Dec 05

December Market Commentary

November was a relatively disappointing month for world stock markets, with the majority of the markets we cover in this commentary losing ground in the month: however, the largest fall was just 3% so there were no real disasters. Pride of place went to the Dow Jones index in the US, which was up by 4% in the month as the President toured the Far East, intent on doing ever more trade deals.

The big event in the UK was Philip Hammond’s first Autumn Budget, but of rather more long-term significance might have been the launch of yet another missile by North Korea. The government in Pyongyang said that the ICBM brought “the whole of the USA” within range: back from the Far East, Donald Trump said that he “would take care of it”. The rest of the world watched on and worried…

As above, 22nd November brought us the Chancellor’s Autumn Budget as he pledged to “grasp the opportunities of Brexit” and build an economy “fit for the future”. In truth, there were no major announcements except the abolition of stamp duty for the majority of first-time buyers. You are never going to get a dramatic speech from Philip Hammond, but he sat down after an hour with his job far more secure than when he had started speaking.

If you were looking for bad news in the speech you could certainly find it in the downgrading of UK growth forecasts, with the Office for Budget Responsibility sharply cutting back its forecast. This was despite all three sectors of the economy – manufacturing, construction and the service sector – all reporting strong growth in October.

Another feature of the Chancellor’s speech had been the continuing emphasis on the UK’s poor productivity, and during the month the CBI produced a report suggesting that ‘embracing everyday tech’ could boost the UK economy by £100bn. With management consultants McKinsey publishing a report suggesting that robots and artificial intelligence could take 800m jobs worldwide by 2030, some UK firms may need to ‘embrace everyday tech’ rather quickly.

As ever, there was the usual mixture of good news and bad news for the economy. The UK’s trade gap – the difference between what we import and what we export – widened to £9.5bn, and the number of people in work declined slightly to 32m. However, unemployment fell by another 59,000 to 1.42m to leave the unemployment rate at 4.3%, the lowest since 1975.

UK inflation stayed unchanged at 3%. The Bank of England said it was likely to remain at that level (and hence above the level of pay rises) but in his Budget speech the Chancellor said it “would quickly decline”. You pays your money…

Despite touching a new record high of 7,560 at the beginning of November, the FTSE-100 index of leading shares ended the month down 2% at 7,327. With a month to go, this has been a lacklustre year for the UK stock market, with the FTSE up by just 3% since the beginning of the year. There was better news for the pound, which rose by 2% against the dollar to close November at $1.3486.

So, do we have a deal? After another month of wrangling and press speculation, it appears that a deal may have been reached on the UK’s ‘divorce settlement’ with the EU. Depending on which paper you read, the figure is anywhere between €40bn and €60bn but the consensus seems to be somewhere in the middle. The BBC reported that it ‘understands’ a figure of €50bn (£44bn) has been agreed on, as Theresa May finally managed to secure the agreement of dissenters in the Cabinet. Whether a more-sceptical public can quickly be brought onside remains to be seen.

In September, the Prime Minister had said that the UK was willing to pay around €20bn but that figure was always likely to be increased, and hopefully the European summit in December will now see serious talks start on the nature of Britain’s future trading relationship with the EU. But there’s ‘many a slip twixt cup and lip’ as your Grandma used to say, and with neither Theresa May nor Angela Merkel having a particularly strong grip on power, there is still plenty of potential for the negotiations to become re-negotiations.

The big story in Europe was political, not economic, as talks on forming a coalition government in Germany collapsed, leaving Angela Merkel facing her biggest challenge in 12 years as leader.

The free-market liberal FDP pulled out of the coalition talks after four weeks of negotiations with Merkel’s CDU/CSU bloc and the Green party. The FDP leader, Christian Linder, said that there was “no basis of trust” between them. With the German President saying that he will now hold talks with all parties, it is thought that Angela Merkel would prefer another election – in the hope of securing a working majority – to the prospect of leading a minority government. But with nothing having changed in Germany since the original poll in September, the danger must be that another election would lead to more gains for the right-wing Alternative fur Deutschland party, and an even more fragmented parliament.

