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Financial Market Update

USA- ?

Covering February 2011

The Year of the Rabbit

America losing an ‘A’ would have enormous consequences.

China enters their New Year hoping for good luck and prosperity.

The Food Revolution Egypt’s problems expose wider food shortage worries.

Protection Retirement Investments Savings Mortgage life cover


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Citadel Insurance p.l.c • Casa Borgo • 26 Market Street • Floriana FRN 1082 • Tel: 25579000 • E-mail: info@citadelplc.com • www.citadeldirect.com Branches: Gżira: 21332151 • Ħaż-Żebbuġ: 21464873 • Naxxar: 21419198 • Paola: 21806247 • Tied Insurance Intermediaries: Malta • Gozo Citadel Insurance p.l.c. is a company authorised to carry on general and long term business of insurance and is regulated by the Malta Financial Services Authority


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At Citadel

we offer a wide choice of life and investment products that are flexible enough to allow you to benefit from a range of opportunities in order to secure your own future and that of your family.

Protection

Retirement

Level Term Insurance

Planning for life’s longest holiday has been made easy with the Perla Retirement Plan. It offers flexibility throughout the whole term of the policy, a choice of associated benefits (Life cover and disability benefits, up to a maximum of 500% of your income) and a wide selection of investment funds to suit your own attitude to risk.

This policy provides a fixed amount payable on the insured if death occurs within the term of the policy.

Group Life insurance The policy is tailor-made to cover a group of employees with the same employer and provides a benefit for each member in the event of death in service. The benefits payable upon death of the employee may be expressed either as a lump sum or alternatively as a multiple of salary. No evidence of health is required for the employees of a Group Policy provided that certain criteria are met.

Savings

Investment

The best way to achieve a goal is to plan and save for it. Our Perla Savings Plan and our Perla Junior Plan which is specifically designed to help a parent give their child the best start in life, allows you to efficiently prepare for the future.

The CitadelLife Investment Bond is a very straightforward and simple form of investing a sum of money. As a cautious investment in the ‘with-profits’ fund of Citadel Insurance p.l.c., it offers a potentially higher return than bank deposits and bond investments. Under current tax legislation the CitadelLife Investment Bond is a tax efficient investment.

The Perla Savings Plan offers a guaranteed return and the flexibility to add further ‘ad-hoc’ single premium boosters, if required. While the Perla Junior Plan offers a wide selection of investment funds to suit your own attitude to risk. Both plans also offer a choice of associated benefits (Life cover and disability benefits, up to a maximum of 500% of your income).

Protection Retirement Investments Savings Mortgage life cover

Mortgage

Life Cover

The policy provides an amount payable on the death of the life insured if death occurs within the term of the policy. The amount payable on death reduces over the duration of the policy in accordance with the loan repayment rate, thereby providing the amount of cover to satisfy your banks’ requirements.

Note: Life Protection plans only pay on death within the specific term of the policy, should the insured survive the duration of the policy, no benefits would be payable. These policies cannot be discontinued for cash or converted to a paid-up policy. The Perla Unit-Linked plans are life assurance policies which are tied to a number of funds. These funds and the income from them can go down as well as up and is not guaranteed, and the investor may not get back the amount originally invested especially if the plan is surrendered within 5 years from its commencement date. Past performance is not necessarily a guide to future performance. Changes in the rate of exchange of currencies, particularly where overseas securities are held, may also affect the value of your investment.

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Citadel Financial Market Update Covering February 2011


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USA- ? Weekly international investment round up to 15th February 2011.

When it’s impossible to enter the amount of a country’s debt on your pocket calculator, you know it’s bad. As if trying to conceptualise the figure of $1 trillion which is equal to $1,000 billion and numerically represented by the figure ‘1’ followed by twelve zero’s isn’t difficult enough, America’s $14.1 trillion debt mountain is simply mindboggling.

