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What is a ‘market correction’?

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What is a ‘market correction’?

Wednesday, April 4th, 2018

The start of 2018 has been an eventful time in the world of the stock market. After hitting highs at the end of January, both the Dow Jones and Standard & Poor’s 500 saw a considerable drop at the start of February, a fall from which the markets have now mostly recovered. At the time, however, this was reported as a ‘market correction’ by most media outlets. But what exactly does a correction mean in this context?

Put simply, a market correction is when the price of any security or market index declines by at least 10% after a recent high. There are a number of reasons why a correction might happen, but it’s regularly due to short-term gains being experienced despite very little changing in the market. The value increases are often down to the expectation of perceived gains within the mass psychology of investors. As the number of investors buying into the trend goes up, the price goes up too. Buying slows once the price reaches a certain height, and some of the investors lock their gains by selling. This in turn causes the price to go down again after the brief increase, which creates the market correction.

A market correction isn’t the same as a crash, which is a drop of 10% or more without the preceding high. Neither is it the same as the more sustained market downturn of a bear market, which sees a decrease of at least 20%, nor the significant decline in activity across a number of months during a recession. A correction can sometimes act as a forerunner to either a bear market or a recession, however.

Whilst corrections are often reported with similar negativity to crashes and recessions, they usually don’t warrant such pessimism. Corrections are an inevitability of the market: when stock value is going up, investors want in on the profits which could be made, leading to irrational exuberance and prices going above their underlying value. A correction in the price of a stock after a high period is often indicative of the stock’s true market value; as such, the correction may in fact indicate the market’s return to stability rather than a loss in value.

In this sense, corrections are healthy for the stock market, which is relatively volatile in the short term but in the long-term has a strong track record. They provide investors with the opportunity to see how comfortable they are with market risk and adjust or maintain their portfolio accordingly. There have been corrections in the past, and there will be more corrections in the future; unless it precipitates something more severe in the months ahead, the correction experienced at the beginning of February is no cause for panic.

April market commentary

Wednesday, April 4th, 2018

Introduction
To say that March was a busy month is an understatement.

Russia went to the polls to elect a new President and, in the least surprising result of the year, Vladimir Putin won another six year term. With the Chinese Communist Party removing the rules limiting Xi Jinping to two terms in office, two of the world’s three superpowers now effectively have presidents for life. North Korean leader, Kim Jong-un, jumped on the train and headed to Beijing for talks, ahead of his meetings with Moon Jae-in, the South Korean leader, and with Donald Trump. Presumably Kim and Xi Jinping did not discuss sanctions: China is supposedly imposing harsh UN sanctions on North Korea – and yet Kim saw his economy grow by more than 3% last year. ‘Curious and curious-er’ as Alice would have said.

Talk of sanctions and trade tariffs brings us to Donald Trump, who kept one of his pre-election pledges as he imposed a 25% import tariff on foreign steel and a 10% tariff on aluminium. The world may be worrying about a trade war between the US and China – and China has recently hit back with tariffs on US imports – but Trump is sticking to his ‘America first’ policy, and figures for February showed that the US added 313,000 jobs in the month.

In the UK, we had Chancellor Philip Hammond’s first Spring Statement, and agreement was finally reached on the transition agreement with the European Union, which will last until New Year’s Eve 2020.

Unsurprisingly, talk of a trade war meant that it was a bad month for world stock markets, with all but two of the major markets we cover in this commentary falling in March.

UK
As mentioned above, March in the UK brought us the first of Philip Hammond’s Spring Statements. There was relatively good news on the UK’s debt and borrowing figures but, as George Osborne frequently reminded us, the UK is always vulnerable to economic activity in the wider world, and any optimistic figures from the Chancellor could swiftly be consigned to the bin if the threatened trade war between China and the US develops.

He did, however, give a pointer to what we might see in the Autumn Budget. The plastic tax had been widely trailed, as had yet more moves to tax multinational companies such as Google and Apple. Interestingly, he made a reference to ‘seeking views’ on encouraging businesses who want to use digital payments. And why wouldn’t he? Digital payments can be tracked and taxed and would represent a way to strike back at the black economy.

Sadly, there are rather a lot of businesses on the UK high street that would like to take any payment, digital or otherwise. Restaurant chain Prezzo announced the close of 94 branches with the loss of 1,000 jobs; Next said it was experiencing ‘the toughest trading for 25 years’ and the Bargain Booze chain admitted it was close to administration.

