Wellesley WeeklyWatch – A clear way forward for the UK?

30 March 2021

Stock Take

New highs

US stocks closed the week on a positive note – welcome news after an unstable few days where recent moves continued to play out in equity markets.

The S&P 500 Index of large US companies finished the week higher, but all that glittered was not gold, as there were, nevertheless, major fluctuations in the share prices of certain companies. The last few weeks have seen some investors distance themselves from large US technology companies, instead leaning towards so-called ‘cyclical’ stocks that are set to reap the most from the anticipated economic recovery.

In spite of concerns over a third wave of COVID-19, European stocks ended the week higher. Tight lockdown measures were implemented in Belgium again last week due to increased case numbers. Chancellor Angela Merkel did a U-turn on plans to lock down Germany again over the Easter holiday and she also made the surprising move of apologising to the nation for all the indecision.

Cautiously optimistic

In the UK, meanwhile, the most recent economic data appears to signal that the economy is outperforming expectations. With the government’s ‘roadmap’ gradually easing the country out of lockdown in the coming weeks, data indicate that employment and public finances have been robust this past year. A Bank of England official announced on Friday that the UK’s GDP figure for the first three months of the year will likely exceed the estimate it provided back in February.

For investors in the UK, the probability of a more rapid economic recovery is, on the whole, positive. It backs up the notion that the relative prospects of UK equities are promising, particularly when compared to more expensive parts of international markets – for example, US technology stocks.

Cold Turkey?

While markets were generally buoyant on the Continent, the exception was Turkey, which responded less than favourably to the news that Erdogan had sacked the country’s central bank governor. The President appeared to have fired Naci Agbal due to his decision to increase interest rates – this makes him the third Turkish central bank governor to have been given his marching orders in the past two years. Turkey’s stocks, bonds and currency subsequently fell on the news, as investors minimised their contact with the country.

Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund, commented that the sudden change “serves as a reminder of the risks and also the opportunities to be had in emerging market-related assets”.

On the other hand, he further noted that bond returns are low in many developed markets. Likewise, certain clusters of the equity markets in developed countries are at expensive levels, meaning that investors should nonetheless weigh up the part that emerging markets might play in their portfolios.

“We believe that it continues to be attractive to identify opportunities, particularly at a time when prices may be falling for no fundamental reason and may just be repricing on contagion fears,” he added.

Doubt, brought about by political issues, is one of the fundamental risks in emerging markets, as evidenced by recent events in Turkey. It is, however, also an increasingly deciding factor in the US–China relationship. Now the world economy is starting to reopen thanks to successful vaccine programmes, the bond between the world’s two great powers is once more near the top of the list when it comes to events that might move markets.

Miles apart

The share prices of large Chinese technology companies dropped last week, following news that some of them might be removed from US stock exchanges’ lists. The US financial regulator said on Wednesday that foreign companies listed in the US will be expected to cooperate with auditors to be able to have their stocks bought and sold in the country.

This has not been the case in the past for China’s biggest companies, which casts doubt on the prospect of the financial systems of China and the US converging. Trump signed the new rules into law at the end of his term, yet cross-party support remains in Washington, meaning that similar opposition is likely, moving forwards.

Wealth Check

After much guesswork regarding potential tax changes affecting personal finance, last week’s so-called ‘Tax Day’ turned out to be something of a non-starter.

On Tuesday, the Treasury released a number of tax-related consultations to follow up the Budget, but opposed key reforms to Capital Gains Tax (CGT), pensions tax relief and Inheritance Tax (IHT) that had formerly been the subject of consultations and recommendations.

The Office of Tax Simplification (OTS) released a report last year, proposing significant changes to CGT and suggesting that revenue could be doubled, were rates aligned with Income Tax. This followed a challenge from the Public Accounts Committee about whether the cost of pensions tax relief – nearly £40 billion in 2019/20 – was successful in encouraging all taxpayers to save for retirement.1 But the government has decided to put these revenue-raising options on the back burner – for the time-being, at least.

That said, there was confirmation that IHT rules are to be simplified later in 2021 – this alludes to the fact that, as of January next year, over 90% of estates not liable for IHT will not be required to complete tax paperwork when probate (or ‘confirmation’ in Scotland) is required.2

IHT is undoubtedly an unpopular tax, however, and one that causes much confusion – as corroborated in the review of IHT by the OTS in 2018/19.

Eddie Grant, tax specialist at St. James’s Place, considers IHT to be passé and in urgent need of a ‘face-lift’. “A lot of the IHT allowances and exemptions came in during the 1980s. For example, if the annual gifting allowance of £3,000 had increased with inflation, it would now be around £11,900.”

For anyone concerned about optimising the wealth they pass down to their family members, they are advised to urgently consider making the most of the available opportunities in the remaining few days of this tax year.


1 HMRC, October 2019

2 HM Treasury, March 2021

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

In the Picture

A new survey from YouGov indicates that around a third (32%) of people have managed to grow their savings since the UK’s first lockdown, with the average amount saved for those who have profited being £4,500. While some individuals intend to spend some of their ‘winnings’, it is, however, important to also consider the various tax-efficient ways that money could be invested.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The Last Word

“We have movement, which is good news. But I wouldn’t say it’s a piece of cake now.”

– Peter Berdowski, CEO of a salvage company tasked with dislodging a 400m-long container ship from the Suez Canal, which has held up the trade of approximately £7 billion of goods each day.

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

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

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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