Valentine’s Day was the day chosen by President Obama to begin the process of trying to reduce his country’s bloated debt pile by proposing budget cuts of around $1.1 trillion over the next decade. Should these cuts actually be agreed and implemented even a reduction of this scale could not really be considered a debt massacre and may not do enough to prevent the previously unthinkable; the loss of the USA’s coveted ‘AAA’ rating. His 10-year deficit reduction proposal is still less than the total projected deficit for this year alone, estimated by the non-partisan Congressional Budget Office to be $1.48 billion. In simple terms, a ‘deficit’ is the money a government takes in minus the money it spends while ‘national debt’ equals the total amount actually borrowed to fund the annual deficit. America remains one of only two G20 countries to forecast that its deficit will rise this year and not fall.

America losing an ‘A’ would have enormous consequences. The Moody’s Investors Service ratings agency states that the US has the highest government debt-to-government revenue of any ‘triple A’ rated country. Standing at 426%, this is more than double that of either Germany or the UK who have now embarked upon significant cost-cutting measures. Moody’s have recently hinted at giving America a negative outlook due to its widening budget deficit, the first step to a ratings downgrade, while similar mumblings have also been made by S&P. The repercussions of downgrading the world’s number 1 economy are enormous. If the financial crisis was the earthquake at sea then America losing an ‘A’ could well act as the following tsunami, destroying the previously unshakeable confidence the world places in both the dollar, the world’s biggest reserve cur-

Citadel Financial Market Update Covering February 2011

Weekly market analysis - Week to 15/02/11

Stock markets

15/02/2011

08/02/2011

wks chg

CAC 40 (Paris)

4,096.62

4,090.80

0.14%

Euro STOXX 50

3,018.38

3,031.18

-0.42%

Dax (Frankfurt)

7,396.63

7,283.62

1.55%

12,268.19

12,161.63

0.88%

6,060.09

6,051.03

0.15%

Dow Jones Ind. Avg FTSE 100 FTSE All-Share UK Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq

3,144.08

3,139.56

0.14%

22,958.39

23,572.51

-2.61%

3,232.32

3,077.28

5.04%

18,278.27

17,930.20

1.94%

2,817.18

2,783.99

1.19%

10,746.67

10,635.98

1.04%

S&P 500

1,332.32

1,319.05

1.01%

SMI (Zurich)

6,666.06

6,611.14

0.83%

Nikkei 225

rency, and US treasury bills, the most important debt instrument. For those who believe it is unthinkable for the number 1 economy to be downgraded, then they should be reminded that the former number 2 economy, Japan, saw their S&P rating lowered from AA to AA- just last month. The impending battle of wills between

Valentine’s Day debt massacre? No, not really. President Obama, who would ideally prefer to borrow his way out of debt and rely on future economic growth and increased tax receipts to reduce the budget deficit, and the ratings agencies, who do not want to get caught with their pants down again, will be fascinating. America and Japan’s overspending and massive debt problems are currently being masked by very low interest levels, when increasing inflation forces rates to rise these nations will be left overexposed and forced to make the tough decisions they are now desperately avoiding. Ironically, political gridlock and indecision is likely to spur shorter term market gains at the expense of longer term pain. While President Obama deserves an ‘A’ for effort, the cost of any failure to tackle US debt is incalculable.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

www.citadelplc.com


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The Food

Revolution Weekly international investment round up to 8th February 2011.

Pasta may come in many different shapes and sizes but could it really be an ingredient for revolution? Inspired by recent events in Tunisia we have seen the politically oppressed people of Egypt finally take to the streets in pursuit of democracy and social justice however, maybe their real fear of hunger may also have been a strong contributing factor. As the world’s largest wheat importer and reputedly now the largest consumer of pasta, beating even the citizens of their largest EU trading partners the Italians, the near perfect storm of changing weather patterns, financial turmoil, global population explosion and rising commodity prices have caused food costs to spiral making countries such as Egypt a tinderbox for revolution and providing those others surviving in authoritarian states with a blueprint for social change. But worryingly,

Weekly market analysis - Week to 08/02/11 Stock markets

08/02/2011

01/02/2011

wks chg

CAC 40 (Paris)

4,090.80

4,005.50

2.13%

Euro STOXX 50

3,031.18

2,953.63

2.63%

Dax (Frankfurt)

7,283.62

7,077.48

2.91%

12,161.63

11,891.93

2.27%

FTSE 100

6,051.03

5,862.94

3.21%

FTSE All-Share UK

3,139.56

3,044.27

3.13%

23,572.51

23,462.58

0.47%

3,077.28

3,077.28

0.00%

17,930.20

18,161.07

-1.27%

2,783.99

2,700.08

3.11%

Dow Jones Ind. Avg

Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq Nikkei 225

10,635.98

10,274.50

3.52%

S&P 500

1,319.05

1,286.12

2.56%

SMI (Zurich)

6,611.14

6,479.15

2.04%

Egypt’s problems expose wider food shortage worries.