House price growth was the lowest for five years and the balance of payments deficit in the three months to January widened to £8.7bn as imports of fuel increased.

There was good news on inflation however, which dipped to 2.7% thanks to a fall in petrol prices, which allowed the Chancellor to comment that most people should see a rise in their real wages “by the end of the year.”

Unfortunately, it looks as though the Bank of England will have increased interest rates well before then, with some commentators expecting an increase in base rates as early as next month and the Bank saying that rises might need to be “earlier” and “by a somewhat greater extent” than they had previously thought.

Unsurprisingly, the FTSE 100 index of leading shares didn’t like the sound of this and fell 2% in March to end the month at 7,057. It is now down by 8% for the first three months of the year – its worst opening quarter since 2009, when we were mired in the financial crisis. However, it was a good month for the pound, which will at least give you some comfort if you are planning a holiday abroad. The pound was up by 2% against the dollar in March and is now trading at $1.40.

Brexit
Well, we have spent a few months in this commentary reporting ‘no real progress’ on the Brexit negotiations. Now, it seems we might finally be getting somewhere, with the UK and EU reaching an agreement over the ‘transition deal’ – the relationship and arrangement we will have with the EU after we leave, which is currently less than a year away on March 29th 2019.

Your view of the transition deal will very much depend on your initial stance of Brexit: but let us try and summarise the main points as impartially as possible:

  • The transition period will end on New Year’s Eve 2020 – three months earlier than had been predicted
  • The UK will be able to negotiate, sign and ratify trade deals – for example, with the USA – during the transition period
  • Existing international agreements and EU trade deals will continue during the transition period
  • The financial settlement we have already agreed is locked in, and both sides are committed to ‘acting in good faith’ during the period
  • It is less good news for the UK’s fishermen: the UK can only ‘consult’ on fishing during the transition period
  • New EU citizens arriving in the UK during the transition period will have the same rights as those EU citizens already here
  • And nothing has so far been agreed regarding the border between Northern Ireland and the Republic of Ireland.

It has been repeatedly said of the EU negotiations that ‘nothing is agreed until everything is agreed’ – but you have to think that the above will be the basis of our relationship with the EU for the 21 months after March next year.

Those in favour of Brexit generally see greater control of trade policy and the agreement to act in good faith as ‘wins’. They are less keen on the extension of free movement and the fisheries policy. Those in favour of staying in the EU see it all as a mistake – but we are moving inexorably towards March 2019 and the UK will be leaving the EU.

Europe
The beginning of March brought the Italian election and – to no-one’s surprise – no clear result. The Eurosceptic, populist Five Star Movement was the biggest single party with a third of the vote, but Matteo Salvini, leader of the anti-immigrant League was also claiming the right to run the country as part of a right-wing coalition with former Prime Minister Silvio Berlusconi’s Forza Italia party. Inevitably, forming a coalition could take weeks of negotiation and horse-trading.

Much of the attention elsewhere in Europe focused on the Brexit deal, although French leader Emmanuel Macron will see his resolve tested this week by a series of rail and airline strikes as the transport unions begin a series of planned strikes in protest at his reform agenda.

The two major European stock markets both drifted down by 3% on the worries about a global trade war. The German DAX index was down to 12,097 while the French stock market closed the month at 5,167.

US
It is a testament to the newsworthiness of its President that we now accumulate as many notes for the US section of this commentary as we do for the UK.

As above, Donald Trump slapped tariffs on imports of steel and aluminium, with China responding over Easter by imposing tariffs on a number of US imports, including wine. There has been much wailing in the California wine regions – but the state is staunchly Democratic and the President is teetotal, so he is unlikely to lose any sleep. With 313,000 new jobs added, there are plenty of Americans who approve of what the President is doing.

Trump’s ‘America First’ policy and concerns for national security were further evidenced as he blocked the takeover of chipmaker Qualcomm by Singapore-based rival Broadcom.

At $140bn (£100bn) the deal would have been the biggest technology sector takeover on record, but there was “credible evidence” that it threatened US security, with fears that it could have put China ahead – or further ahead – in the development of 5G wireless technology.

