Heading into 2016 it is difficult to see the positives of investing, particularly when the market fell by over 2% on the first day of trading.
On the flip side, the UK gave a fairly robust performance in 2015, with a near-trend GDP growth of 2.5%, marching ever onward to full employment. There are also a number of other early indictors that would lead one to believe that this should continue through 2016, such as increasing job and wage growth and lower expenditure as a result of the lower oil prices. However, the most important factor of all of these is that the UK consumer is feeling much more optimistic compared to their global counterparts, and is more likely to spend rather than save.
Jamesina Doble, Director of Investment Management at JohnstonCampbell
But what if you are nestled in a part of the United Kingdom, separated by water and from the powers dictating fiscal policy, but joined by land to the European Union? Sometimes in Northern Ireland it feels like London may as well be on the other side of the world.
GDP growth for the region in 2015 was forecast at 1.6%, the lowest of all the UK 12 regions. An entire thesis can be written on the debate over the effectiveness of local politics and the devolvement or lack of it to Stormont, but the reality is that Northern Ireland (like the North of England and Wales) will not be able to set its own interest rate policy, and taxation rates will not become ‘localised’ certainly for this year.
For all the positives in the UK economy, Northern Ireland will continue to have its own challenges in 2016.
Government policy on continued fiscal tightening will no doubt have an impact on the consumer. If future announcements of budget cuts or reduction in public spending is a surprise to the UK consumer, this will have a negative impact on financial markets.
However widely anticipated, any policy change which leads to lower government spending, an end to falling prices, and rising interest rates, will all have an impact on economic growth. Northern Ireland will remain below trend in part due to its continued reliance on the public sector (which equates to 26% of total employment here).
In terms of comparison to the UK, Northern Ireland has lower labour productivity, lower pay and a higher level of economic inactivity. Some light at the end of the tunnel will come in the devolvement of corporation tax powers in 2018, when the Northern Ireland corporation tax rate will be cut to 12.5%, compared to the UK which is anticipated to be 19% in the same year. This will make the region more competitive with Southern Ireland at a current rate of 12.5%. After all, it is only two hours down the road and one of the biggest challenges to inward investment in the region.
At the beginning of the year the Northern Ireland Assembly summed up that NI can be ‘viewed as having a low growth, low productivity, and low wage economy, with the additional problem of high levels of economic activity that are apparently resistant to positive changes in the economic cycle’. Talk about the January blues!
But what does this really mean for the Northern Irish investor? Well you would be much the same as a London investor or one in the states or one in Hong Kong. The globalisation of markets means we can participate in any region without the influence of what is happening down the street.
Northern Irish businesses don’t tend to feature in the main indices so we can focus on what is happening beyond our shores. Global growth is forecast to be better than last year, even if it is only a tiny bit. Rising inflation and interest rates should be good for equities and choosing large multi-national companies with good cash flow management should help to negotiate the downside risk of volatility.
The timing and outcome of the EU referendum will no doubt create some uncertainty for the markets. A vote to leave could have foreign investors questioning their exposure to UK assets, which could affect bank funding costs leading on to influence interest rate policy. Uncertainty though can be viewed as opportunity.
The biggest challenge for the Northern Irish investor will be overcoming their own emotive response, separating how it feels at home from the opportunities away from our shores. It doesn’t seem to matter what your postcode is, the global investment outlook remains the same regardless.
This content is sponsored by JohnstonCampbell, one of the longest established financial management companies in Northern Ireland. They have over 40 years of experience in managing personal and corporate investment portfolios ranging from £100,000 to £30 million tax efficiently for individuals, businesses and trusts.For more information on JohnstonCampbell and how they can help with your financial planning, please visit www.johnstoncampbell.com or call them on 028 9022 1010.
French carmaker Renault (EPA:RNO) has announced that it will recall 15,000 new cars, after tests showed that emission levels were too high.
This comes just after three of Renault’s factory sites were raided by French fraud police last week, causing their share price to sink dramatically on fears of another Volkwagen-type scandal.
However, Renault’s sales director confirmed that the car company did not ‘cheat’ tests, saying that they are “not using software or other methods”.
French Energy Minister Segolene Royal highlighted the need for emissions test to be based on real driving conditions and not those of special testing facilities:
“Renault has committed to recalling a certain number of vehicles, more than 15,000 vehicles, to check them and adjust them correctly so the filtration system works even when it is very hot or when it is below 17 degrees, because that’s when the filtration system no longer worked,” Ms Royal said.
Renault’s share price has remained largely unchanged on the news, trading down 0.62 percent at 73.54. (0939GMT)
China’s economy grew at its slowest pace for 25 years in the fourth quarter of 2015, indicating that the country is going through major economic difficulties that could impact on the global economy.