And while the politicians failed to reach an agreement, the German stock market slid back, dropping by 2% in November to end the month at 13,024. The index in France – where new President, Emmanuel Macron, continues to see his approval ratings slide – was down by a similar amount, closing at 5,373.

We have covered the President’s trip to the Far East below, but before he went he confirmed the expected appointment of Jerome Powell as the next Chairman of the Federal Reserve Bank, replacing Janet Yellen. Analysts regard Powell as the status-quo candidate, someone who is likely to continue the current policy of gradually raising interest rates.

Meanwhile, Facebook was continuing its policy of not-so-gradually raising profits, as it brought in more than $10bn in advertising in the third quarter of the year, leading to profits of $4.7bn for the same period – up 80% on the same period for the previous year.

There was also good news for Apple as queues formed around the world for the latest iPhone X – just £999 to get an edge-to-edge screen if you are interested – and there are suggestions that if the phone is a success it could make Apple the world’s first trillion-dollar company.

But the news for the wider US economy was less good, with figures for October showing jobs growth had fallen short of the forecasts. Although the economy added 261,000 jobs in the month, economists had been predicting a higher figure after Hurricanes Irma and Harvey had depressed payroll growth in September. However, the number was enough to push the US unemployment rate down to 4.1% – the lowest figures since 2000.

On Wall Street it was another good month for the Dow Jones index, which was up 4% to 24,272. Whatever the rest of the world think, the US stock market certainly likes the President: it is now up by more than 20% for the year as a whole.

Far East
The good news for the Far East in November was that President Trump came to visit, spending 12 days in the region and apparently doing $300bn of trade deals, including the first major investment by a Chinese energy firm in the US.

Having accused China of pretty much everything except the assassination of JFK during the election campaign, the President struck a much more conciliatory tone on this trip, saying that he did not blame China for unfair trade with the US, and recognised that China had been “working hard” to benefit its people.

Meanwhile, the Chinese people had rather more pressing concerns – spending money online on Singles’ Day (roughly the Chinese equivalent of Black Friday and Cyber Monday). Showing the rest of the world how it should be done Alibaba – China’s answer to Amazon – recorded Singles’ Day sales of $25.4bn (just over £19bn) and clocked up its first $1bn within two minutes of Singles’ Day starting.

Across the China Sea, the Japanese economy was enjoying its longest growth streak since 2001, having now expanded for seven quarters in a row. The latest figures confirmed that gross domestic product had expanded by 1.4% for the quarter ending in September. This comes after four continuous years of economic stimulus from the government, with an increased demand for Japanese exports offsetting a slowdown in domestic demand.

On the Far Eastern stock markets, it was a case of ‘two up and two down’ in November. The Japanese Nikkei Dow index rose 3% to 22,725 and the Hong Kong index was up by a similar amount to 29,177 – although, at one point during the month it had broken through the 30,000 barrier for the first time since November 2007.

The Chinese and South Korean markets both went in the opposite direction, and both were down by 2% in the month, falling to 3,318 and 2,476 respectively.

Emerging Markets
November was a relatively quiet month for the major emerging markets, which we cover in this commentary. The Russian stock market fared best, rising 2% in the month to close at 2,101 whilst the Brazilian market dropped 3% to 71,971. Stuck in the middle was the Indian stock market, which fell by just 64 points to 33,149 – unchanged in percentage terms.

The real drama though, was happening in Venezuela, where the country with the largest proven oil reserves in the world finally ran out of money and defaulted on its sovereign debt. While a tragedy unfolded for the country’s citizens – with the socialist government advising them to eat their pet rabbits for food – a temporary deal was agreed with Russia, allowing Venezuela to re-structure $3.15bn of debt. But with the country owing an estimated $140bn to foreign creditors, the outlook for ordinary Venezuelan citizens looks unremittingly bleak.

And finally
Long-time readers of the ‘And finally’ section may remember one of our true heroes, Joaquin Garcia, the Spanish civil servant who failed to show up for work for six years without anyone at the Spanish water board noticing. Poor old Joaquin’s dereliction of duty was only discovered when he turned up to collect an award for ‘two decades of loyal and dedicated service’ and his boss realised that he hadn’t seen him for six years.