If March was a good month for jobs and for national security, it was a dreadful month for Facebook. The company had $58bn (£41bn) wiped off its value after the Cambridge Analytica data breach scandal, leaving CEO and founder Mark Zuckerberg with a lot of apologising and explaining to do.

Nor was it a good month for Wall Street with the Dow Jones index inevitably falling amid worries about a trade war. It closed March down 4% at 24,103.

Far East
After the death of Mao Zedong in 1976 the Chinese Communist Party introduced a ‘two term limit,’ intended to ensure that a cult of personality could not re-emerge and that no-one could ‘rule for life’. But in March the ‘two sessions’ – the annual meetings of the national legislature and the top political advisory body – did what had widely been expected and scrapped the rule, effectively opening the way for Xi Jinping to rule indefinitely.

One of the first appointments the new ruler-for-life would have rubber-stamped was that of US-educated economist, Yi Gang, as the next governor of China’s central bank. It is an appointment seen as an attempt to ensure continuity, as China continues to try and rein in growing debt and risky financial practices.

No doubt, the cautious new central banker would have approved of China’s growth target for 2018, now confirmed as 6.5%. This is below the growth of 6.9% reported for 2017 (the first time in seven years that the pace of growth had picked up) and unquestionably reflects the country’s commitment to less risky economic policies and lending.

As mentioned above, the month ended with Kim Jong-un visiting China – seen as a necessary prequel to his meetings with Moon Jae-in and Donald Trump. The visit received a cautious welcome in South Korea, which wants to see the end of nuclear weapons in the Korean peninsula.

There was good news for Samsung in South Korea as the company launched its new S9 and S9+ phones at the World Mobile Congress: the company seems to have regained much of the ground lost when its phones recently took to rather inconveniently exploding…

Unsurprisingly, three of the four major Far Eastern markets were down in March, reflecting concerns over a possible trade war between China and the USA (with China responding by imposing tariffs on US imports over the Easter weekend). China’s Shanghai Composite index fell back 3% to 3,169. The Japanese market was down by a similar amount to close the month at 21,454 while the Hong Kong index was down just 2% to 30,093. The one market to buck the trend and manage a gain during the month – albeit only by 1% – was South Korea. Buoyed by hopes of positive talks with the North the market rose 1% to end the month at 2,446.

Emerging Markets
As we mentioned in the introduction, Vladimir Putin secured another six year term as Russian President, winning 76% of the vote, with his main rival, Alexei Navalny, barred from contesting the election. This came hot on the heels of the tit-for-tat expulsions of ‘diplomats’ after the alleged poisoning of former spy, Sergei Skripal in Salisbury, but that was never going to affect the result of the election. Putin’s share of the vote was up from the 64% he won in 2012. Asked if he would run again in 2024 (by which time he will be 72), Putin replied, “What you are saying is a bit funny. Do you think I will stay here until I am 100 years old? No!” So that confirms it then…

With the West supposedly imposing sanctions, the Russian stock market is more immune than some to threats of a global trade war, and the stock market was down just 1% in March to 2,271. The Indian stock market was hit much harder and fell 4% to end the month at 32,969. The Brazilian market was the only other market of those we cover not to fall in the month, closing up just 12 points at 85,366.

And finally…
There is news that the Church of England will now accept contactless transactions through Apple and Google Pay, albeit only for weddings, christenings and church fetes. Donations via contactless to the collection plate are still being trialled. “It may take too long,” said a Church spokesman. “The old ways could still be the best.”

…A sentiment that was probably echoed by Kentucky Fried Chicken. We wrote about the problems of KFC last month: how the bargain bucket became the empty bucket after they jilted long time food delivery partner Bidvest for the sultry charms of DHL.

Like a middle-aged man admitting the truth after a mid-life crisis, KFC have now repented their error and begged Bidvest for forgiveness. A new agreement has been reached and at least 350 of KFC’s 900 restaurants can look forward to what Bidvest promise will be a “seamless return.”

Rather less seamless may be the foreheads of Apple engineers at their new $5bn (£3.6bn) headquarters in Cupertino. Apple had a problem: according to Reuters, “if engineers had to adjust their gait when entering the new building they risked distraction from their work.”

The solution at the 175,000 acre campus, which is home to 13,000 employees, was doors with completely flat thresholds and massive glass windows with extra transparency and whiteness. So transparent and white that “when the walls have been cleaned you can’t even tell they are there.”