17% over the 25th and 26th caused the closure of the Egyptian Stock market on the 27th January which, up until today, still remains closed. Desperate investors who now try to pull money out of the country are finding this extremely difficult as the Egyptian government has introduced withdrawal restrictions in an attempt to prop up the Egyptian Pound which has fallen to a six-year low.

should a sustained food revolution sweep the world it would make the recent financial crisis seem like a walk in the park.

Often referred to as the world’s greatest outdoor museum, Egypt’s potential for growth and prosperity is immense. In fact, it has actually averaged over 5.5% GDP growth in the last 3 years making things appear pretty good but a quick scratch of the surface shows an unsustainable 12.8% inflation rate and 20% of its population living on less than a $1 a day. The recipe which made Egypt’s revolution was written some years ago while the ingredients for wider social unrest are now in the mixer.

With gold, silver and now copper hitting record price levels speculators are increasingly turning their attention to food as their next profit source. The UN’s index of food prices now stands at its highest level since it began in 1990. Wheat prices have near doubled in the last year alone. The knock-on effect of the Egyptian uprising is causing other dubious regimes to begin hoarding food and restricting exports in an attempt to avoid similar demonstrations which will only serve to widen the problem and lead to tit-for-tat action. In years to come the reliance of an economy on imported food will no doubt become just as important as their interest rate or unemployment levels when deciding the health of any particular nation. During the ‘Jasmine Revolution’ in Tunisia, my article of the 19th January speculated on which country could be next and concluded that Egypt, the most populous Arab country, was most likely to be it. This was based on various factors such as its benchmark EGX30 index experiencing a fall of 3.5% following the events in Tunisia and wheat prices exceeding those which had sparked the Cairo bread riots in 2008. Street protests began on January 25th which have since tragically left an estimated 300 people dead. A combined fall of

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Speculators turn their attention to their next potential profit source.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

Citadel Financial Market Update Covering February 2011


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The Year of

the Rabbit

Weekly international investment round up to 1st February 2011.

As The Year of the Rabbit begins, investors are hoping China’s remarkable growth story continues. For the Chinese economy, the outgoing Year of the Tiger would appear to have lived up to many of its associated attributes displaying such typical characteristics as competitiveness, unpredictability and boldness in the pursuit of territorial expansion and while Tiger years are traditionally tumultuous, risk takers around the world thrived during the chaos of 2010.

Obviously, many would dismiss such things as simple superstition but at the very least it does help us better understand the psyche of more than a billion people who inhabit the world’s fastest growing economy. Fascinatingly, according to Chinese legend, Buddha summoned all the animals to witness his departure from earth but only twelve turned up to say goodbye. In order of those who arrived were the rat, ox, tiger, rabbit, dragon, snake, horse, ram, monkey, rooster, dog and finally the pig and as their reward Buddha named the following years by order of their arrival. While many different cultures may view and value rabbits differently, the Chinese believe they have a mystical quality and symbolise the spring, when trees and plants prosper. Following the Tiger, Rabbit years are considered much more tranquil and for those in business they are considered lucky and a good time for gentle persuasion, making deals and entering partnerships. The last Rabbit year in 1999 turned out to be an absolutely barnstorming time and the height of the dot.com bubble.

Which way will investors leap?

