Wellesley WeeklyWatch – The G7 summit in Cornwall sees plenty of promises – will they come true?

15 June 2021

Stock Take

Global stocks on the up

Between improving economic conditions and some central bank moves in Europe, global stocks enjoyed a week of good performance in general last week. These positives proved enough to counter the continued fears around inflationary danger – for the moment – alongside the news of a potential minimum global tax rate.

This proposed move surfaced from the G7 meetings, in which finance leaders from the present economies agreed to a global minimum tax rate of 15%, and is part of a range of measures to bring the global tax regime more in line with the world many companies now operate in. While it could lead to multinationals paying more tax, there will need to be many more discussions before the proposal becomes reality.

Across the pond, the Bureau of Labor Statistics’ Consumer Price Index (CPI) showed a 5% increase in May 2021 in the figures released on Thursday, compared with the same figures a year ago – making it the highest rise in almost 13 years. Some of the inflation can be explained by a surge in used car prices, which is up almost 30% year-on-year. The Core CPI, which doesn’t include more volatile sectors such as food and energy, also rose 3.8% in the same period, which was the highest rise since 1992. The S&P 500 still closed the day at a record high.

Although US Federal Reserve officials have helped to prevent inflationary fears taking over by describing the CPI figures as ‘transitory’, all eyes will be on the Federal Open Market Committee (FOMC) as they meet this week for clues about the direction in which the US economy is heading.

“At the March FOMC, the Fed lifted its projection for PCE [personal consumption expenditure] inflation at the end-2021 from 1.8% to 2.4%. However, another substantial revision towards 3% would seem merited, in our opinion. We believe that it remains too early to expect a change in rhetoric at the Federal Reserve meeting this week, but we may only be one or two decent job prints away from taper discussions coming to the fore,” said Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.

Days numbered for some support?

Low interest rates and other forms of support has been how central banks such as the Federal Reserve kept asset prices stable throughout the pandemic, but with worldwide economies now improving, most of them are signalling that they may be tapering down support in the future. It is likely that this will negatively affect some asset prices but will help deal with rising inflation. Dowding added:

“We continue to look for a debate to kick off in earnest at the August Jackson Hole meeting and a taper to be announced in September.”

Looking back to the UK and EU, the STOXX Europe 600 Index hit a record high on Friday, following a European Central Bank (ECB) Governing Council meeting which decided to keep rates at their current lows, and continue to conduct net asset purchases under the pandemic emergency purchase programme and provide liquidity through its refinancing operations.

The FTSE 100 also recovered from a slight wobble in the midweek to finish on Friday above its closing position the week before. Positive figures for UK shareholders were also released from the Office for National Statistics (ONS), which reported GDP growth for April hit 2.3% – the fastest rate of growth since July 2020.

Wealth Check

Many UK homeowners were likely buoyed by the news that house prices grew an average of 10.2% in the year to March1 – driven in part by the Stamp Duty freeze that will taper down between July and October, house prices should stabilise as the freeze lifts and demand reduces back to a more normal level.

What does this recent rise in house prices mean for the role of your residential property in your retirement strategy? It isn’t uncommon for people to think of their property as their pension, given that it is often owned for several decades with the expectation that it will grow substantially in value over that time – it is, after all, one of the biggest investments most people make in their lifetimes.

This plan is not without risks, however; one slowdown in the housing market, a rise in interest rates or a change in personal circumstances could be all it takes to lower the financial returns you expect from your home when you eventually sell.

A better strategy is to view your property as one source of return within a diversified portfolio. That includes diversification within the asset class of property: income-generating property funds that invest in the commercial space can help spread risk and return across the sector. Spreading your assets across a range of wrappers (e.g. ISAs, unit trusts or pensions) is also a more tax-efficient way of using your investments when you come to retire.

Your financial adviser can help you manage the tax-efficiency of your investments as you move through retirement, as well as helping to make sure you’re on track with your goals and objectives. Property can be a good source of income and can form part of your retirement strategy – but it’s best to receive financial advice to use it optimally and wisely.

The value of an investment with Wellesley Wealth Advisory will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

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

1 Source: Office for National Statistics, ‘UK House Price Index: March 2021’

Advice relating to writing a Will involves referral to services that are separate and distinct to those offered by St. James’s Place and which are not regulated by the Financial Conduct Authority.

In The Picture

Last week, ahead of the G7 summit in Cornwall, St. James’s Place was one of over 450 global investors that called on governments to step up their response to the climate crisis. In an open letter, investors urged governments to strengthen policies that can accelerate investment towards the net-zero transition.

The Last Word

“[We have agreed to] end the pandemic and prepare for the future by driving an intensified international effort, starting immediately, to vaccinate the world by getting as many safe vaccines to as many people as possible as fast as possible.”

G7 leaders agree to step up their vaccine supplies to lower-income countries.

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 is correct as at the date of the article. 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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