Which was bad news for Apple’s super-intelligent engineers as they walked along lost in thought. Several Apple employees have been left bloody and concussed after walking into the transparent doors and windows. The San Francisco Chronicle has published transcripts of three 911 calls made after Apple employees injured themselves in this way. “We did recognise that this could be a problem, especially after the doors and windows had been cleaned,” said an Apple spokesman.

If only Apple had shown the insight of the Church of England…

The ISA deadline approaches

Thursday, March 8th, 2018

It may seem as though the year has barely begun, yet the month of March is already upon us. That means that spring is just around the corner. It also means that the ISA deadline of 6th April is rapidly approaching.

Individual Savings Accounts (ISAs) are tax-free savings accounts open to anyone over the age of 16 to deposit their savings each year. With attractive savings allowances, ISAs have become very popular with people across the UK intent on building a nest egg for their future.

As of the end of the 2017/2018 tax year, the maximum amount you can deposit in an ISA in one financial year is £20,000 per annum, up from £15,240 in the previous tax year.

This limit will remain unchanged into the 2018/2019 tax year. However, as those in the know will tell you, any tax savings are dependent on the amount you deposit into your ISA over the course of the tax year. Deposits cannot roll over from one tax year’s allowance to the next, meaning that you can’t ‘top up’ your savings in 2018/2019 using any unused portion of this tax year’s allowance. When it’s gone, it’s gone!

Maximising your ISA allowance is therefore a great way to save for your future. This is further highlighted by the fact that ISA allowances can be split across different financial products, including cash ISAs, stocks and shares ISAs, innovative finance ISAs and lifetime ISAs (LISAS).

Lifetime ISAs, for example, were first launched in April 2017 to help first-time buyers under the age of 40 buy their first home and/or savers to build a nest egg to use in retirement once they reach the age of 60. Borne of research into economic and behavioural psychology, the Lifetime ISA tackles two problems simultaneously: that many people between the age of 18 and 40 are not saving for a home and nor are they contributing a significant portion of their earnings to a pension.

Making use of an ISA allowance is typically one of the features of sound financial planning. ISAs, though, are just one of many ‘tax-wrappers’ available – meaning investors can ‘wrap’ their investment, sheltering them from paying tax on all, or a portion, of their assets. Your adviser will likely talk to you often about the wrappers you are using, how to maximise them and which are the most appropriate for your current circumstances. If you have any questions around this topic, please feel free to get in touch with us directly.

Who owns your bank?

Wednesday, February 14th, 2018

Following the financial crisis of 2008 when a number of big British banks came close to collapsing, the Financial Services Compensation Scheme (FSCS) was strengthened by the government. As such, the FSCS 100% guarantees the first £85,000 of a person’s cash savings per banking licence in total, including interest. This means that a couple with a joint account holding up to £170,000 will have every penny of this covered.

But what does ‘per banking licence’ mean? Simply put, one banking licence can cover a number of different banks, building societies or brands. It’s important therefore to spread your cash across more than one provider, as it could mean some of your hard-earned money isn’t as safe as you think in the event of a future collapse.

With that in mind, below is a list of the biggest banks and building societies in the UK and all the brands which fall under their banking licence. That means if you hold more than £85,000 across different brands but under the same licence, you could be in a position to lose out should the worst happen.

HBOS (Halifax/Bank of Scotland group):

  • AA
  • Bank of Scotland
  • Birmingham Midshires
  • Halifax
  • Intelligent Finance
  • Saga

Lloyds Banking Group*:

  • Cheltenham and Gloucester
  • Lloyds Bank

*HBOS was acquired by Lloyds Bank, but both HBOS and Lloyds Banking Group have continued to operate under separate banking licences.

TSB:

  • TSB

Barclays:

  • Barclays
  • Barclays Direct (formerly ING Direct)
  • Standard Life
  • Woolwich

HSBC:

  • First Direct
  • HSBC

Royal Bank of Scotland (RBS)**:

  • RBS

NatWest:

  • NatWest

Ulster Bank:

  • Ulster Bank

Coutts & Co:

  • Coutts

**NatWest, Ulster Bank and Coutts are all subsidiaries of RBS, but have their own separate banking licences. As such, someone with accounts in each of these banks would be covered for up to £85,000 in each bank.