Joaquin – an engineer whose job was to supervise a waste water treatment plant – is now enjoying his retirement, but at last he has company on this section’s roll of honour.

Step forward Tom Colella, a 60 year old electrician in Perth, Australia, who was sacked after playing golf – instead of working – 140 times over the last two years. But all credit to Tom, who relied on a 180 year old scientific discovery for his jaunts to the golf course. A ‘Faraday cage’ – named after English scientist Michael Faraday – dates back to 1836 and is a device that can block electromagnetic fields.

Tom set up a Faraday cage by hiding his personal digital assistant inside an empty foil packet of Twisties – the Australian equivalent of cheese puffs. The result was that Tom’s employer couldn’t track his location, and Tom was off to the golf course. Until some spoilsport sent his boss an anonymous letter…


Dec 05

Junior ISAs and what they offer

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.


Dec 05

4 top tips to make your retirement savings last

When it comes to saving for when you retire, at the very least you want to ensure that you’re going to have enough to pay for your living costs for the rest of your life. However, what you probably want to be aiming for is a nest egg which allows you to truly enjoy your life after work and do all the things you’ve planned for as you’ve saved. Some pensioners find themselves in a position where they have to compromise on what they can do during their retirement simply because of a lack of funds. So here are our top tips for retirees to help avoid finding yourself in that position.

  1. Commit more time to saving money – Once you retire, you’ll have a great deal more time available to you, meaning you should find it easier to spend time doing things that will help your money go further. One way of doing this is through a part-time job; but if you’re not keen on going back to work once you’ve retired, take time to collect coupons and hunt down special offers which you might not have had the time to do when you were working. This will help your monthly income go further.
  2. Consider your risk/balance – Most pensioners opt for low-risk investments as they depend on their pension and are not in a position to recover should the risk fail to pay off. However, taking calculated risks could help yield greater returns without opening yourself up to financial jeopardy. Deciding how much of your portfolio you’d be happy to put in higher-risk investments will be an individual decision, but is an option to consider as it can be a successful way to add to your pension at the same time as drawing down from it.
  3. Make sure you’re not paying too much in tax – Whilst you’ll never be in a position to pay no tax at all, your tax commitments are likely to change once you retire, so ensure you’re only paying the taxman exactly what you need to. Returning to the first point above, you’ll have plenty of time to investigate exactly what you should be paying in tax, so do some research and see what you can save.
  4. Come up with a budget and stick to it – If you’ve budgeted during your working life, this shouldn’t change when you retire, and if you’ve not managed to budget before then it’s never too late to start. Knowing exactly what you have coming in and going out each month means you’ll also know precisely how much money you can spend on enjoying yourself without worry or guilt about doing so.


Dec 05

Planning ahead for Christmas…

The ever-expanding festive fare already available in every high street shop and supermarket provides a daily reminder that Christmas is just around the corner. Whilst it might still feel too soon for you to begin thinking about your arrangements for the Yuletide season, there are definite benefits to getting your Christmas plans in order nice and early. Here are our top tips to help you get your festive finances in order before you open your first advent calendar window.

  1. Make the big financial decisions as early as possible – Whilst there are always a lot of money choices to make around Christmas, you don’t want to make them all once you’re fully caught up in the festive spirit. Once the tree has been decorated and the carols are being sung, you’re likely to make decisions emotionally rather than rationally, which can easily lead to you overspending without fully considering the consequences.
  2. Agree a budget with friends and family well in advance – Coming up with a set amount you and your loved ones will spend on presents for each other is a good way to avoid overspending, but it can cause embarrassment if not everyone sticks to the arrangement. Agreeing your budget early helps to ensure nobody starts their Christmas shopping before knowing the spending limit.
  3. Hide your credit cards – It can be all too tempting to put more and more Christmas costs onto a credit card, racking up unnecessary debt that will leave you strapped for funds long into the new year. Take your credit cards out of your wallet now and put them well away to avoid the temptation to spend beyond your limits over Christmas. If you shop online, remove your credit card details from your shopping accounts too – you can always add them back on if necessary in January.
  4. Make the most of your freezer – Christmas food can be pricey, a fact made even more frustrating when you realise a lot of it is simply the same stuff you can buy all year round wrapped in snowflake-adorned packaging. Stocking up early on the food you’ll need over the festive period makes sure you don’t have to spend more than necessary, as well as preventing you from having to make multiple trips to the supermarket in the busy days leading up to 25th December.


