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A summary of the UK Emergency Budget, delivered on 22nd June 2010, is available here.
On 25th May, the Queen delivered a speech which cemented the new British Coalition’s full programme for government. Notably, the plans confirmed that the world of pensions has changed significantly.
In simple terms the long term value of pensions went up, the British public is being forced to start planning for itself, greater flexibility has been added and most will have to wait longer before starting to claim a State pension.
The main announcements were as follows:
If you would like to review your pension planning, please get in touch.
The UK is now agog at the appearance of a real 3rd force in domestic politics and the stock market is having to adjust to the real prospect of the next Parliament being hung or balanced.
Amidst the welter of scares about the currency crisis that this situation would cause, the stock and bond markets are quietly going about their jobs. Perhaps we are seeing signs that if voters are tired of politicians then so is business. The attitude seems to be that the world will do what it will no matter what the politicians decide.
Of course, there is a large budget deficit to face but meantime figures for the first quarter show the UK economy continuing to recover. Despite the snow chaos, GDP grew by 0.2% and although that might be a little lower than forecast it is a higher number than originally announced for the last quarter of 2009 and will probably be revised upwards.
So, the economy is recovering and corporate earnings – both in the UK and around the globe – are coming in very nicely. All of this suggests that the UK market will stagnate before the Election on 6 May. The immediate post Election reaction will depend very much on what happens but the vibrant economic mood will dominate the outcome. With the yield on the FTSE 100 at 3.25% pa exceeding the return on deposits and with interest rates set to remain low the stock market still offers considerable attractions for the long term.
Naturally, the UK election tends to dominate thinking. Global markets remain attractive although threats of a global bank tax will cause occasional concerns.
Despite worries about future action on the UK Budget, deficit Sterling has strengthened just recently – perhaps the markets have something in common with UK voters in that a hung Parliament is not as bad an outcome as might have been feared.
Author: Graham Barnes, International Director
Investment Highlights
The Fry Group will be holding two regional seminars in the UK. Both will offer attendees an understanding of how to plan for a happy and fulfilling retirement, from a financial perspective. Details of the seminars are noted below:
Sussex Seminar
Date: Thursday 13th May 2010
Location: Vicars Hall, Chichester Cathedral, Chichester, West Sussex
Yorkshire Seminar
Date: Thursday 17th June 2010
Location: Aislabie Suite, Fountains Abbey, Ripon, North Yorkshire
For more information about either event please email events@thefrygroup.co.uk.
Now that the Greek debt problem has become less of an issue, global equity markets are moving up as corporate results continue to be encouraging. Our view is that this results-based recovery will continue with the occasional downward interruption from the type of ‘scare’ that sovereign debt concerns bring.
However, progress in UK equities is likely to slow as fears of a hung Parliament grow. After the UK election we expect strains in the equity market as the new Government reveals its policy for rectifying UK public finances. Even so, for investors seeking income there are any number of quality companies offering attractive dividend yields (e.g. Royal Dutch Shell at 5.5%, GlaxoSmithKline at 4.8%, Vodafone at 5.3%) that can form the basis of a sound long-term portfolio. There is also ample scope outside the UK with an array of fine businesses giving equal opportunities for both income and growth in equities (e.g. Novartis at 3.6%, Roche at 3.4%)*. Investors looking to build a sound equity portfolio still have a good window in which to acquire quality stocks.
Investors seeking growth have a wide choice too. Although many of the Asian stock markets performed well in 2009, they remain a good long term investment as their economies perform well unburdened by western-style banking problems.
As we have remarked before, bonds have little left to offer by way of growth prospects but can produce a much better income than deposits. Fear of a return to inflation and concerns as to the repayment of the UK’s deficit make it difficult to recommend investing in gilts.
Elsewhere, commercial property is attracting interest and this could be the time to invest in the right fund – that is one with a quality property portfolio but there are large debts overhanging this sector. The banks might recover their ability to renew these loans but there could be trouble if not.
Sterling is relatively weak against both Dollar and Euro and, for now, there seems no reason to expect a quick change but that could alter as we move through the year.
Author: Graham Barnes, International Director
*The Dividend yields quoted are for illustrative purposes only and can rise and fall without notice.
The UK Budget was delivered yesterday. For an overview of the main points of Alistair Darling’s pre-election Budget please click the link below.
http://www.thefrygroup.co.uk/assets/assets/Budget Summary March 2010.pdf
Some of the changes were trailed in last December’s Pre-Budget Report but there are many new announcements.
This year there were over 70 supporting notes with the Budget, demonstrating how many changes need consideration. The most significant of these included:
If you have any tax or financial queries which you would like to discuss please contact us.