Santander UK:

  • Cahoot
  • Santander

The Co-operative Bank:

  • Britannia BS
  • Smile
  • The Co-operative Bank

Bank of Ireland UK:

  • Bank of Ireland UK
  • Post Office

Clydesdale Bank PLC:

  • Clydesdale Bank
  • Yorkshire Bank

Sainsbury’s Bank:

  • Sainsbury’s Bank

Tesco Bank:

  • Tesco Bank

Virgin Money:

  • Virgin Money

Nationwide BS:

  • Cheshire BS
  • Derbyshire BS
  • Dunfermline BS
  • Nationwide BS

Yorkshire BS:

  • Barnsley BS
  • Chelsea BS
  • Egg
  • Norwich and Peterborough BS
  • Yorkshire BS

Coventry BS:

  • Coventry BS
  • Stroud and Swindon BS

Skipton BS:

  • Chesham BS (renamed Skipton BS)
  • Scarborough BS (renamed Skipton BS)
  • Skipton BS

So, what about banks outside the UK? Whilst most banks which accept British savings are not covered by the FSCS, some within the European Economic Area are covered by their home country’s compensation scheme through the ‘savings passport’ scheme. One of the most prominent examples is Triodos Bank in the Netherlands, which is covered by the Dutch equivalent of the FSCS up to €100,000 per person. There are also some international banks which are covered by the FSCS, including:

  • Axis Bank UK
  • ICICI Bank UK
  • State Bank of India UK

National Savings & Investments (NS&I) is also covered by the FSCS – but as it’s owned by the government, the expectation is that all deposits into NS&I (both up to and over £85,000) would be covered apart from in the most extreme financial circumstances.

January market commentary

Thursday, January 4th, 2018

Another year seems to have flown by in the space of about five months. December, in particular, seemed to go past in a blur.

It was, however, the month when some progress was – finally – made in the Brexit negotiations. It was also the month when Scotland used its tax-raising powers to increase income tax, when Germany worried about Chinese spies using fake LinkedIn profiles and when yet more sanctions were heaped on the North Korean regime – which were predictably condemned as an ‘act of war’.

Half of the major stock markets we cover in this commentary rose in the month and overall 2017 was a good year for world markets: the Hong Kong market led the way with a rise of 36% and only the Russian index fell significantly during the year.

UK
The month didn’t get off to the best of starts in the UK as once again UK retail was facing problems. RBS announced that it would close one in four of its branches – totalling 259 and inevitably having an effect on the national high street – and Toys R Us narrowly avoided having to close its UK branches as it reached an 11th hour agreement with creditors and the Pension Protection Fund.

There was, however, plenty of good news for the UK in December, although wages continue to lag behind inflation, a situation which looks set to continue throughout 2018.

UK factory activity grew at its fastest pace for more than four years in November, with the Purchasing Managers’ Index hitting 58.2 – its best level for 51 months. Separate official data for 2016 showed that inward investment into the UK had also hit a record $145bn, although this was boosted by some large takeover deals. UK manufacturing also expanded for the sixth month in a row, helped by record car production.

Unemployment was down again, falling by 26,000 to 1.43m, with the jobless rate remaining unchanged at 4.3%. In addition, the UK economy was shown to have grown at a faster rate than had previously been thought. Revised figures from the Office for National Statistics showed that the economy had grown by 1.7% in the third quarter, compared to the original estimate of 1.5%.

To cap a good month for those whose glass is half full, the UK was named the best place in the world for business by the US media group Forbes. In the annual ranking the UK leapt from fifth to first, scoring especially well on technological readiness and the education of its workforce.

How did all this translate onto the stock market? The FTSE-100 index of leading shares started the year at 7,143 and ended it up 8% at a new record high of 7,688. The market was up 5% in December, fuelled by the now-traditional ‘Santa rally.’ The pound also enjoyed a good year: it was largely unchanged against the dollar in December but rose 9% over the course of the year to $1.3504.

Brexit
As we noted in the introduction, December was the month when some progress finally appeared to have been made on the Brexit negotiations as the UK’s ‘divorce bill’ seemed to have been agreed. You don’t have to look far to find a high ranking official (on both sides) who will ominously mutter, ‘Nothing is agreed until everything is agreed,’ but – to use Churchill’s phrase – while this may not be the beginning of the end, it may just be the end of the beginning.