In fact, just such a bubble appears to be forming in China but this time it’s in the shape of property (sounds familiar?). Speaking at the recent World Economic Forum in Davos, Li Daokui, an adviser to China’s Central Bank, spoke of his belief that exploding property prices were the biggest danger to the Chinese economy. Surging property values have now caused the Chinese government to introduce their first property tax starting in the Shanghai and Chongqing regions and applicable to anyone owning a second home, they will now have to pay between 0.4% and 1.2% of the purchase price depending on its value compared to the rest of the market. Last year’s hike in interest rates were designed to cool the market, a pattern which is likely to continue this year. But as China urbanises, with an additional 200 million

Citadel Financial Market Update Covering February 2011

Weekly market analysis - Week to 01/02/11 Stock markets

01/02/2011

25/01/2011

wks chg

CAC 40 (Paris)

4,005.50

4,033.21

-0.69%

Euro STOXX 50

2,953.63

2,979.06

-0.85%

Dax (Frankfurt)

7,077.48

7,067.77

0.14%

11,891.93

11,980.52

-0.74%

FTSE 100

5,862.94

5,943.85

-1.36%

FTSE All-Share UK

3,044.27

3,083.88

-1.28%

23,462.58

23,886.84

-1.78%

3,077.28

2,932.64

4.93%

18,161.07

19,216.16

-5.49%

2,700.08

2,717.55

-0.64%

Dow Jones Ind. Avg

Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq Nikkei 225

10,274.50

10,464.42

-1.81%

S&P 500

1,286.12

1,290.84

-0.37%

SMI (Zurich)

6,479.15

6,603.80

-1.89%

likely to swell their cities over the next two decades, pressure and controls on prices will become a very delicate balancing act with grave consequences for all our intertwined economies if they get it wrong. However, based on data from Bloomberg the MSCI China Index’s 9% slump since November has now left it trading at 11.7% times estimated profits, representing very good value for

China enters their New Year hoping for good luck and prosperity. investors; which way to leap in the Year of the Rabbit? Especially pleasing for their rich, Chinese GDP grew by 10.9% last year while the IMF expects it to climb a further 9.6% in 2011 but worryingly for their poor, food prices continue to rise having increased by 7.2% throughout 2010. Confucius said, ‘man who chases two rabbits catches neither’. Balancing these extremes will no doubt prove China’s biggest challenge.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

www.citadelplc.com


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Citadel offers a wide choice of life and investment products that are flexible enough to suit your ever changing needs. Let us help you plan for a secure future. Mark Lamb Head of Life Department

About

Citadel Insurance p.l.c. Citadel Insurance p.l.c. was established as an insurance company on 19th June 1997 and commenced its operations on 1st September 1997. Citadel’s establishment as an insurance company is a landmark in the history of insurance business in Malta, being the first conversion of an insurance agency into an insurance company and among the first companies to have launched unit-linked plans. Citadel Insurance p.l.c. offers a wide range of insurance products for both general and life business, including retirement, protection and savings

plans and is one of the only local insurers to provide such a complete and extensive portfolio of products. In line with its philosophy and reputation built on the provision of high quality products and an ‘all-encompassing’ service to its individual and business customers, Citadel has further enhanced its support to its clients through the establishment of a growing network of branches and insurance intermediaries.

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Citadel Insurance p.l.c ∙ Casa Borgo ∙ 26 Market Street ∙ Floriana FRN 1082 Tel: 2557 9000 ∙ Freephone: 800 72322 ∙ Fax: 2557 9550 • e-mail: info@citadelplc.com ∙ www.citadelplc.com


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Citadel Insurance p.l.c. • Casa Borgo • 26 Market Street • Floriana FRN 1082 • Tel: 25579000 • E-mail: info@citadelplc.com • www.citadeldirect.com Branches: Gżira 21332151 • Ħaż-Żebbuġ 21463559 • Naxxar 21419198 • Paola 21806247 • Tied Insurance Intermediaries: Malta • Gozo *The usual 3% initial allocation fee will not apply during the ‘Special Offer’ period. The CitadelLife investment bond is a single premium interest sensitive life insurance product that gives the possibility to invest a sum of money easily at low cost. For full details, please obtain a copy of the product information document from Head Office and branches. The declared bonuses and the maturity value of the policy depend on the performance of the “with profits” fund of Citadel Insurance p.l.c. Past performance is not necessarily a guide to future performance. As tax regulations stand today, you are not liable to pay any Capital Gains Tax on the lump sum payable at maturity. However tax laws may change and you should seek professional advice on the matter. Citadel Insurance p.l.c. is a company authorised to carry on general and long term business of insurance and is regulated by the Malta Financial Services Authority.


CitadelLife Financial Market Update Covering February 2011