative option to consider is a Junior ISA (JISA) in the child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, and the best rate market rate for a cash JISA offers 3.25%. Saving the maximum amount at that rate for ten years would result in a nest egg of £49,427 tax free to cover university fees with plenty left over for other expenses.

Whilst a cash JISA offers dependability, a stocks and shares JISA is also worth considering as the potential reward on your investment can be higher. Both types of JISA can be opened at the same time with the allowance shared between them, so spreading your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of putting away for both your child’s future and your own. This is an option which needs careful planning, however, as you’ll need to make sure you have enough for your retirement before paying for your child’s education.

For those able to do so, it may also be worth speaking to your own parents about helping towards their grandchildren’s university costs. Rather than leaving money to a grandchild in their will, a grandparent might consider gifting towards fees and other expenses or placing the money in a trust, reducing their inheritance tax liability and allowing their grandchild to benefit from their legacy when they really need it.

£94bn lost by holding money as cash

Wednesday, September 6th, 2017

A new report has revealed that the UK’s working adult population has missed out on a staggering £94 billion over the past five years through failing to invest in the stock market and holding their money in savings accounts. The figure comes from public policy think tank, The Social Market Foundation, which has also found that more than £200 billion worth of cash is being held by savers above the recommended three months’ worth of income or ‘rainy day’ level of savings that should be kept available.

The think tank has urged the government to do more to inform and encourage savers about diversifying their savings and investments, as the figures suggest many are devaluing the money they’ve worked hard to put away, thanks to high inflation and low interest rates. More worryingly, the report reveals that more than 14 million working adults in the UK are not saving whatsoever and that more than 26 million have inadequate pension savings.

Had UK savers invested in peer-to-peer loans instead of the stock market or simply left the money sitting in a savings account, the returns they would have seen could have amounted to £40 billion. As such, the report recommends the government markets up to 25% of both its Future Britain Funds and National Productivity Investment Funds to the public. This would not only give savers the opportunity to grow their savings, but would also allow them to invest in the country’s future. This could lead to investment of at least £30 billion in these ‘Britannia bonds’ in the next five years, which would provide greater funding for infrastructure.

Another recommendation from the report suggests that the government give £1,500 to every 15-year-old from 2020, funded by money saved by reducing the ISA allowance. With the help of real life financial education, the teenagers would then use the money to invest in a range of asset classes. This would not only help young people to learn the benefits of wise saving and investment practices, but would also ensure they have at least some financial assets as they head towards life outside secondary education.

August market commentary

Monday, August 7th, 2017

July got off to the best possible start when Janet Yellen, Chair of the US Federal Reserve, announced that there would be no more financial crises “in our lifetime.” Speaking on a trip to London, she said that the reforms of the banking system since the 2007 to 2009 crash had “minimised the risk of a similar disaster happening again.” Phew, that’s alright then. And if you’re reading this commentary, Ms Yellen, just skip over the bit about Italy…

Sadly, the word ‘crisis’ isn’t just confined to banking. July was the month when Kim Jong-un got a little feisty with an ICBM launch at the beginning and end of the month. The Washington Post described the first test as ‘a grave milestone’ and the regime in Pyongyang claimed the second test brought ‘the whole of the US within range.’ At the beginning of August, CNN was reporting ‘unprecedented levels’ of North Korean submarine activity: the situation is only going to get worse.

In fact, there was plenty to worry about in July. Lloyds of London warned that a global cyber-attack could cost the world economy $53bn, there were simmering tensions between China and India and the IMF downgraded its growth forecasts for both the UK and the United States. Meanwhile, at the G20 summit in Hamburg President Trump fell out with all the other world leaders over climate change. Then he went back to Washington to sack most of his administration…

Despite all this, July was by and large a good month for world stock markets, with three of the markets we cover making appreciable gains and none seeing significant falls.

UK
There was mixed news for the UK economy during July. As we reported above, the IMF downgraded its forecast growth for the year, cutting it from 2.0% to 1.7%. There was also bad news on productivity – the constant theme running through George Osborne’s Budget speeches – which the Office for National Statistics reported had dropped back to pre-financial crisis levels.

Figures for May showed that UK manufacturing had fallen – although this was largely due to a 4.4% drop in car production – and consumer spending had its worst quarter since 2013 in the three months to June, with expenditure dropping 0.3% year-on-year.