By the end of this year the UK will – in theory – be just 88 days away from leaving the EU. But over the course of the next 12 months there will unquestionably be plenty of twists, turns and bumps in the road for this section of the commentary to report on.

Europe
As we mentioned in the introduction, December was the month when Germany voiced its concerns over possible Chinese spying using the social/business network LinkedIn. The German intelligence agency BfV is worried about the Chinese using fake profiles to target up to 10,000 German politicians, business leaders and officials. China – which has denied similar accusations in the past – did not respond to the German allegations.

But there was better news of other EU/Far East relationships as a trade deal was tied up between the EU and Japan which will – subject to ratification by EU members – create the world’s largest open economic area. The agreement is seen as a challenge to the protectionism of Donald Trump, with a joint statement saying that the EU and Japan are “committed to keeping the world economy working on the basis of free, open and fair markets … fighting the temptation of protectionism”.

…And in a bid to track down those people who have been protecting their money from the taxman, the EU published its first blacklist of tax havens, naming 17 territories including St. Lucia, Barbados and South Korea.

What of European stock markets in December and 2017 as a whole? Both the German and French indices drifted down 1% in the month, but overall they enjoyed a good year. The German DAX index was up 13% in 2017 to end the year at 12,918 while the French stock market rose 9% to 5,313. An honourable mention also goes to Greece: the debt-ridden country staggered through another year and the Athens stock market duly rose 25% in 2017 to close at 802.

US
There were two major pieces of news in the United States, with the Federal Reserve once again raising interest rates and a programme of major tax cuts being passed by Congress.

The Fed raised rates by a further 0.25% – the third rise in 2017 – as it projected growth of 2.5% for 2017 and 2018, expecting the US economy to be stimulated by the President’s tax cuts. At the moment the Fed is targeting a range of 1.25% to 1.5% for US interest rates, but further rises are expected next year, with most forecasters expecting a base rate of around 2%.

The tax cuts – agreed by both houses of Congress – have been described as the biggest overhaul of the US tax system for 30 years, with corporation tax falling from 35% to 21% and the highest rate of individual income tax coming down from 39.6% to 37%. Democrats have argued that the cuts will only favour the rich, while the Joint Committee on Taxation has suggested they will add $1.4tn to the $20tn US national debt over the next 10 years. But right now what the President wants the President gets, and he wanted swingeing tax cuts…

There was also good news for the US economy, with the November jobs figures showing 228,000 jobs created against expectations of 200,000. The unemployment rate held steady at 4.1% as firms appeared to hire seasonal workers earlier than usual.

On Wall Street, 2017 was a good year for the Dow Jones index. Having started the year at 19,763, it finished up 25% at 24,719 having risen 2% in December.

Far East
For once, the month in the Far East wasn’t dominated by stories of North Korean rockets. That is not to say that tension in the area will disappear in 2018: North Korea may be sending a team to the Winter Olympics in South Korea, but in his Christmas message Kim Jong-un stressed the fact that the nuclear button “is always on my desk”.

In China, there was a small rise in bank base rates following the rise in the US, but for once it was Japan that was really making the news in the region. The country is enjoying its longest period of sustained economic growth since 1994 – admittedly, thanks to four years of economic stimulus from Prime Minister Shinzo Abe – and growth for the three months to September was revised upwards to 2.5%, well ahead of initial estimates of 1.4%.

In another sign of what we can look forward to in the near future, Nissan announced that it would start trialling driverless taxis from March next year. The plan is that passengers will be able to summon the cars using an app, with free trials due to take place in Yokohama.

There was more turbulence for crypto-currency Bitcoin as the South Korean authorities – worried about Bitcoin being used for money laundering – announced a crackdown on anonymous trading accounts and said they would close exchanges if necessary.

On exchanges that were very much open, 2017 was an excellent year for all the major Far Eastern stock markets. China was virtually unchanged in December but ended the year up 7% at 3,307. Similarly both the Japanese and South Korean markets were quiet in December, but closed 2017 up 19% and 22% respectively, with the Japanese Nikkei Dow closing at 22,765 and the South Korean market at 2,467. Pride of place though, went to Hong Kong, the best performing market of those we cover in this commentary. The stock market there rose 3% in December to end the month at 29,919 – up 36% for the year as a whole.

