WeeklyWatch – Stocks bounce back

Monday 29th April 2019

Stock Take

Last night saw the third episode in Game of Thrones’ eighth and final series air in the US and UK (albeit at 2am for the latter). The franchise is worth around $1 billion and commands millions of eager viewers worldwide. If only the Chrysanthemum Throne was as profitable…

Beautiful harmony in Japan?

This week, Japan’s aforementioned throne will welcome a new resident, when the current incumbent, Emperor Akihito, becomes the first Japanese Emperor to abdicate in two centuries. Tellingly, the incoming Emperor, Akihito’s son Naruhito, has just one child, symbolic of the enormous demographic challenge facing the world’s third-largest economy – there are now more registered dogs and cats in Japan than there are under-15s.

Naruhito’s reign will mark the beginning of the Reiwa (beautiful harmony) era in Japan’s traditional calendar system. This may be a tall order in the face of current challenges facing the country – particularly its aging population. At 59 years old, Naruhito is only 12 years older than Japan’s median age (see ‘In the Picture’).

It might be the bank, rather than the royal family, that influences the Japan of today. The Bank of Japan is now the leading shareholder in more than 20 companies, and one of the 10 major shareholders of half of all listed Japanese companies – this is arguably more significant than either short-term index movements or imperial handovers.

Despite the economy offering the bank justifications to lend a hand, new figures showed inflation may be finding sustainable momentum, while female employment figures rose once again – the latter is a major focus for the government and Japan certainly has plenty of slack to make up, relative to its G7 peers.

US stocks swing back

But rising growth and markets abroad are also helping matters. Last week, the S&P 500 passed its 2018 high, thereby reversing the downturn in the final quarter of 2018. These losses caused many investors to sell out in panic, however, the see-saw of the last seven months has provided an objective lesson in the value of remaining invested through volatile times. Tom Beal, Deputy CIO at St. James’s Place, said: “The past few months have seen markets swinging in both directions, largely due to changing sentiment on the Fed’s interest rate policy. That needn’t be a problem for investors, unless they make the mistake of selling when markets fall. The best way to bank the recoveries is to remain invested for the long term.”

Moreover, the big tech players helped the S&P to a good five days’ trading last week. Alphabet, Microsoft, Facebook and Amazon all performed strongly – Microsoft became only the third listed company in history to reach $1 trillion in value (albeit briefly). Admittedly, the median price of a new US home is now down by its biggest margin in a decade, but figures from the US Department of Commerce showed US GDP growth at 3.2% (annualised) in the first quarter, far outpacing the fourth quarter of 2018. The S&P 500 is up sharply this year and the tech-heavy Nasdaq by even more. It’s been an expensive time to be out of the market.

Commodities enjoy similar tailwinds

Meanwhile, Brent crude appeared to peak at around $74.50 a barrel midweek but remains high in historical terms at above $72. Shell and BP pushed the FTSE 100 up early last week, before other concerns weighed in later in the week.

Among the negatives was an announcement by the regulator that it would block the Asda-Sainsbury’s merger. Both share prices suffered a hit in the aftermath. Ken Hsia of Investec, Co-manager of the St. James’s Place Greater European fund, commented: “Our initial investment in Sainsbury’s predated the Asda merger announcement and we believe that the core drivers of our investment case remain valid…the shares trade on an attractive valuation and the merger failure does not change our view.”

Another commodity in hot demand is pork. China’s pig population is forecast to fall by around a third due to African swine fever – 130 million pigs! Given the country’s huge demand for this meat in particular, this is likely to have major repercussions. Reportedly, China may now offer to import more US pork as part of its trade negotiations.

Caution over Huawei in the UK

Concerns over Beijing’s aims concentrated minds at a cabinet meeting in Downing Street last week, leading to a leak that the government will allow Huawei, the Chinese tech major, to play a role in UK telecoms upgrades. The decision was met with a chorus of complaints, given recent signs of China circumventing Washington’s attempt to ringfence sensitive technology.

The irony can be seen in such complaints – the Prime Minister indeed might wonder, if she can’t trust her own ministers to keep sensitive information to themselves, why worry about Huawei?

Wealth Check

According to figures published last week by HMRC, families were hit with record Inheritance Tax (IHT) bills last tax year, with receipts soaring to an enormous £5.4 billion. The rise is in spite of a further increase in the residence nil rate band designed to enable parents to pass on more of the family home tax-free. That means IHT revenues were £500 million more than before the new allowance was introduced in April 2017. A surge in receipts in March was attributed to executors pushing through paperwork due to the threat of much higher probate fees. This change should have come into force on 1 April but has been delayed awaiting parliamentary approval.

Yet there are steps that families can take to reduce the IHT burden. Tony Müdd, Divisional Director at St. James’s Place, remarked: “The earlier you start thinking about IHT, the easier it is to lessen its impact. The longer you leave it, the fewer options you have.”

If you want your loved ones to keep more of your estate when you die, there are some simple steps you can take to mitigate your IHT liability – read our latest advice article to find out more! Furthermore, the new tax year has brought with it new gifting opportunities and the chance to remove money from your estate immediately – find out more here. Early action on making larger gifts will get the clock ticking sooner on the seven years needed to exempt them from IHT.

If you have a question about Inheritance Tax or would like more information about our services, please contact Wellesley Wealth Advisory on 01444 848508 or via email at info@wellesleywa.co.uk.

In The Picture

What a difference a decade makes! As you can see, average ages worldwide are extremely different, with enormous implications for investor opportunities. Monaco has the oldest median age (53.1) but Japan (47.3) has the oldest population out of the major economies. That is more than three times the median age of Niger (15.4), the world’s youngest country.

The Last Word

The National Executive [Committee] will decide on Tuesday what will be in the European election manifesto, and we will reflect the decisions made [at] last year’s Labour Party Conference, which were for a customs union, market access and rights protection within – with – the EU. We would prefer to have a general election, but failing that, if we get that agreement, we are prepared to consider putting it to a confirmatory vote. That is a decision the National Executive of the party will make.

Jeremy Corbyn on having to define Labour’s Brexit position for the European Parliament elections in May.

The information contained is correct as at the date of the article.

Investec is a fund manager for St. James’s Place.

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