Against this, unemployment fell a further 64,000 to 1.49m, bringing the unemployment rate to 4.5% – the lowest since 1975. The number in work rose to 32m, the highest figure ever recorded and up 324,000 on the previous year. London remains Europe’s leading tech hub and both Google and Amazon have recently announced plans for substantial new investment in the city.

Even retail sales gave a glimmer of hope (despite the downturn in consumer spending) as sales rose 0.6% in June for a quarterly jump of 1.5%. And having surged to 2.9% in May, inflation dropped back to 2.6% in June, helped by lower fuel prices.

The UK mirrored the example set by France (see below) in announcing that new petrol and diesel cars will be banned from 2040. BMW followed this announcement by revealing that its new electric Mini will be built in Cowley – giving a huge boost to the car industry and the West Midlands.

With economic growth in the second quarter of the year edging up to 0.3% from the 0.2% seen in the first quarter, it is probably fair to say that the UK ended July with its glass slightly more than half full. That was the view taken by the FTSE-100 index of leading shares, which closed the month up 1% (and 3% for the year as a whole) at 7,372. Helped by fears that a rate rise in the US will now be delayed, the pound ended the month at $1.3224 – it is now up by 7% against the dollar for the whole of 2017.

Brexit
Do you remember when you were at school? The teacher would go out for five minutes, tell you to carry on with your work and the class would immediately descend into chaos.

In July, that’s how it was with Her Majesty’s Government. Theresa May went on holiday and the class immediately started fighting over Brexit. Philip Hammond seemed to favour a never-ending transition period after leaving the EU and ‘friends of Boris Johnson’ muttered darkly in corners. Ultimately, 10 Downing Street announced that free movement would end in March 2019, but you really do suspect that no-one has any idea.

Business organisations – speaking via the CBI – definitely want some sort of transition deal after Brexit, but credit ratings agency, Moody, suggested that there was now a ‘substantial probability’ of no deal being reached. Given the fact that all 27 members of the EU will need to agree the deal and there is just 19 months to go until March 2019 that view is looking increasingly credible. With Europe now largely on holiday for a month and then the German elections due in mid-September, it is easy to see it being October before any significant progress is made.

Europe 
As in the UK so it was in France, with Ecology Minister Nicolas Hulot announcing a ban on the sale of any car that uses petrol or diesel fuel by 2040. There is some way to go however: at the moment, hybrid vehicles make up 3.5% of the French market, with pure electric vehicles accounting for just 1.2%. The announcement was part of a renewed commitment to the Paris climate deal, with Hulot saying that France planned to become carbon neutral by 2050.

However, both the UK and France were beaten to the punch by Volvo, with the Swedish-based, Chinese-owned company announcing that all its new models will have an electric motor from 2019. Geely, Volvo’s Chinese owner, has been quietly pushing ahead with electric car development for more than a decade and now plans to sell one million electric cars by 2025.

There was good news in Spain, as the economy grew by 0.9% in the second quarter of the year, finally taking it back to the size it was before the credit crunch of 2008. But there was less good news in Italy – this is the bit you might care to skip, Ms Yellen – where CNBC described the Italian economy as a ‘basket case.’ The country has €2tn of public debt, which is around 133% of the country’s GDP and – as we have reported in previous commentaries – several of the country’s banks have needed rescuing, burdened by loans that will simply never be repaid. ‘No more financial crisis in our lifetime’ is a laudable aim, but it reckons without the Italian banks.

…But let us leave Europe with our glass half full: the unemployment rate in the European Union has fallen to 9.1% – the lowest level since February 2009.

The major European stock markets were both down in July, but not by any significant amounts. The German DAX index fell 2% to 12,118 while the French stock market dropped just 1% to close the month at 5,094.

US
Let’s start by sparing a thought for Amazon boss, Jeff Bezos, who for one glorious day in July was briefly the richest man in the world as Amazon shares rose. Then they released disappointing figures, ungrateful investors sold the shares and poor old Jeff was back in second place, grubbing along on $89bn and still behind Microsoft boss, Bill Gates.

Not that July was a great month for Microsoft as it announced plans to cut ‘thousands’ of jobs worldwide in a bid to get its cloud computing business to compete more successfully with Google and – you guessed it – Amazon.