Nov 02

November Market Commentary

What’s the saying? ‘Close, but no cigar’. That’s how it was in October as all but two of the markets we cover rose in the month. Brazil’s market did manage to stagger up by just 14 points, meaning it was unchanged in percentage terms, but the Russian stock market let the side down, falling back by 1% in October.

While the stock markets were having a good month, the Brexit talks were having – another – stagnant month. Having been to Florence in late September, Mrs May then went and pressed the flesh in Brussels, but the warm words soon gave way to more bickering about the UK’s divorce bill. With the date for the UK’s departure from the EU another month closer, talks about a post-EU trade deal are nowhere near starting.

But Brussels was just a side-show: the real power was 5,000 miles away as Beijing hosted the 19th Congress of the Chinese Communist Party. Xi Jinping was confirmed in power for another five years and – while Britain and the EU bickered about when to begin talks about talks – Xi calmly set out his plans for China to become the dominant economic power in the world and then sent the delegates back to work.

In contrast to President Xi’s concrete plans, early October brought us the Conservative party conference and two speeches – from the Prime Minister and her Chancellor – which were roundly criticised. Theresa May at least had the excuse of a cold, but Philip Hammond delivered a lacklustre speech, labelled ‘thin, grey gruel’ by one commentator. At this stage you would not bet against his forthcoming Budget speech being his first and last Autumn Budget.

We will have to wait until 22nd November to see what rabbits the Chancellor pulls out of his hat. There have been suggestions of cutting back on tax breaks for older people to help the younger generation, but with the Conservatives still smarting from the ‘Dementia Tax’ debacle the last thing they need is to burden themselves with a ‘tax on getting old’.

Not that Monarch Airlines will be getting any older. The month started with the company which has whisked so many of us off to sunnier climes going bust, leaving 110,000 people needing to be brought back to the UK. Britain’s ‘biggest peacetime rescue mission’ duly cost the taxpayer £60m.

More worrying in the long term was the news that UK productivity was down for the second quarter in a row, and is now 15% below the average for the G7 group of the world’s largest economies, making us less productive than Germany, France, the USA and Italy. Expect this to loom large in the Budget speech: if the Chancellor can increase UK productivity it will provide a huge boost to the nation’s finances.

Staying with the bad news, new car sales were down for the 7th month in a row and Vauxhall responded by cutting 400 jobs at their Ellesmere Port plant. BAE Systems also announced plans to cut 2,000 jobs in their military, maritime and intelligence services.

Finally in the gloom section, the UK may well face its first interest rate rise for ten years in November. With the latest figures showing inflation rising to 3% and growth for the third quarter confirmed at 0.4%, there is every possibility that the Bank of England could shortly lift base rates from 0.25% to 0.5%.

…And now the good news. Unemployment was down by a further 52,000 in the three months to August: this leaves the jobless rate unchanged at 4.3% with 1.4m people now unemployed.

Government borrowing in September was the lowest it has been for ten years, with the deficit between what the Government spends and what it takes in taxes down to £5.9bn. With the deficit for August also revised downwards, there is at least some good news for the Chancellor as he prepares his Budget speech but – as the Institute for Fiscal Studies pointed out – he faces “a spending dilemma”. Does he abandon his target for reducing the deficit in order to spend more on public services and thereby – hopefully – stimulate the economy? All will be revealed by the time of the next commentary…

Meanwhile, the FTSE 100 index of leading shares closed October up 2% at 7,493. It is now up by 5% for the year as a whole which – as we shall see – is significantly less than some of the other major markets around the world. The pound fell back slightly against the dollar, and was down 1% in the month at $1.3271.

