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Valuing Your Future
Ian McKeever & Co Consulting Actuaries
Market Views
Markets
Markets
Why should the government have to rescue banks?
The banking Crisis
The banking Crisis
Economic Views
The Economic Outlook
The Economic Outlook
Professional
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Issued by Ian McKeever & Co. Authorised and regulated by the Financial Services Authority in the conduct of investment business
What Government Borrowing means for you
What it means
What it means
Market Views 1
For the UK investor the investment overseas seems to be the best option although as a nation we need the investment.
The underlying rationale for equity prices is broadly as follows. If I invest in the stockmarket I will get dividends of say 3% on my investments next year. Profits will grow by 2% and so the year after that dividends will also have grown by 2%. The share price will reflect this 2% growth and I can sell my shares for 2% more than I paid for them and so the current price is right if I want a return of 5% a year.
In practice this a gross oversimplification but the underlying rationale is that prices are justified by a combination of current yield and expectations of future growth. In practice this is overlaid with hope and speculation and at any one time by herd instinct.
In practice the yield on equities is quoted as being about 4˝% as at December 2008. This is based on historic dividends, which may be cut may be back to a yield 4% or even 3%. Dividend growth is an even bigger problem. There may not be any for some time.
On this rationale equity prices are probably about right although given the herd instinct individual shares are probably poorly priced after the fall. However because the stock markets is a market and herd instincts apply there is generally a tendancy to either over optimism or over pessimism. After all markets lost three-quarters of their value in the crash of the early 1970s and we are nowhere near that yet
What you should do depends on your current portfolio. If you have no equities or only a small equity exposure you should be drip feeding some money into the market. Prices are probably fair but expect to lose money initially. No one can tell you when the stock market has reached bottom. It may have done so already and drip feeding in money is some insurance against that possibility.
the risk of further substantial falls is significant. If you are still heavily invested in the stockmarket you should reduce your exposure unless you are a born speculator and believe the stockmarket has reached bottom.
The basic message is some stockmarket exposure may is probably worth having but substantial stockmarket exposure is ver risky at the moment.
Look overseas for better opportunities. This generates currency risk but with the medium term outlook for Sterling that sort of diversification looks positively desirable.
The US
The US is in many ways worse off than the UK in terms of personal debt but it has a number of positive features. Firstly it has a lot of stuff, whether that be maize, wheat, cattle, coal, iron, copper or whatever. It also has the infrastructure to use it. The election of a black President will hopefully help revitalise the black community as economic force within the economy. On the negative side economically it is beginning to become short of a quite basic sort of stuff and that is water. The US is in long term decline economically, militarily and politically but the decline will be slow and erratic. It is better able to recover in the short term than is the UK.
India has huge potential; it is politically relatively stable and big enough to grow on its own. However it does have balance of payments problems in the short term. In the longer term the melting of the Himalayan glaciers is a problem as it is dependent on them for its water.
South America
South America certainly has a large population and huge natural resources but it a byword for political instability.
Russia
Russia has enormous resources but seems to be returning to some kind of oligarchy bordering on communism. The legal system cannot be trustees. If BP has problems it does not bode well for private investors or specialist funds.
Africa/South Africa
Africa has enormous potential but it is a little early to start serious investment in most countries. South Africa could certainly do very well but the major political changes there have if anything made the social instability worse. However the ANC does show signs of accepting that in a democracy the ruling party sometimes loses elections. It will be a major beneficiary if the rest of Africa starts to get its act together. South Africa looks a good bet. The potential is enormous but so are the risks.
China
The leaves China which has little political freedom but with the desire to embrace the freemarket economy. Politically it is immature certainly on the western democratic model. However unless the politics go horribly wrong economic growth is almost assured.
China could if things go well follow the Singapore government. A democracy where the ruling party gets almost a 100% of the seats and the influence of government is all-pervasive. Singapore is notable for its exports, which include financial services, computer hardware, computer software especially for managing major port facilities and very notably school textbooks mainly to some parts of the United States.