In the wider US economy, though, there was good news on US jobs as figures for June showed 220,000 new jobs created and unemployment remaining low at 4.4%. However, that was countered by bad news on retail with sales down by 0.2% for the month, against an expected 0.1% rise. Coupled with inflation falling to 1.6% this led many commentators to speculate that a future rise in interest rates would be postponed.

Google’s bottom line was hit as the company was handed a $2.7bn fine by the EU for promoting its own shopping comparison site at the top of search results – but that is just petty cash for Facebook, where advertising revenues for the second quarter climbed to $9.3bn with more than a quarter of the world’s population now logging onto the site each month.

There was even better news for the US at the end of the month as figures for the second quarter showed that the US economy had bounced back from weak growth in the first quarter, growing at an annualised rate of 2.6% between April and June. No surprise then that the Dow Jones Index finished the month up 3% at 21,891.

Far East 
The main story in the Far East was the growth of the Chinese economy in the second quarter of the year, which came in at 6.9%. That is equal to the growth in the first quarter and well ahead of the official target for the year, set at 6.5%.

Clearly, plenty of lenders are confident that the Chinese economy will continue to grow as figures from the Bank for International Settlements showed a surge in lending to China and Chinese companies: international banks lent $92bn to China in the first quarter of the year, well up on the same period in the previous year.

Woe betide us all if the Chinese economy ever slows down, but in the meantime there was no slowdown at Samsung as the South Korean tech giant reported record profits thanks to a surge in demand for memory chips. Profits were £9.3bn for the three months to June, up 72% on a year earlier.

China announced that it will now allow rice imports from the US – watch out for President Trump sacking his Rice Commissioner any day now – and also unveiled plans for a new ‘unhackable’ internet. To be centred on the town of Jinan, some 200 users from the military, government, finance and electricity sectors will be able to send messages secure in the knowledge that only they are reading them. No doubt that will be seen as a challenge by North Korean hackers…

As well as his successful missile tests, there was more good news for the Supreme Leader when figures showed that the North Korean economy had grown at its fastest rate for 17 years, largely based on mining, energy and exports to China. It is easy to see where North Korea is spending the money, and the month ended with more worrying news as China and India exchanged a war of words over disputed territory on the Doklam Plateau in the Himalayas, which is claimed by both China and Bhutan. China warned India – which is backing Bhutan in the dispute – that it will defend the territory “at all costs”.

Away from all the squabbling, what happened on the Far Eastern stock markets? The Chinese and Hong Kong markets both enjoyed a good month rising 3% to 3,273 and 6% to 27,324 respectively. The Japanese index was down 1% at 19,925 and the South Korean market barely moved – finishing just 11 points higher at 2,403. On a year-to-date basis, both the South Korean and Hong Kong markets have done exceptionally, with respective gains of 19% and 24%.

Emerging Markets 
For once a quiet month in the Emerging Markets section with – you will find this hard to believe – no Brazilian politicians being arrested for corruption. Instead, we will simply concentrate on reporting some encouraging performances on the major stock markets, with all three of the markets we cover up in July. The Russian index – after a very disappointing first half of the year – was up 2% to 1,920: the Brazilian market was up 5% to 65,920 and the Indian index up by a similar amount to 32,515. The Indian stock market is now up by 22% for the year as a whole.

And finally 
July was another fine month for the ‘And finally’ section of this commentary, beginning with a Texan contractor (understandably he preferred not to be named) who trapped himself inside a Bank of America ATM whilst changing the lock. He was rescued when a customer tried to withdraw $100 and instead received a note saying, ‘Please help, I’m stuck in here.’ He naturally thought it was a joke, but on failing to spot any TV cameras and hearing a faint voice coming from the hole in the wall, the customer decided to call the police…

…Never mind, perhaps machines will take over from those useless humans. Or maybe not. A security robot in Washington was tasked with patrolling the foyer of an office building. Instead, it patrolled itself straight into the building’s fountain and ‘drowned.’ So much for 21st Century technology. ‘We were promised flying cars,’ wrote one observer on Twitter, ‘Instead they’ve given us suicidal robots.’

Never mind, the makers of the robot can always console themselves with a cup of tea and Kit Kat – unless they happen to be in Japan. Nestle have opened a new factory there to make ‘exotic Kit Kats’ for which there is apparently a booming market in Japan. The new factory will make a range of flavours – among others – green tea and wasabi flavoured – maybe not to everyone‘s tastes..!