Emerging Markets
As we have already seen, December was a volatile month for Bitcoin, but this didn’t stop crisis-hit Venezuela from grasping at a virtual straw as President Nicolas Maduro announced the creation of a new currency in a bid to ease the country’s economic crisis. A new virtual currency – the Petro – will apparently be backed by Venezuela’s oil, gas and diamond reserves. Opposition leaders poured scorn on the plan, pointing out that the President had already mortgaged the reserves several times over. It seems a fairly safe prediction that the country with the largest oil reserves in the world will continue to lurch from crisis to crisis in the coming year.

A country emphatically not lurching from crisis to crisis is India, with forecasts suggesting that it will overtake the UK and France to become the 5th largest economy in the world in 2018. According to World Bank data for 2016 India’s GDP, at $2.26tn (£1.69tn) was the 7th largest in dollar terms: the forecasts are that 2018 will see it overtake the UK (with GDP of $2.65tn) and France ($2.47tn).

This was reflected on the Indian stock market, up 3% in December (and 28% for the year as a whole) to finish 2017 at 34,057. The Brazilian market also enjoyed an excellent year, rising by 27%: in December it rose 6% to close the month at 76,402. The Russian market was virtually unchanged in December and ended the month at 2,109: this meant that it fell by 6% for 2017 as a whole, with the damage really being done in the first six months of the year.

And finally
2017 was, by any standards, a vintage year for the ‘And Finally’ section of this commentary. In March, we had the ‘Temple of Heaven’ – the public park in Beijing which installed facial recognition software to dispense loo roll because visitors were taking it home with them.

July brought us the Texan maintenance engineer, who on a bright and sunny day set out to change the lock on a Bank of America ATM. Unfortunately, while performing this routine task our hero (understandably he preferred not to be named) trapped himself inside the ATM. He was only rescued when a customer tried to withdraw $100 and instead received a note saying, ‘Please help, I’m stuck in here.’ The customer 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, decided to call the police…

So what of December? The month did not let us down…

Counterfeit goods now account for perhaps 4% of the world economy. So there was good news at the beginning of the month for HM Border Force and the Intellectual Property Office as they seized 82,320 pairs of fake Calvin Klein underpants worth a reputed £1.5m.

Along with the fake boxers, they also grabbed Gillette Mach 3 razor blades, Nike Vapormax trainers and 379 Barcelona and Borussia Dortmund football shirts. If that sounds suspiciously like your Christmas presents you may want to have a word with your relatives.

There was also good and bad news for the Royal Navy in December as it took delivery of its new £3.1bn aircraft carrier ‘HMS Queen Elizabeth.’ But the bad news was that she (the boat, not Her Majesty) was leaking and taking in the small matter of 200 litres of sea water every hour. BBC Defence Correspondent Jonathan Beale said the leak was “highly embarrassing” for the Royal Navy, but dismissed rumours that the aircraft carrier would be renamed Leaky McLeakface…

Sources

5 financial resolutions for 2018

Thursday, December 7th, 2017

Whether or not you’re the kind of person who sees the start of January as the time to set yourself resolutions and stick to them, the period after the excesses of Christmas and New Year is arguably one of the best times to actively get your finances into shape. Here are five great money-related resolutions it’s definitely worth committing to in order to make 2018 the year you take control of your money.

  1. Start a budget – The secret to financial security isn’t making lots of money, but sensibly managing the money you have. A budget is the best way to start doing this, ensuring you know where your money is going and sticking to the plan you lay out for yourself. It can feel intimidating at first if you’ve never budgeted before, but it will undoubtedly help you to cut out overspending and reduce your money worries.
  2. Manage your debt – Getting out of debt can seem a long way off if you don’t make plans for how you’re going to become debt-free. There are no shortcuts – it takes both time and sacrifice – but once you do manage to clear your debts completely, it’s a liberating feeling and opens up many more opportunities to help you grow some savings.
  3. Start saving regularly – Once you’ve got your debts and spending under control, building your savings is essential. You should aim to save at least 10% of what you earn every month. Again, you may have to make a couple of sacrifices here and there in order to do this, but when you have those savings earning you money in your nest egg, missing the occasional night out or frivolous treat will feel completely worthwhile.
  4. Increase your financial knowledge – This can be as simple as finding a book, magazine or reputable website and dedicating a little time each week to increasing your money know-how. Anyone who has financial security hasn’t done it through luck, but through understanding what to do with their money, so the more you learn the more secure your finances are likely to be.
  5. Start investing – Making some sound investments is often the crucial step from financial security to prosperity and success. However, you should only invest when you’re ready (i.e. once you’ve achieved the previous four goals). It’s worth getting good independent financial advice as well to ensure you make the right investments for your personal circumstances.