The dilemma that markets face causes fear on some days and optimism on others – and until one mood triumphs we are unlikely to see a clear direction.
On the negative side we have the end of quantitative easing and the consequent cessation of the liquidity which had so restored markets. Equally various national Governments are also being seen to have shaky finances and possible difficulties in borrowing what they need to pay the bills. Much as many would like the banks to reimburse ‘the taxpayer’, President Obama’s promise of a 10 year levy also weakened sentiment.
On the positive side is the continuing strength of corporate earnings. Naturally the end of a recession will see companies re-stocking which will explain an initial ‘bounce’ but, in the USA alone in the fourth quarter 2009 revenue grew by 3.5% across all sectors. That demonstrates the recovery that is going on at company level.
So, Governments are struggling to meet their bills (which is bad news for taxpayers) and companies are broadly doing well (which should be good news for investors).
Concerns about Government finances will cause volatility in all markets probably through 2010 but there are plenty of equities offering both growth and a good yield that are worth tucking away for the long term.
Author: Graham Barnes, International Director
Investment Highlights
• US monthly market fall the largest since February 2009
• President Obama proposes measures to restrict banks’ operations and ensure they repay money loaned by the government
• Eurozone unemployment hits 10%
• German economy shrinks by 5% in 2009
• UK exits recession – but only just
• Inflation rises above Bank of England target
• Fourth quarter GDP in China hit 10.7% year-on-year, leaving full year GDP growth at 8.7% in 2009
• Policy tightening began in China and India where banks’ reserve requirements were increased
• Japan’s exports turned positive in December for the first time in 15 months
• Greek government bonds continue to weaken as concerns about public finances persist
With January behind us, we can sensibly discuss how global markets should expect to perform in 2010.
Firstly, the US housing market (where all the recent problems began) is improving. The recovery from recession is likely to exceed forecasts although developed nation’s banks need to increase lending to business. The problem is that those banks have had an expensive reminder on the dangers of leverage and are re-building their balance sheets.
The ray of sunshine has been emerging markets. As remarked in earlier notes, these markets have few problems in common with Western economies. 2009 saw terrific growth in most EM markets which was welcome but leads to two current doubts. First, that the whole world is now very dependent on emerging markets for growth and, second, they are unlikely to grow at that rate indefinitely.
In bond markets, corporate bonds have given their best. Values remain reasonable offering investors attractive yields whilst UK government bonds are unattractive. For the Government to find an extra £170 billion in 2010 higher rates of interest might have to be offered to investors which will impact prices.
Equities in most markets are now at sensible valuation levels after the recovery in 2009. With the exception of the financial sector, corporate profits are rising, making shares attractive for those investors seeking income or steady growth.
Currency markets should see a change in the fortunes of both the US Dollar and the pound. After a grim 12 months, both now look ‘cheap’, and should recover although worries about Government debt funding will cause concerns. The yen now seems expensive.
Of course, there will be risks. If Western governments cause interest rates to rise too quickly growth could be choked off. Meantime, equity and bond markets offer good prospects especially for those investors facing low cash returns.
The Fry Group entrusts responsibility of the management of client investment to a number of reputable firms. These comments are taken from presentations by Investec and Rensburg Sheppards given to Fry clients in London on 21st January 2010.
Author: Graham Barnes, International Director
Investment Highlights
The UK is suffering on two fronts as December, and 2009, draws to a close. The snowy conditions are achieving the usual disruption to transport but those problems will ease once the wind shifts to the west and the rain starts again. A greater problem lies in the UK economy where the UK Chancellor has decided to delay reducing the Nation’s outgoings in the hope of buying popularity in the 2010 election.
I sense that, weather and chancellors apart, the UK has a more cheerful mindset than just 12 months ago. That is not too surprising though as stock, bond and commodity markets have recovered strongly through 2009. 2010 ought not to offer the same upside potential simply because we have already had the sharp recovery but, around the globe, interest rates are relatively low which will encourage investors to keep shifting away from cash. Companies’ trading fortunes are generally better although UK investors could well look overseas for some equity exposure as poor UK economic numbers could hold back the stock market.
The UK commercial property market has a tougher way ahead as the banks pull back their support for this sector.
After a strong performance in 2009, corporate bonds have enjoyed their recovery phase and whilst there is a sound yield to enjoy risks to capital values will creep in as and when interest rates rise (although that might not be until 2011 in US, EU and UK).
Emerging markets have performed strongly in 2009 leading any contrarian investor to look elsewhere but the growth expectation in those markets is encouraging.
Overall, 2010 should be a quieter year than 2009 and although shocks can appear we are looking forward to steady returns.
Author: Graham Barnes, International Director
December Highlights