Following her speech in Florence at the end of September, Theresa May went to Brussels to meet other European leaders. There were plenty of warm words with both Angela Merkel and Emmanuel Macron making conciliatory noises, but the message from the EU remains the same. The divorce bill must be resolved before any talks on trade can begin.

Both sides then went home and – whether they are publicly admitting it or not – continued to prepare for ‘no deal’ which would see the UK leave the EU and operate under World Trade Organisation rules.

Meanwhile the Bank of England warned that Brexit could cost 75,000 jobs in the finance sector, Goldman Sachs chief Lloyd Blankfein dropped a very heavy hint about moving a swathe of operations to Frankfurt and the draft EU budget for the year was published. Showing that the EU never wastes a cent of its taxpayers’ money, the draft budget included €2m (£1.75m) for ‘private storage of cheeses’. You really couldn’t make it up…

Away from the European cheese counter, most of the attention focused on Spain and Catalonia’s declaration of independence, very swiftly followed by the imposition of direct rule from Madrid. So far precisely no governments have recognised Catalonia and hopefully the situation can be managed without violence and with Catalan leader Carles Puigdemont not needing to seek asylum in Belgium.

Of much wider – and worrying – significance was a report that Europe was getting left behind the US and the Far East in the world’s digital economy, with too much investment still being done on narrow national grounds. UK investors put half their money into UK based companies, roughly the same proportion as in Germany. In France the comparable figure is 75% and there is a suggestion that Europe’s fledgling tech companies are missing out because there is not enough investment available to them.

Both of Europe’s major stock markets enjoyed good months and both were up by 3% – the German index to 13,230 and the French index to 5,503. On a year to date basis they are up by 15% and 13% respectively.

We start the US section with bad news for the President. Not only was a Donald Trump mask one of the year’s most popular Halloween costumes, figures for 2016 confirmed losses of £19m at his two Scottish golf courses.

There were no such worries for Jeff Bezos, boss of Amazon, who overtook Bill Gates to become the richest man in the world after Amazon shares surged 10% following impressive third-quarter earnings. Sales rose 34% to $43bn – roughly the size of the Slovenian economy. Google’s parent company Alphabet also posted impressive third quarter figures as the rise and rise of the tech giants continued.

Perhaps this helped the US economy to grow by 3% in the third quarter of the year, confounding the prediction of the ‘experts’ who had been expecting a slowdown following the battering several states received during hurricane season.

Who will the President choose to steer the US economy in the future? Any day now he is expected to appoint the next Chairman of the Federal Reserve. He could stick with the status quo and keep Janet Yellen in the job, but the smart money seems to be favouring Jerome Powell, a Republican who supports low interest rates and is open to de-regulation of the financial sector.

It was another good month on Wall Street, with the Dow Jones index rising 4% to close October at 23,377 – up an impressive 18% for the year as a whole.

Far East
As we mentioned in the introduction, Xi Jinping used the Party Congress to set out his plans for China’s economic dominance of a large part of the world. He did this in a speech lasting 3 hours and 23 minutes: given that his audience was by no means in the first flush of youth and that popping out for a ‘comfort break’ was probably a treasonable offence, you do wonder how some of them coped…

Hopefully, they all managed to concentrate on President Xi’s plans. China already has a domestic population approaching 1.4bn – nearly one-fifth of the world population of 7.5bn. The UN estimates that the population of the world will increase to 11bn by the end of this century, with most of that growth coming in areas China intends to reach and trade with through the massive infrastructure project known as ‘One Belt, One Road.’

The initiative was first mooted by Xi Jinping around 2013, and sees China’s push into global economic affairs extending through a land based Silk Road Economic Belt (SREB) and the Maritime Silk Road (MSR), with the focus being on infrastructure investment, construction, railways and highways, automobiles, power and iron and steel.

Speaking at the Congress, Xi told his attentive audience that China will “take centre stage in the world”. The Belt and Road is designed to do exactly that. The land based Belt runs across Asia and through Europe. The Maritime Road (yes, you would have thought that the ‘road’ would be on land…) reaches South East Asia, Oceania and North Africa. More than 65 countries, 4.4bn people (63% of the world’s population) and 29% of the world’s GDP are in its path. Importantly, the countries it reaches are those countries poised for rapid growth – and many have been eager to accept China’s offer of help with infrastructure projects. What does China get in return? Not least, access to the vast mineral resources it will need for future growth.