Once described as mosquito infested swamp with an enormous navel base, it now has a local population of 2˝Mn people plus about a 1Mn expats and the eighth largest foreign exchange reserves in the world. Put that into broader context that is 16% of Chinese foreign exchange reserves and a third of those held by the entire Eurozone. Also their reserves are about 2 ˝ times those of the UK or the USA. The UK and US now have similar Foreign Exchange reserves which puts some light on the scale of the US problems given the amount of Dollars circulating unofficially ion the rest of the world.
Per capita GDP in Singapore is one of the highest in the world beaten by the likes of Qatar, Luxembourg, Norway, and Brunei. See Wikipedia it is fascinating. It is not irrelevant to comment that the keystone of their economic policy is and always has been its educational system. During the SARS epidemic the Singapore Health minister commented that it sad that it was inevitable that some people would die of SARs but it was his job to prevent and damage to the economy. You might find such comments objectionable but it works. Singapore was one of the first countries to eliminate SARS. It would help the UK enormously if we could have such focus.
China is always likely to be risky because of the political uncertainties. Even without that factor volatility is likely to be high given the Chinese fascination with gambling. The racecourse in Hong Kong took more in bets every year than the total bets on all the racetracks in the continental United States.
Europe
Europe is a problem certainly the new entrants to the EU have a lot to offer in the way a well-trained and cheap workforce. The German economy is well managed and the country is a net exporter. Italy is a disaster ion the other hand. Europe is possibly the most stable market with much to recommend it as a relatively safe haven but one stresses relatively safe. It is possibly the best option for someone considering diversifying out of the UK,
Australasia
Australia and New Zealand are like the US in that they have a lot of stuff whether it be food or raw materials. As obvious suppliers to resurgent China they offer the opportunity to participate in the economic growth of China without the political risks. However that is not to say that they are without problems.
Property
They don't make it any more. Polpulations are rising and demand will only increase. True but what deand where? and is it in the price? The city of London offers a presrtigous address wioth something in marketing terms. It also offers a place to meet people and be met by people. However, for most purposes any place with good rail links is almost as good unless you are in the Shipping industry. For other purposes some city offices are essential but many offices currently in London could be relocated to save money. Remember one of the main indrustries that sseeks prestigious offices is Banking.
Elsewhere owners of property can only charge rents that businesses can afford and what businesses can afford is going to fall dramatically.
Property is likely to be a good inverstment on a fifty year view. Shorter term prices are likely to fall further.
The underlying rationale for equity prices is broadly as follows. If I invest in the stockmarket I will get dividends of say 3% on my investments next year. Profits will grow by 2% and so the year after that dividends will also have grown by 2%. The share price will reflect this 2% growth and I can sell my shares for 2% more than I paid for them and so the current price is right if I want a return of 5% a year.
In practice this a gross oversimplification but the underlying rationale is that prices are justified by a combination of current yield and expectations of future growth. In practice this is overlaid with hope and speculation and at any one time by herd instinct.
In practice the yield on equities is quoted as being about 4˝% as at December 2008. This is based on historic dividends, which may be cut may be back to a yield 4% or even 3%. Dividend growth is an even bigger problem. There may not be any for some time.
On this rationale equity prices are probably about right although given the herd instinct individual shares are probably poorly priced after the fall. However because the stock markets is a market and herd instincts apply there is generally a tendancy to either over optimism or over pessimism. After all markets lost three-quarters of their value in the crash of the early 1970s and we are nowhere near that yet
What you should do depends on your current portfolio. If you have no equities or only a small equity exposure you should be drip feeding some money into the market. Prices are probably fair but expect to lose money initially. No one can tell you when the stock market has reached bottom. It may have done so already and drip feeding in money is some insurance against that possibility.
the risk of further substantial falls is significant. If you are still heavily invested in the stockmarket you should reduce your exposure unless you are a born speculator and believe the stockmarket has reached bottom.
The basic message is some stockmarket exposure may is probably worth having but substantial stockmarket exposure is ver risky at the moment.
Look overseas for better opportunities. This generates currency risk but with the medium term outlook for Sterling that sort of diversification looks positively desirable.