Sources

July market commentary

Friday, July 7th, 2017

June was a fairly quiet month.

Well, apart from the chaotic General Election in the UK. Oh – and the decisive win for Emmanuel Macron in the French parliamentary elections. And the start of the Brexit negotiations. And Italy was forced to bail out two more banks. President Trump pulled out of the Paris climate change agreement – and in Brazil, President Michel Temer was accused of corruption – the first sitting President in Latin America’s largest country to face criminal charges. Anything else? Just another global ransomware attack…

In fact, the only things that were quiet in June were the world’s leading stock markets. Of the 11 major markets we cover in this Bulletin, four were up, five were down and two were unchanged – but none of them by very much. If you wanted real excitement in June then you had to head to Greece, where the Athens Composite General, buoyed by EU ministers approving the latest Greek funding deal, was up by 6%.

UK

…But we begin the commentary with matters even more chaotic than the Greek economy: the UK General Election of 8th June. It was all meant to be so simple wasn’t it? Encouraged by a huge lead in the polls, record personal approval ratings and an opposition that appeared to be a shambles, Theresa May called the election as she sought her own mandate. Well, not so much an election, more of a coronation. But writing in the Telegraph in May, Nigel Farage sounded a warning note. “The more people see of Theresa May the less they like her,” he said. And so it proved. The Conservatives remain the largest party in the UK parliament, but have had to strike a deal with Northern Ireland’s Democratic Unionist Party. Meanwhile, the Prime Minister’s popularity continues to slump…

Away from the peace and quiet of politics, what of the UK economy? Figures for the first quarter of 2017, released by the Office for National Statistics, confirmed that UK growth was just 0.2% for the January to March period, putting the country next to Italy as the slowest-growing in the league table of the world’s advanced economies. The ONS also confirmed that inflation for May had risen to 2.9% and – with a figure in excess of 3% forecast for later in the year – most people are now suffering a fall in real wages. Not surprisingly, the ONS also confirmed that the UK savings ratio – the proportion of disposable income which households save – was at a record low, falling to 1.7% in Q1, down from 3.3% in the previous quarter.

So the UK glass is very much half-empty. Or is it? A recent CBI survey showed manufacturers’ order books at a 29 year high, with food, drink, tobacco and chemicals leading the way. The same survey showed export orders at a 22 year high: CBI Chief Economist Rain Newton-Smith said, “Britain’s manufacturers are continuing to see demand for ‘Made in Britain’ goods rising. Total and export order books are at highs not seen for decades, and output growth remains robust.”

This was reinforced when the World Bank upgraded their forecasts for UK growth over the next three years, increasing their estimate for 2017 to 1.7% from the 1.2% they had forecast in January. Growth expectations for 2018 and 2019 are 1.3% and 1.5% respectively.

Meanwhile, Rolls Royce has protected 7,000 engineering jobs in the East Midlands after announcing its biggest investment in the UK for more than a decade. It will be investing £150m in Derby, creating up to 200 extra jobs and safeguarding the other jobs for five years. Simon Hemmings, from the Unite union, said it was “a once in a generation investment and a big commitment to the UK.”

The FT-SE 100 index of leading shares closed the month down 3% at 7,313 as the pound rallied against the dollar, rising to $1.3026. The UK stock market is now up by 2.38% for the year as a whole: not a bad performance given the uncertainty surrounding the political situation and Brexit.

Brexit
The Brexit negotiations formally began on 19th June, 11 days after the General Election. So far – to use Macbeth’s phrase – we have seen plenty of ‘sound and fury’ but little of substance. However, several trade bodies have made their views known: the Engineering Employers Federation, for example, has called for a ‘softer’ Brexit, with access to the single market at the heart of the Brexit negotiations.

Equally, there have been plenty of dark mutterings in the corridors of Westminster: as Theresa May twists in the wind, Chancellor Philip Hammond is supposedly becoming an increasingly pivotal figure – and he is said to prioritise jobs and the economy over control of immigration.

However, it may well be that the real discussions don’t begin until after the summer holidays and the German elections in September. By that time the position of Theresa May should also be much clearer: if she survives the summer, she is likely to survive until the Conservative Party Conference in early October.

