What will new Innovative ISAs mean for investors?
While George Osborne’s recent Summer budget provoked a variety of emotions in the public – disbelief and anger, mainly – there is likely to be one welcome addition, especially for the alternative finance sector: the Innovative Finance ISA.
As E-Car Club becomes the first crowdfunded company to pay back investors, now seemed the right time for Osborne to give an official nod to alternative finance methods. The new type of ISA will extend the usual list of tax-free ISA investments to include peer-to-peer lending to businesses from 6th April 2016. A consultation will also take place as to whether the ISA should extend to debt and equity crowdfunding investments. Essentially, it allows investors to put money into new companies and reap the rewards – tax-free.
ISA investors will have the ability to set up an Innovative Finance ISA through peer-to-peer lending platforms like LendingCrowd. Clearly, it is a move by Osborne to encourage people to invest in SMEs. By boosting and growing small businesses, there is the hope that thousands of new jobs will be created, which will subsequently help to haul down a budget deficit that he has already reduced from 10.2% of GDP to 5%. It is also another sign of the government recognising the benefits of an industry that continues to grow by 400% each year.
Whilst on the surface this looks like a good idea, there are however some concerns over underlying issues.
For the most part, peer-to-peer lending opportunities are tailored to sophisticated investors with wealth to deploy – which is very different to the primary audience at which ISAs are aimed. They are traditionally used to encourage ordinary people to save for the future.
Furthermore, most equity-based crowdfunding investments already qualify for tax relief that is far more generous than what is on offer via ISAs. The majority of fundraisings are eligible for the enterprise investment scheme (EIS) or its junior partner, the seed enterprise investment scheme (SEIS); meaning that, by offering and advertising ISAs as a way to save, people without specialist knowledge may end up making less money by putting the money into an Innovative ISA rather than one of the other schemes.
The name “Innovative ISA” is a broad umbrella term that, pending the aforementioned report into including equity crowdfunding opportunities too, can be extended to other types of alternative finance in the future. The rules surrounding this new type of ISA will be clarified through technical consultation on the draft legislation, with the final arrangements set in time for the new tax year.
Greek creditors arrive in Athens for negotiations
Greece’s creditors have begun arriving in Athens to start technical discussions on a third euro bailout deal.
The negotiators were originally expected to arrive last week, although a spokesperson has said that there is no reason for the delay. Talks have just begun but high level talks are not due to start until early next week.
Ex-finance minister Yanis Varoufakis recently told a group of investors in London that he had commissioned a small team to work on a contingency plan, should the the European Central Bank (ECB) decide to cut off emergency funding to the Greek financial system. According to Greek newspaper Kathimerini the plan would involve copying online tax codes in order to introduce a parallel payment system if the banking system was closed down, which would have seen the return of the drachma.
“The context of all this is that they want to present me as a rogue finance minister, and have me indicted for treason. It is all part of an attempt to annul the first five months of this government and put it in the dustbin of history.” Varoufakis told the Daily Telegraph.
Earnings season shows power of US tech companies
The US earnings season has been relatively strong, most notably for a number Tech companies, with most having beaten analyst’s expectations.
The likes of Amazon, Google and Apple have all posted solid revenue increases demonstrating the dominance of the US Technology sector.
Amazon (NASDAQ:AMZN) released results last week, disclosing an unexpected profit of $23.18 billion; the company’s first profit. Analysts had expected Amazon to lose $0.14 per share on revenue of $22.39 billion. Following its earnings beat, Amazon shot up more than 14 percent in after-hours trade.
Google’s stock jumped more than 7 percent in the after-market hours on Thursdayas the company also reported strong earnings results for the second quarter. Total income for the period ended June 30 was $3.93 billion, up 17 percent from $3.35 billion in the second quarter of 2014.
Apple posted a profit rise of 38% to $10.7bn; however, investors seemed disappointed with the results, and the stock dropped 5%. This sell-off is representative of the high standards investors are demanding from the sector.