Ratings agency, Fitch, estimates that $900bn of projects are planned or are already underway – but that this could eventually rise to as high as $4tn.

The first box in the ‘world domination’ column was certainly ticked, as figures confirmed that the Chinese economy had grown by 6.8% in the third quarter of the year, ahead of the official growth target for the year of 6.5%.

This saw the Chinese stock market rise 1% in October to 3,393 as all the Far Eastern markets moved upwards during the month. The Hong Kong index rose 3% to 28,246 and South Korea’s index rose 5% to 2,523 despite the CEO of Samsung resigning, citing an ‘unprecedented crisis’ at the firm. Pride of place though, went to the Japanese Nikkei Dow index, as the market hit a 21 year high, boosted by a comprehensive victory for Prime Minister Shinzo Abe in the parliamentary elections. The market closed October up 8% at 22,012.

Emerging Markets
It was a very quiet month for two of our three major emerging markets, with the Brazilian stock market up just 14 points to 74,308 and the Russian market slipping back by 1% to 2,064. However, in India it was an entirely different story, as the stock market rose 6% to 33,213 meaning that it is now up by 25% for the year as a whole.

This came despite a report suggesting that employment growth in India had slowed drastically over recent years. Prime Minister, Narendra Modi, famously promised that his BJP party would create 10m jobs if it came to power. That now looks significantly over-optimistic but, for now at least, worries about employment prospects are not being reflected on the Indian stock market.

And finally…
We mentioned above the closure of Monarch airlines. On 3rd October the BBC reported that Monarch chief executive Andrew Swaffield was “absolutely devastated” by the break-up and that it was “a heart-breaking day”. The following day, City AM reported that Mr Swaffield had already registered his new business – an airlines consultancy – at Companies House. How wonderful to see someone bouncing back from adversity so quickly…

Meanwhile, America’s tech industry was rocked to its foundations as Facebook bought a company for less than a billion dollars. The company in question is called ‘tbh’ which stands for ‘to be honest.’ It has been in business for nine weeks and has just four employees. Facebook paid the staggeringly ludicrous price of ‘less than $100m’ for an app which has been downloaded five million times but obviously has made no money. What does it do? It encourages teenagers to be nice to each other…

But given that it is going to dominate the world we should finish the commentary in China where the new initiative may need to be re-named, ‘One Belt, One Road, Many Cheeses.’ Chinese authorities have lifted their ban on ‘stinky cheeses’ including Danish Blue, Gorgonzola and Stilton. An EU delegation will apparently organise talks with China to prevent any future bans: if the ‘cheese talks’ move at the same pace as the Brexit negotiations then ‘stinky cheeses’ will be a considerable understatement…


Nov 01

The UK drops in the buy-to-let rankings

The UK has fallen ten places in the rankings of Europe’s best countries for property investment. The list is created by payments firm,WorldFirst, which ranks the average available yields on buy-to-let investments measured by rent as a percentage of property value. The recent tax changes for buy-to-let investors have seen average yields in Britain fall 19% over twelve months, and has led to the UK falling from 15th place in 2016 to 25th this year.

Tougher rules introduced for landlords in the UK recently have included a 3% surcharge on stamp duty for all new property purchases since April 2016, as well as cuts to tax relief on mortgage interest for buy-to-let properties from April this year. This has led to increases to rent in order to cover higher mortgage payments. Those with four or more properties will also find it harder to secure finance from October this year.

Britain’s impending exit from the EU has also taken its toll on the country’s appeal for property investors, as the pound has taken a hit in the markets and tricky Brexit negotiations have appeared continuously in the media.

The report from WorldFirst reveals that the average yields from buy-to-let in Britain have fallen from 4.91% to 4% in the past twelve months. The lowest yields of under 2% can be found in areas with the highest property prices, including London and the South East. However, landlords have also reported that returns of around 8 to 9% are still possible in cheaper areas in the north from properties with multiple tenancy agreements in place.