Europe
The big news in Europe continues to be French President Emmanuel Macron, who must surely be wondering what all the fuss is about. You decide to form a political party: a year later you are President. A month after that your party wins a majority. Politics, it is too easy…

His En Marche party did indeed win a majority in the parliamentary elections. Perhaps not as large as some of the early projections were forecasting, but En Marche and its allies in the centre took 350 of the 577 seats available. The real story, though, was the turnout, which fell below 50%, reflecting continued disillusionment with politics in France.

Turning to economic matters, the European Central Bank was in a bullish mood, increasing its forecast growth for the Eurozone in 2017 to 1.9% from the 1.8% it forecast in March. Growth is expected to be 1.8% next year and then 1.7% in 2019. ECB President Mario Draghi also forecast that Eurozone inflation will be 1.5% in 2017, down from an earlier forecast of 1.7%.

Also in a bullish mood was the German economy, with the trade surplus for April confirmed at €18bn and employment at the highest level since reunification. An extra 650,000 people were employed in May, taking the total in work to 44.1m.

And now to economies that are faring slightly less well…

Eurozone ministers have struck a deal to unlock the latest tranche of Greece’s bailout cash, releasing €8.5bn to the country. This will avert a debt crisis in July when the latest repayment of €7bn becomes due. So essentially, the EU has released money to Greece to pay back the money that was previously released to it: presumably that makes sense to someone… Meanwhile the Italian government was busy bailing out two Venice banks to the tune of €5.2bn: clearly it is not just the city that is sinking.

Also sinking were Europe’s leading stock markets. The French index was unmoved by the Macron majority and fell back 3% to close the month at 5,121. In Germany, the market was also down, falling 2% to 12,325.

US 
As we noted above, Donald Trump – as was widely expected – has pulled out of the Paris climate deal. Many US firms (Facebook, Goldman Sachs, Disney) reacted with horror to this latest demonstration of America First, but the coal industry welcomed the move, saying it would protect jobs and ease regulation. The Dow Jones Index seemed to broadly agree with the coal industry: it rose 0.6% on the news.

The US had added fewer jobs than expected in May, with payrolls increasing by 138,000 against the anticipated 180,000 – but this still resulted in unemployment falling further to 4.3%, the lowest level since 2001.

This perhaps prompted the Federal Reserve to raise interest rates for the second time this year, increasing them by 0.25% to a target range of 1% to 1.25%, the highest level since 2008. Chairman Janet Yellen said, “Our decision reflects the progress the economy has made and is expected to make.”

The IMF remained unimpressed and – citing ‘uncertainty about White House policies’ – trimmed its forecast for US growth to 2.1% for both 2017 and 2018, down from 2.3% and 2.5% respectively and well below the 3% the White House is targeting.

In company news, Facebook reached 2bn users, Amazon dipped into its back pocket and bought Whole Foods for $13.7bn and the EU competition commissioners gave Google a $2.7bn slap across the wrist for promoting its own shopping service.

More impressed than the IMF with White House policies and boosted by the news that US business confidence was at its highest for 3 years, the Dow Jones index closed the month up 2% at 21,350.

Far East 
We have written previously in this commentary about the scale of lending by Chinese banks, and many Chinese conglomerates have gone on spending sprees abroad on the back of it (several of them buying UK football clubs). However, President Xi Jinping, concerned about stability in the financial sector, has now launched a crackdown on these ‘financial crocodiles.’ It is generally felt among Western commentators that the Chinese financial sector is over-leveraged and under-regulated and this may possibly see the start of less financial investment overseas by Chinese conglomerates. Where it leaves the manager of your team if you need a new left back only time will tell…

One conglomerate that won’t be going shopping any time soon is Toshiba. Its troubles continued as it admitted that losses for 2016 may be even greater than previously forecast – perhaps up to £7bn from a previous estimate of £6.5bn. No such worries for Japan’s Softbank though, which bought Boston Dynamics, the robot-maker owned by Google’s parent company.

Three of the four major Far Eastern markets rose by 2% in June, with China’s Shanghai Composite Index closing at 3,192: the Japanese market went through the 20,000 barrier to end the month at 20,033 while the South Korean index continued its good recent run, ending June at 2,392. The only exception was Hong Kong, which was virtually unchanged at 25,765.