The social media giants are set to release results this week; Twitter (NYSE:TWTR) is scheduled for Tuesday, and Facebook (NASDAQ:FB) rolls out on Wednesday. Their stocks have often become volatile after earnings results with investors being quick to sell or buy; Twitter has beaten consensus five out of six times since it went public in 2013, yet investors typically sell the first chance they get, pushing shares down 4.6 percent on average.
Twitter has suffered significantly over the past quarter, with CEO Dick Costolo stepping down and uncertainty surrounding his replacement affecting share price. The company went into this quarter at a similar price to rivals Facebook and Google and is now trading at around 50% lower than both.
Facebook, however, has followed a similar trend to Google over the past 3 months, with Google spiking before and falling slightly after releasing their results earlier in July. Facebook are set to release on Wednesday and have remained fairly steadier, but may be set to do the same following a sell-off of shares if they report increased earnings as expected.
Whilst the Dow Jones and S&P 500 are largely flat year to date, the tech dominated NASDAQ is up 7% having made a record high two weeks ago.
The strength in US tech stocks will give hope to investors who fear a negative impact of higher interest rates and some see further good news in 2015 for the sector.
“The question now is if the markets are fully valued and can they move higher without earnings growth,” said Jerry Braakman, chief investment officer of First American Trust
“Ultimately, it’s earnings that drive the market not revenue and a lot of the growth in earnings is expected to come in the second half of the year.”
Apple, Google and Amazon have accounted for around 37% of the NASDAQ’s gains but small caps within the sector have the potential to supersede US tech giant in terms of share price gains as investors seek the higher returns innovative early stage companies can yield.
FTSE down, led by Merlin Entertainments and Pearson
Merlin Entertainments (LON:MERL) dropped 5% after it said the disruption caused by the crash would hit profits by up to £47m.
Profits for the theme parks division in 2015 are expected to be between £40m and £50m, compared with £87m last year
The Alton Towers theme park owner said that the recent accident in which four people were seriously injured has had an adverse effect on trading. The summer season has been slow, with several rides, including the one that malfunctioned, temporarily closed. Merlin have also suspended advertising for its theme parks, and rides at other sites were also closed temporarily.
Merlin shares fell as much as 8% in the first few minutes of trade, although they recovered to be down 3.5% at 408p by mid-morning.
Merlin’s profit report led the FTSE 100 index down 19.06 points to 6,560.75.
Shares in Pearson (LON:PSON) were also down 2% after it confirmed it was in talks to sell its 50% stake in the Economist. This came just after it announced on Friday it would be selling the Financial Times after 60 years of ownership.
However, mining shares were up, with Randgold Resources (LON:RRS) the top riser in the FTSE 100, climbing 3.1%, and mining giant BHP Billiton (NYSE:BHP) was up 2.4%.
UBS profits increase 53%
Swiss bank UBS reported an increase in net profits for its second quarter, up 53% on the previous year.
The second quarter adjusted profit before tax was 1.6bn Swiss francs (£1.1bn, $1.7bn), far higher than the forecast by analysts who predicted a rise in profits of just 3.2 percent.
UBS chief executive Sergio Ermotti said to financial broadcaster CNBC that the bank had “maintained its momentum despite ongoing market challenges”.
The bank published their earnings a day earlier than planned, to counter “incorrect and misleading information” in a report about the results in Swiss weekly Sonntagszeitung on Sunday.
“These results show a company delivering on its strategy,” Bank of America Merrill Lynch analyst Andrew Stimpson, who has a ‘buy’ rating on the stock, wrote in a note.
Ryanair profits up 25%
Ryanair (LON:RYA) have reported a profit of €245 (£173.7m) for the three months to the end of June, 25 percent higher than last year.
Revenues were also up 10 per cent to €1.65bn and the company are expecting their full year results to be at the top end of their expectations, which were between €940m and €970m issued in May.
