What do you think the New Year will bring us in terms of stock market growth, property and also interest rates?
I’m always careful not to be drawn on predictions. There are too many variables to land the right answer. However, to offer you some guidance any decision I would make is on the basis of certain fundamentals.
Firstly the financial world needs to keep spinning. There is always a need for companies and countries to make profits. If they don’t, we all pay fewer taxes and countries are expensive to run. It’s within everyone’s interests to keep the financial world spinning, but at the right pace, otherwise we will all fly off the end of it!
With that basic assumption, we need to look at where the value is because the savvy investor will keep searching for that value over cash. The days of investing in the stock market or property and leaving it to run, are long over, as the value is more difficult to find.
Property first: On the grounds I have been writing property off as an asset for eighteen months, it should come as no surprise we are totally disinvested from it, and will remain so for some time to come. The real pain has yet to hit, and the supply will increase as repossessions and common sense make their way through. Demand, as we know has plummeted, as house completions month on month are already down considerably. August, as we stated last week, showed a massive 10% drop on the same month last year. In any event very few properties are offering a real net return over cash. Whilst many were happy to continue to buy properties on the grounds they would be increasing in value, this was futile, as it would simply mean the net income would fall, making returns even less than cash. If you are still exposed in property shares consider an exit as they have a geared up or downside to movements in property.
And so to interest rates. It’s very evident the Bank of England underestimated the issues with the economy and spending has taken a battering. It is no surprise that interest rates have dropped and expect more soon to restart the economy. I wouldn’t be surprised to see a 0.5% drop at some point, but rates may go as low as 4% within the next twelve months to boost the economy. The only caveat to that are the issues with inflation but they are largely driven by oil and food costs and the BOE will have to keep a watching eye on that as they loosen their fiscal policy.
As for the stock market, there has been quite a run in the UK in mid cap stocks but we see that as being over now, so if you are exposed and have done well there, it may well be worth taking your money. UK companies exposed to the UK consumer, building, housing and automobiles should be avoided as they are under pressure. Instead the investor looking for value should consider once more that the world is split into two. G7 countries are slowing, but the underdeveloped and emerging countries are still showing strong signs of growth.
Whilst China’s growth is worth keeping an eye on, it is set to slow from 11% to 9%. Commodities, Asia and Latin America, as well as the BRIC (Brazil Russia India China) exposure are all still showing strong signs of growth, but be mindful they are higher risk in that they are underdeveloped and can move upward or downward very quickly, but that’s risk for you.
In China, mainland-listed countries have quite stretched valuations so it’s difficult to see where the potential value is there. When gaining exposure to the Far East consider funds which have the ability to utilise Hong Kong and peripheral countries such as Singapore etc. This will offer the ability to reduce Chinese exposure on the mainland and take advantage of other local opportunities.
For a fact sheet on the better far eastern and emerging funds or if you have a financial query call Peter on 0800 0112825 or mailto:info@wwfp.net
The value of shares and investments can go down as well as up
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