Emerging Markets 

As we noted above, Brazil’s President, Michel Temer, has now been formally accused of corruption, the specific charge being that at some point between March and April of this year the President took a bribe of $150,000 from Joesly Batista, the former chairman of a meat packing company. This is the latest salvo in an increasingly bitter war between the President and officials from the Department of Justice, who seem determined to build a case against him. The case will now go to the lower Chamber of Deputies, who must decide if the case has any merit.

There was some good news, however, as Brazil came out of recession after two years of negative growth during which the economy shrank by 8%. The longest recession in the country’s history was finally ended as growth of 1% was confirmed for the first quarter, with the economy boosted by a record harvest of soybeans, one of Brazil’s main exports.

The Brazilian stock market duly weighed up the good and bad news and decided to do nothing very much in June, ending the month virtually unchanged at 62,900. The other two major emerging markets we cover, India and Russia, were both down by 1% in the month, closing at 30,922 and 1,879 respectively. No – nobody accused that nice Mr. Putin of corruption…

And finally…
Can we find anything cheerful to end the commentary amid June’s doom and gloom? Perhaps not, as it appears that global beer sales are drying up. The International Wine and Spirits Record reported that worldwide beer sales were down by 1.8% last year, with overall alcohol consumption down by 1.3%. This marks a significant acceleration in the average fall of 0.3% seen over the last five years: the only bright spot on the horizon was the continuation of the gin revival. Worldwide sales of the iconic British drink rose 3.7% last year.

And what better to have with your favourite summer tipple than a new snack which is taking California by storm and has been hailed by Los Angeles lifestyle website ‘Hello Giggles’ as “genius.” West coast supermarket Trader Joe’s has been marketing the ‘Puff Dog’ – a beef sausage wrapped in puff pastry. Yes, ladies and gentlemen, the United States has finally invented the sausage roll…

Sources

Savings, investments & the political climate

Wednesday, June 14th, 2017

Whilst the country takes in the latest developments in the ongoing saga that is contemporary British politics, one question that many will be looking for answers to, is how the result of the general election is likely to affect them financially. It’s inevitable that savings and shares will be impacted upon in some way by Theresa May’s failure to convert her confidence in April into a larger majority in June and the resultant Conservative/DUP deal, as well as the wider ramifications the election outcome might have for the upcoming Brexit negotiations.

Following the election and the slight fall in the value of the pound, shares in many of the largest British companies went up. As companies dealing in dollars and other currencies benefit from a weakened pound, the FTSE 100 initially rose. However, ‘local’ companies dealing in sterling, such as Lloyds Banking Group, housebuilders Crest Nicholson and retailer Next all came out worse off, as did smaller companies linked to the UK economy.

As such, those with diversified pensions and ISA funds are likely to be no worse off than before the election, and doing significantly better than this time twelve months ago. However, it’s worth remembering that the uncertainty and volatility that are likely to be seen in UK politics in the coming days, weeks and months could result in shares and investments shifting further.

Whilst interest rates on both savings and mortgages were at historic lows before the election, capital markets pushed these still further down the day after polling day in order to absorb some of the shock of a result most had not predicted. This is just the latest setback for savers in a period which has seen rates declining consistently since the Bank of England lowered the Bank Rate from 0.5% to 0.25% in August 2016. With little competition between lenders, it’s more likely that rates will fall further than begin to climb any time soon.

The housing market too has been slowing since well before the election, making it a good time for those looking for a great deal on a mortgage to find one – but only if they meet the increasingly fastidious lending methods being used by lenders. The economic instability the country could potentially see in the coming months mean that criteria may tighten further, so those hoping to benefit from a low mortgage rate should do so sooner rather than later in order to avoid missing out.

June market commentary

Wednesday, June 7th, 2017

As we wrote last year, ‘It is tempting to think that Brexit is the only game in town.’ Cross out ‘Brexit’ and replace it with ‘General Election’ and the sentiment holds good. But the rest of the world keeps turning – or in May, grinding to a halt as the WannaCry ransomware attack hit more than 250,000 computers in more than 100 countries, with our own NHS being particularly badly hit.

Once the computers were back up and running, UK growth for the first quarter of 2017 was revised down, whilst US growth for the same period was revised sharply upwards. In France, new President Emmanuel Macron presumably had a small sip of champagne to celebrate his victory over Marine Le Pen.