With Britain slipping down the rankings, where are the best places in Europe to invest in property? Ireland retains its place at the top of WorldFirst’s rankings with an average yield of 7.08%, up from 6.54% last year, thanks to the country’s cities seeing rents rising strongly. A one bedroom apartment in urban Ireland will now cost an average of £12,000 per annum to rent – the second most expensive in the EU after Luxembourg, where the average rent exceeds £14,000 a year.

At the other end of the table below the UK are Austria, France, Croatia and Sweden, all of which offer less than 4% returns, thanks to sluggish rents and high property prices. Due to tight controls over the Swedish rental market, the country has been bottom of the rankings for three years in a row with a return of just 3.03%.


Nov 01

Millions may miss out on pension pay out

A recent study by the Pensions and Lifetime Savings Association (PLSA) has suggested that people who have saved into defined benefit (DB) pension schemes have only a 50/50 chance of receiving the payouts they are expecting, resulting in millions missing out on the retirement income promised to them. The pressure on some employers to meet their pension obligations has increased significantly, with well-publicised cases of pension collapse including that of BHS once again highlighting the concerns surrounding the future of workplace pensions.

The PLSA looked at the DB pension schemes of 11 million people across the UK. Whilst most pensions are reliant on successful investment, DB schemes promise a specified level of income during retirement dependent on factors such as the member’s final salary. The PLSA found that the majority of these schemes had sustainable models to ensure future payments could be made, but also identified three million schemes which might not be able to guarantee the future payments for its members.

However, the PLSA has also suggested pension “superfunds” as a solution, where struggling companies pool their resources together. The companies would pay a set fee, allowing them to transfer their defined benefit schemes such as final-salary pensions into a wider fund. This would then provide greater investment opportunities for the future. Whilst a standard deal for members of these schemes means that some could end up with a better final payout than expected, the pension income for others would be reduced as a result.

In response to the PLSA’s findings, the Department for Work and Pension stated: “Most pension schemes are operating well and the vast majority of members can expect to receive their benefits in full. But in the wake of several high profile cases, there may be more that needs to be done to support the sector. As we look at options such as the consolidation of pension schemes, we will continue to work with the industry, employers and scheme members to see what more can be done to increase confidence in defined benefit pensions.”

The PLSA’s superfund suggestion has been criticised by some in the pensions sector, suggesting that the body is attempting to undermine the safeguards which have been available for savers since the 2004 Pensions Act.


Nov 01

Too late to start saving?

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.


Oct 03

October Market Commentary

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.

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.

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…

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.

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…


Oct 03

Do you know how much your pension pot is worth?

Recent research from Royal London has found that around five million people in the UK have ‘forgotten’ pension pots from final salary schemes of former employers. What’s more, many of these deferred members of defined benefit funds don’t know how much a lump sum payout of this accumulated pension would be worth, thanks to a lack of communication from the provider of their old scheme. As people who transfer their pension pot are offered an average lump sum of between £158,000 and £190,000 – around 25-30 times the annual value of their pension – the collective amount held in these forgotten pots could reach a total of up to £800 billion.

As many people are unaware that they are holding valuable pension assets, potentially worth a six figure sum, the researchers emphasise that those who are members of these schemes should take steps to discover how much their pensions are worth, as well as seeking impartial advice on what to do with the money. Whilst taking a lump sum may seem attractive, it may not be the best option for many people, as doing so means sacrificing a guaranteed pension payment.

Nonetheless, more and more people are choosing to make use of pension freedoms in order to take lump sum payments from their retirement savings. The former pensions minister, Baroness Altmann, has suggested that whilst granting the freedoms was the right thing to do, the government should make consultation with the official financial advice service, Pension Wise, compulsory for those looking to take a lump sum. Doing so would ensure “people get financial advice before they make a decision that is irreversible”.

Making any big decisions about your pension can of course have significant ramifications for your future retirement, so if you are considering whether or not to take advantage of pension freedoms yourself, make sure you seek professional advice before doing anything. If you have any questions around this topic, please feel free to get in touch with us directly.

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