However, Ryanair added: “We caution… that this guidance, which is 12% ahead of last year’s profit, is heavily reliant on the final outturn of H2 fares over which we currently have almost zero visibility.”
Passenger numbers increased by 16 per cent to 28m thanks to improved load factors and their new “Always Getting Better” programme, designed to improve passenger experience. According to the company it has attracted “millions” of new customers, prompting CEO Michael O’Leary to say he should have “started being nice years ago”.
The airline has also accepted an offer from International Airlines Group (IAG) for its 29.8% stake in Aer Lingus, saying it “maximises Ryanair shareholder value”.
Chinese stocks tumble by 8.6%
Chinese shares suffered their biggest one-day drop since February 2007 on Monday, renewing fears over the health of the world’s second largest economy.
The market fell by 8.6%, the equivalent of $500bn, with 2,247 companies falling and only 77 gainers. The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen plunged 8.6 percent, to 3,818.73, while the Shanghai Composite Index .SSEC lost 8.5 percent, to 3,725.56 points.
This comes just weeks after fears of a stock market collapse led to government intervention in the form of interest rate cuts, initial public offering suspension and relaxed margin lending. This seemed to lead to some stabilization, with the market up 15% before Monday’s fall.
Bernard Aw, market strategist at trading firm IG, told the BBC that surprisingly weak manufacturing data “added to worries that there could be further weakness in the Chinese economy, after the patch of recent economic data showed signs of stability”.
More than 1,500 shares listed in Shanghai and Shenzhen fell by their daily downward limit of 10%.
HP report finds smartwatches are laden with security risks
A report by tech giant Hewlett Packard has concluded that smart watches are littered with security flaws.
The report said that “100 percent of the tested smartwatches contain significant vulnerabilities, including insufficient authentication, lack of encryption and privacy concerns.”
“The results of our research were disappointing, but not surprising. We continue to see deficiencies in the areas of authentication and authorisation along with insecure connections to cloud and mobile interfaces.”
One security expert said manufacturers needed to pay closer attention to customer security.
“Keeping up with other manufacturers to be a forerunner in this technology field may force products to be released without the necessary attention to how secure they actually are,” said Mark James, security specialist at online security firm ESET.
The study tested 10 different wearable watches, although declined to say which ones. Security features put to the test included password protection and data encryption, as well as its cloud storage service. It found all the watches had at least one problem area. There are concerns that, with consumer demand for smartwatches booming, there has been too much focus on getting watches onto the market rather than fully testing its security capabilities.
New rules lead to more Britons swapping banks
There has been a 4 percent increase in customers moving accounts in the last year, due to new rules introduced in 2013 that ensure customers can switch accounts within seven working days.
The rules are designed to break the dominance of the Big Five banks: Lloyds, RBS, Barclays, HSBC and Santander. The sector’s competition watchdog is currently undertaking research into whether there is enough competition for current accounts in the UK, due to be published in September. It could well recommend that the banks be broken up, in order to allow for a more competitive market.
It seems the new rules are finally having the desired effect, with Bacs data showing that there were 1.1 million switches compared with 1.06 million over the same period one year before. 69 percent of Britons are now aware of the service, compared with 58 percent in the month of its launch.
Glaxo Smith Kline gets go-ahead for malaria vaccine
Glaxo Smith Kline (LON:GSK) have become the first drug company to be given approval from European Medicines Agency for a malaria vaccine.
Mosquirix, which is designed primarily for use on children, has been in development for 30 years. Currently the only drugs available are oral tablets. The drug has completed its safety review and could soon be used for immunisation across sub-Saharan Africa and is set to make a significant difference.
Andrew Witty, chief executive of GSK, said:
Today’s scientific opinion represents a further important step towards making available for young children the world’s first malaria vaccine.
GSK have said that they will not be making a profit on the drug, despite it costing them £236m so far to develop.
GSK’s share price is staying relatively steady, currently up 0.18%. It is one of the UK’s leading healthcare companies, who research and develop pharmaceuticals, vaccines and consumer healthcare products.