Who knows what Kim Jong-un drinks, but he may have raised a glass of it to toast another successful missile test in North Korea, further adding to tensions in the Far East.

As to world stock markets, four of the major markets that we cover made good gains in May, whilst two – Russia and Brazil – suffered significant falls. As always, let’s look at the world’s various regions in more detail.

UK
May started with the now regular dose of bad news for traditional British retailers as Sainsbury’s profits fell by 8.2%. House prices were also heading in the same direction, with the Halifax reporting that prices fell by 0.2% in the three months to April, the first quarterly fall since November 2012.

The news was even worse if you are a diesel car owner, with a warning that many cars bought on finance deals could be heading for negative equity as their resale value continues to fall.

BT deepened the gloom by announcing plans to shed 4,000 jobs and the EY Item Club forecast that the UK jobless numbers would start to rise in 2018. The rate is currently 4.7% but the forecasting group is expecting an increase to 5.4% next year and 5.8% in 2019. In particular the Item Club’s report singled out Scotland, where it said automation posed a threat to 1.2m jobs.

By the middle of the month, the Bank of England had cut its growth forecast for the UK economy from 2.0% to 1.9% for this year, with Governor Mark Carney warning of a spending squeeze as inflation rises and real wages fall. Energy price rises saw the UK’s inflation figure up to 2.7% for April.

As we noted above, UK growth for the first quarter of the year was revised down from 0.3% to 0.2% and Government borrowing rose more than expected in April – it spent £10.4bn more than it received in April (£1.2bn more than in April 2016) as tax revenues stalled.

Something else which emphatically stalled was British Airways planes. The company was hit by what it described as a ‘massive system outage’ over the bank holiday weekend, leading to chaos at Heathrow and Gatwick – and ultimately to millions of pounds in compensation.

Despite all the gloom around in May the FTSE-100 index of leading shares enjoyed a good month. It broke through the 7,500 barrier for the first time and closed the month up 4% at 7,520.

Brexit
There was little to report on the Brexit front in May. There were, of course, a lot of words, negotiating positions and posturing, but with substantive talks due to start eleven days after the UK General Election May was something of a ‘phoney war.’

One interesting development was a poll in Germany which showed 88% of those asked, were in favour of the UK paying its debts to the EU, which are currently put at between £50bn and £100bn depending on who you believe. More than any other European nations the Germans want the EU to adopt a tough negotiating stance. With new French President, Emmanuel Macron, also saying he does not want the EU to compromise we can expect the two sides to be a long way apart when the negotiations begin.

Europe
A bad month all round for national carriers as Alitalia went into administration at the beginning of the month, albeit with the approval of the Italian government.

Emmanuel Macron comfortably defeated Marine Le Pen to become France’s youngest leader since Napoleon, but the level of abstentions and spoiled ballot papers suggested that Monsieur ‘None of the above’ would have had a real chance of winning had he been on the ballot paper.

The Euro predictably strengthened on the news of Macron’s victory – and the German economy predictably produced another thumping surplus. Figures for March showed exports at €118.2bn while imports climbed to €92.9bn. These were the highest figures ever recorded and gave a trade surplus of €25.3bn for the month. Angela Merkel said the surplus was due to the weak euro.

Meanwhile, Portugal, one of the countries originally considered likely to follow the same economic path as Greece, was pronounced back to fiscal health by the EU, as its budget deficit fell below 2% of GDP last year.

It was a quiet month for Europe’s major stock markets: the German DAX index was just 1% higher at 12,615 while the French index – having anticipated a Macron victory last month – was virtually unchanged at 5,284.

US
POTUS – the President of the United States – continues to make waves, headlines and enemies in equal measure. Last month, found him in Saudi Arabia signing trade deals which were worth an initial $110bn and may ultimately rise to $350bn. He promised to slash government spending on health and education and signalled the start of renegotiations of NAFTA – the North American Free Trade Association.

He did take time off to fire FBI director James Comey and global stock markets briefly fell in the ensuing turmoil which all led to the ‘will he be impeached?’ speculation. Never a dull moment…

Away from the peace and calm of the White House the unthinkable happened: sales of iPhones fell. Apple sold fewer iPhones in the first three months of the year – just the 50.8 million – which was down 1% on the same period in the previous year. Apple CEO, Tim Cook, said it wasn’t really a fall, just a “pause” as customers waited for a new phone to be launched.