One for the kids? Switching to a Lifetime ISA could boost savings.

Thursday, December 7th, 2017

If you’re saving for a home through a Help To Buy ISA or know someone who is, it’s worth being aware of a planning opportunity which could boost your savings by an additional £1,100. But anyone hoping to take advantage of this opportunity needs to be quick, as it will only be available for just under four months more.

Any savings in a Help To Buy ISA which are transferred to the new Lifetime ISA before 5th April 2018 will benefit from a top up of 25% from the government. The opportunity has arisen thanks to the Help To Buy ISA small print relating to the transfer of money saved before the launch of the Lifetime ISA on 6th April 2017.

Lifetime ISAs have an annual limit of £4,000, which includes money transferred from another savings account. However, money transferred from a Help To Buy ISA within the first twelve months of Lifetime ISAs becoming available does not count towards the contribution limit for the 2017-2018 tax year. As such, any money transferred into the Lifetime ISA from the Help To Buy ISA will be boosted by the government top-up, potentially resulting in hundreds of pounds being added to your savings.

For example, someone who had saved the £4,400 maximum amount into a Help To Buy ISA before April 2017 could transfer this into a Lifetime ISA before 5th April 2018. As this wouldn’t contribute to their limit, they could then save a further £4,000 into the Lifetime ISA for a total of £8,400. The 25% bonus would then be added to the entire £8,400 in April next year, giving an additional £2,100. In any other year, the maximum top-up which could be earned from the Lifetime ISA would be £1,000.

So If you know anyone using a Help To Buy ISA to save towards a first home, transferring money to a Lifetime ISA to enjoy an additional top-up of up to £1,100 in April next year could make collecting the keys to their own place happen a little bit sooner.

Junior ISAs and what they offer

Thursday, November 30th, 2017

Junior ISAs (JISAs) have now been around for over six years and continue to grow in popularity. They allow parents to save money for their child, which will be accessed when they come of age. But, as with any savings product, there are pros and cons to saving for your son or daughter’s future using a JISA.

One of the key benefits of the account is the tax efficiency they offer. In the tax year 2017/18, the maximum that can be invested in a JISA is £4,128 and it was announced in the Autumn Budget that this will rise to £4,260 in April 2018. An account must be opened on the child’s behalf by a parent or legal guardian, but once it is open anyone can pay money in and any income or gains within the JISA are exempt from UK tax – no matter who makes the deposit.

Two types of JISA have been available over the past six years, with Cash JISAs having proven far more popular than Stocks & Shares JISAs. It’s perhaps not surprising that parents have largely opted for the JISA which guarantees their child won’t lose money, rather than taking a risk with their investment and betting on the stock market.

Whilst those who have gone for the Stocks & Shares JISA have reaped the benefits over the last few years as the stock market has consistently outperformed cash savings, there’s no way they could have known this when opening the account. Despite the potential for greater returns, opting for a Stocks & Shares JISA will always be a gamble, one which you may not want to take with money intended for your child’s future.

Another aspect of JISAs worth considering is the restricted access they offer. Once money has been paid into a JISA it belongs to the child; whilst they can manage the account themselves from the age of sixteen, the child is unable to access their savings until their eighteenth birthday. Whilst this will be seen as a positive for some, ensuring the money can grow and teaching their child about the benefits of saving over time, others will undoubtedly want their child to be able to access their savings before they turn eighteen.

One alternative is a regular children’s savings account, some of which actually pay higher rates of interest than JISAs. However, ordinary savings accounts are subject to the ‘£100 rule’ – if money paid in as a gift from a parent generates over £100 of interest in a year, all the interest will be taxed as if it belongs to the parent. JISAs are not subject to this rule, leaving it up to the parent to weigh up which they value more for their child’s savings: easy access or tax-free interest.

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.