The US
The US is in many ways worse off than the UK in terms of personal debt but it has a number of positive features. Firstly it has a lot of stuff, whether that be maize, wheat, cattle, coal, iron, copper or whatever. It also has the infrastructure to use it. The election of a black President will hopefully help revitalise the black community as economic force within the economy. On the negative side economically it is beginning to become short of a quite basic sort of stuff and that is water. The US is in long term decline economically, militarily and politically but the decline will be slow and erratic. It is better able to recover in the short term than is the UK.
India has huge potential; it is politically relatively stable and big enough to grow on its own. However it does have balance of payments problems in the short term. In the longer term the melting of the Himalayan glaciers is a problem as it is dependent on them for its water.
South America
South America certainly has a large population and huge natural resources but it a byword for political instability.
Russia
Russia has enormous resources but seems to be returning to some kind of oligarchy bordering on communism. The legal system cannot be trustees. If BP has problems it does not bode well for private investors or specialist funds.
Africa/South Africa
Africa has enormous potential but it is a little early to start serious investment in most countries. South Africa could certainly do very well but the major political changes there have if anything made the social instability worse. However the ANC does show signs of accepting that in a democracy the ruling party sometimes loses elections. It will be a major beneficiary if the rest of Africa starts to get its act together. South Africa looks a good bet. The potential is enormous but so are the risks.
China
The leaves China which has little political freedom but with the desire to embrace the freemarket economy. Politically it is immature certainly on the western democratic model. However unless the politics go horribly wrong economic growth is almost assured.
China could if things go well follow the Singapore government. A democracy where the ruling party gets almost a 100% of the seats and the influence of government is all-pervasive. Singapore is notable for its exports, which include financial services, computer hardware, computer software especially for managing major port facilities and very notably school textbooks mainly to some parts of the United States.
Once described as mosquito infested swamp with an enormous navel base, it now has a local population of 2˝Mn people plus about a 1Mn expats and the eighth largest foreign exchange reserves in the world. Put that into broader context that is 16% of Chinese foreign exchange reserves and a third of those held by the entire Eurozone. Also their reserves are about 2 ˝ times those of the UK or the USA. The UK and US now have similar Foreign Exchange reserves which puts some light on the scale of the US problems given the amount of Dollars circulating unofficially ion the rest of the world.
Per capita GDP in Singapore is one of the highest in the world beaten by the likes of Qatar, Luxembourg, Norway, and Brunei. See Wikipedia it is fascinating. It is not irrelevant to comment that the keystone of their economic policy is and always has been its educational system. During the SARS epidemic the Singapore Health minister commented that it sad that it was inevitable that some people would die of SARs but it was his job to prevent and damage to the economy. You might find such comments objectionable but it works. Singapore was one of the first countries to eliminate SARS. It would help the UK enormously if we could have such focus.
China is always likely to be risky because of the political uncertainties. Even without that factor volatility is likely to be high given the Chinese fascination with gambling. The racecourse in Hong Kong took more in bets every year than the total bets on all the racetracks in the continental United States.
Europe
Europe is a problem certainly the new entrants to the EU have a lot to offer in the way a well-trained and cheap workforce. The German economy is well managed and the country is a net exporter. Italy is a disaster ion the other hand. Europe is possibly the most stable market with much to recommend it as a relatively safe haven but one stresses relatively safe. It is possibly the best option for someone considering diversifying out of the UK,
Australasia
Australia and New Zealand are like the US in that they have a lot of stuff whether it be food or raw materials. As obvious suppliers to resurgent China they offer the opportunity to participate in the economic growth of China without the political risks. However that is not to say that they are without problems.
Property
They don't make it any more. Polpulations are rising and demand will only increase. True but what deand where? and is it in the price? The city of London offers a presrtigous address wioth something in marketing terms. It also offers a place to meet people and be met by people. However, for most purposes any place with good rail links is almost as good unless you are in the Shipping industry. For other purposes some city offices are essential but many offices currently in London could be relocated to save money. Remember one of the main indrustries that sseeks prestigious offices is Banking.
Elsewhere owners of property can only charge rents that businesses can afford and what businesses can afford is going to fall dramatically.
Property is likely to be a good inverstment on a fifty year view. Shorter term prices are likely to fall further.
&
To Understand the reasons for these views see