But there was no pause for Facebook as it reported profits of just over $3bn in the first quarter – up 76% year-on-year as it nears 2 billion users worldwide.

There was however, gloom for the US retail sector – or at least that part of it which trades from bricks and mortar stores. US retail sales were up 4.5% compared to a year ago, but all the growth was online with the US Commerce Department reporting an 11% year-on-year increase. In contrast, ‘traditional’ retailer JC Penney reported a 3.5% fall for the first quarter, with Macy’s and Nordstrom also reporting declining sales.

There was more gloom as Ford – facing weak sales and declining profits – offered voluntary redundancy to 15,000 workers in a bid to shed 1,400 jobs worldwide. But there was some good news at the end of the month as US growth for the first quarter of the year was revised upwards from 0.7% to 1.2%.

Wall Street reacted to the mix of good and bad news as you might expect: having started the month at 20,941 the Dow Jones ended it at 21,009 for a rise of just 68 points.

Far East
May did not get off to a great start in China, with news that output had slowed in the country’s factories and mines. There was better news a few days later as China’s first domestically built passenger plane – built by the state owned Comac – made its maiden flight in Shanghai. Better news, that is, unless you are Boeing and Airbus…

Of even more long term significance was the launch of China’s ‘Belt and Road’ trade plan – an investment of $124bn in an ambitious economic plan to rebuild ports, roads and rail networks. The plan – which aims to expand links between Asia, Africa and Europe – was first unveiled in 2013 and has been described as a new Silk Road.

Elections were held in South Korea, which saw Moon Jae-in become the new president, but it was someone not bothered by trivialities like elections that captured the headlines. As we noted above, North Korea launched a successful missile test, to the widely photographed delight of Kim Jong-un. This put immediate pressure on President Moon, who had campaigned for better relations with the North.

Attention switched back to China at the end of the month as ratings agency Moody’s – worried by the ‘debt mountain’ – cut China’s credit rating for the first time since 1989. For those of you who like credit ratings, it was cut by one point from A1 to Aa3.

The Shanghai Composite index duly took note, falling 1% in the month to 3,117. However, it was the only Far Eastern market to fall, with Japan up 2% to 19,651 while the market in Hong Kong rose 4% to 25,661. Star of the show, though, was South Korea: clearly, the stock market approved of President Moon at it rose 6% to close May at 2,347.

Emerging Markets
As we wrote in the introduction, two of the world’s major emerging markets had poor months in May. The Russian stock market fell by 6% to close the month at exactly 1,900 – it is now down by nearly 15% for the year as a whole, having started 2017 at 2,233.

In Brazil, trading on the stock market was briefly halted mid-month following corruption allegations against President Michel Temer – long since seen as the man to ‘clean up’ the country. Trading was stopped with the market down 10%, as the President was forced to deny allegations that he had given his consent to paying off a witness in a huge corruption scandal. There are plenty of those in Brazil, so expect to hear more of this story. Meanwhile, the stock market finally closed the month down 4% at 62,711.

There were no such worries in India where the stock market enjoyed an excellent month. Having started May at 29,918, it finished the month up 4% at 31,146.

And finally…
Prime Minister Theresa May was roundly condemned for refusing to appear on the BBC’s election debate. Meanwhile in Oxfordshire, a retired politician smiles and slips into his new ‘man cave’ to begin work on his memoirs.

Yes, our former leader, David Cameron, has splashed out £25,000 on a ‘shepherd’s hut’ which he intends to use as a writing room. Unfortunately, competition in the Cameron household appears to be just as fierce as in the Palace of Westminster: Cameron’s son, Arthur, has apparently won the battle to be the first to sleep in the hut. Hopefully, our former leader will soon be able to return to his writing room, as the nation waits with bated breath for his memoirs, reputedly worth £1.5m.

So a splendid return for Mr Cameron on his £25,000 investment. But if he wants really stellar returns he should perhaps invest his money with the Church of England, who apparently made a 17.1% return on their investments last year and whose fund has averaged 9.6% over the last 30 years – comfortably beating many expensively managed city funds and comprehensively outstripping the top-rated Yale University endowment fund.

As we all know in financial services, ‘past performance is not necessarily a guide to the future.’ Or perhaps it is with a little Divine Fund Management…

Sources