6 post business wealth management
Thursday, October 17, 2013
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Can Olympics banish effects of tsunami and devastation? market analysis
by Derek Gawne
LIVERPOOL OFFICE OF CHARLES STANLEY
FOLLOWING on from my article on September 19, which looked at the banking crisis and fall of Lehman’s bank, I was asked recently what was the best-performing investment sector to be invested in from that date. I am grateful to a number of sources but the results are somewhat surprising. The usual suspects in a crisis would come to mind, such as gold. Maybe you’d think gilts: they have lagged equities since the market bottomed (which was almost six months later, at the start of March 2009), but the advantage gained in the preceding market carnage surely covers that? Or possibly you’d go for US equities, with their relative defensiveness in a crash combined with their recent strong run. I suspect that if we took a straw poll very few would be able to pluck the right answer out of thin air. It turns out, after searching performance tables, that the right sector to have bought on that day, and then held, was Japanese Smaller Companies. Never a sector that springs readily to mind, let alone in the midst of a financial crisis. The average fund, taken from the IMA’s own statistics, in this sector has generated a return of 97.9% since that day. This is an especially
Derek Gawne
impressive result given the following five years contained not only the Lehman bankruptcy, but also the country’s ongoing economic stagnation, the euro crisis, the Tohuku earthquake/tsunami/nuclear catastrophe, severe Thai floods that blew holes in Japanese supply chains and Tokyo’s prime ministerial merry-go-round. So how, against all expectations, have Japanese smaller companies performed so well? It’s down to a number of factors. First, currency helped, as while the yen has recently been weak, it’s still far stronger against sterling than it was in 2008. The currency’s safe- haven status helped all Japanese equities withstand the months after the Lehman bankruptcy for sterling investors. The starting valuation was also useful, as the hot money had been giving Japan a wide berth for macroeconomic reasons before the financial crisis kicked off. But what of the future for Japan? It was recently announced that Tokyo had won its bid for the 2020 Olympics. This should be a big positive for Japanese people and their economy. Just as in London, the Olympics are likely to increase the promotion of sports throughout the country and create something of a feelgood factor. However, the social impact is likely to be much more positive. Winning the Olympic bid may improve confidence among the Japanese and the feelgood factor should make Prime Minister Abe even more popular. This increased sense of confidence and purpose among Japanese people should also mean that Abe’s and Bank of Japan Governor Kuroda’s pro-growth policies will become much more effective. The Olympic bid decision will, hopefully, also give increased force to Abe’s ‘third arrow’ reform policy and further drive his initiatives for PFI (private finance initiative) and PPP (public private partnership) funding. So, just as the 1964 Olympics demonstrated that Japan had joined the ranks of industrialised nations, by 2020 the Olympics should enable Japan to show that their economy is back in shape following the 2011 tsunami and the decades-long economic crisis. So will Japan be the top performing sector over the next five years? Only time will tell, but the one thing investment markets should teach us is that you shouldn’t be surprised – but we always are.
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THE number of people taking their first step on to the housing ladder set another six year high in August, mortgage lenders have reported. Some 27,100 loans worth £3.8bn were handed out to first time buyers in August, marking a 7% increase on the month of July, when the number of first-time buyers was already running at its highest levels since 2007, according to Council of Mortgage Lenders’ figures. The CML figures showed that first-time buyers stretched their borrowing in relation to their income in August, borrowing 3.36 times their salary typically, which was a jump from 3.31 in July. The latest figure marks the highest borrowing ratio seen for first-time buyers since 2007.
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Hopefully recovery can dispel the effects of the 2011 tsunami
AS many as one home in every street in some places of England are at risk of being repossessed, according to a housing and homelessness charity. Unemployment and the high cost of living are leaving many households on a “knife-edge”, Shelter said. The number of possession claims across England has increased, according to figures released by the charity which it says are based on a combination of Ministry of Justice statistics and 2011 census data. The figures relate to possession claims, which are applications made to a court by lenders and landlords to repossess a house, the first step to get a possession order. Outside of London, Wolverhampton has the highest claim rate for possessions at one in every 59 homes under threat.
PPI and RM shares offer festive boost
Housing ‘bubble’ hysteria
COMPENSATION pay-outs following insurance mis-selling scandals will help boost high street spending in the run-up to Christmas to £88.4bn, analysts say. The forecast of a 2.2% rise in retail spending during the last three months of the year is attributed to improving consumer confidence as well as one-off factors such as pay-outs over payment protection insurance (PPI). Banks have been forced to set aside billions to compensate cus-
EFFORTS to revive the mortgage market have been “well-timed” and will not lead to another housing market bubble, a leading forecaster has said. The EY ITEM Club boosted its estimate for GDP this year to 1.4%, a figure which compares with 1.1% a quarter earlier, due to the improving outlook for the housing market and the associated pick-up in consumer confidence. The group said initiatives such
tomers who may have been sold PPI products they did not need, and according to Verdict analysts it is one of the factors that will help consumers feel more confident about spending. Another is the Royal Mail share flotation, which has already seen nearly 700,000 ordinary retail investors see the value of their stakes rise by hundreds of pounds. The rise predicted by Verdict represents an extra £1.95bn for retailers to fight over in the run-up to
Christmas: “Consumer confidence drives spending and shoppers have far more reasons to be cheerful this year,” the analysts said. “The economic news is more positive; the housing market is moving with further initiatives being introduced to encourage buying. “Job creation is outpacing cuts; and though PPI refunds and the Post Office float do not affect everyone they have a further halo effect of boosting the view that at last things are getting better.”
as the Help to Buy mortgage guarantee scheme would result in house prices rising by 3.5% this year and by 6.6% in 2014. But Peter Spencer, ITEM’s chief economic adviser, said “hysteria” that the latest phase of Help to Buy could lead to another housing bubble was unfounded. He added: “The Government’s efforts to revive the mortgage market have been well-timed and targeted, and will benefit most regions in England.”