Growth fell from 6.9 percent to 6.8 percent in the last quarter of the year, down from 7.3 percent a year earlier. Beijing’s official target for the year was around 7 percent. The figure was released by China’s National Bureau of Statistics, which some suspect may have slightly inflated the figure.
Over the last few weeks China has caused shockwaves throughout the global economy, with two further devaluations of the yuan and subsequent suspensions of trading on their market.
This is the latest in a string of bad economic news from the country; others including weak exports, high debt and slowing factory figures have all ignited concern from investors. Chinese Premier Li Keqiang has said weaker growth would be acceptable as long as enough new jobs were created, however, growth continues to decline further stimulus measures will be introduced.
Reports from the British foreign minister and senior EU officials suggest that a new deal between the EU and the UK could be struck within weeks.
EU Commission President Jean-Claude Juncker said on Friday that he is “quite sure” a deal will be reached at the February summit in Brussels. The deal will renegotiate the relationship between the UK and the EU and trigger an in-out referendum before the end of 2017.
The main issue preventing a deal is David Cameron’s commitment to making it more difficult for migrants to receive benefits, with the aim of restricting them to those that have been in the country for four years. However, opposition countries say that this violates the fundamental principle of free movement of peoples between EU countries. Jonathan Faull, who is leading the negotiations, said that the “the fundamental freedoms are not unconditional,” adding that there was an array of legislation already limiting them.
For the second time in seven months, the Shanghai Composite index entered bear market territory, triggering a mass sell-off across European stock markets. But is the FTSE set to follow suit?
It’s been a rough couple of days in the global financial markets; last week saw the worst start to the year in financial history, with the S&P 500 tumbling 6 percent. A knock-on effect on the FTSE caused significant volatility, combined with disappointing Christmas trading results for a couple of blue chip companies. After a period of steady growth since the 2008 financial crisis, the last six months have seen significant instability, and there is a general air of negativity in the markets.
However big sell-offs, corrections, and even crashes are all normal parts of a long term bull market. In an interview with the Telegraph ,JP Morgan analyst Alex reiterated that, if history is any guide, a bear market will not be hitting the stock market in America – or the UK – any time soon.
“None of the four key factors that have triggered previous bear markets is a cause for concern,” he said. “A recession looks unlikely as America’s economy is ticking along nicely. Similarly, an oil price spike does not look on the cards .
“Rates are going to rise gradually from here, so we won’t see the kind of aggressive or unexpected tightening that has been associated with previous crashes, while in my opinion US shares are at fair value rather than expensive.”
But the fact remains that the FTSE has fallen over 20 percent from its high in April last year, and a growing number of respected investors are pulling out of the stock market. Over the past eight months, the Greek debt crisis has had a significant effect on European markets, highlighting the dangers of a single currency and resulting in more cautious investor sentiment.
Similarly, China caused shockwaves throughout global markets last week with another surprise devaluation of the Chinese Yuan, causing such a large sell-off of Chinese shares that trading was suspended – twice. With further devaluation likely, it is probable that market sentiment will continue to be hit in the months ahead, having a knock-on effect on the FTSE.
Whilst the price of oil usually tends to rocket when economies go downhill, tumbling prices are also having a negative effect. Oil and commodities giants are slashing assets and jobs in an attempt to stay afloat – sending their share prices tumbling, many of which prop up national and international stock markets.
Generally, a bear market is described as period of snowballing negative investor sentiment, causing a rapid sell-off of shares, usually leading to a 20 percent decrease in several major market indexes over two months. Whilst the last few months have undoubtedly been rocky, key markets, including the DOW and the FTSE have only fallen by around 10 percent – not enough to statistically enter a bear market. It seems that for now, at least, the markets are keeping their heads above water. But as the waters become choppier, investor sentiment is becoming increasingly negative – Mark Carney has even shown a lack of confidence in the long-term health of the UK’s economy, neglecting to follow Janet Yellen’s lead and raise interest rates from their record low of 0.5 percent. Undoubtedly, the markets are entering a period of tricky territory unseen for a couple of years – how it will fare remains to be seen.
Russia have announced a curb on exports this year, a move that may prove beneficial to an oil market plagued by oversupply issues.
The oil-pipeline monopoly Transneft said Russian companies are likely to cut crude shipments by 6.4 percent over the course of 2016, a fall of 460,000 barrels a day. These figures are comiled on applications submitted so far by Russian firms Lukoil, Rosneft and Gazprom.
The news will be welcomes by the oil market as, with sanctions on Iran set to be lifted in the coming weeks, oil on the market is set to multiply further. However, with Russia the world’s biggest oil producer, this cutback is enough to eliminate a third of the excess supply.
This decision comes just after Russian ministers announced that the Russian government budget may have to be adjusted downwards if the price of oil continues to fall. Oil exports account for 52 percent of their federal budget revenues. Prime Minister Dmitry Medvedev said at an economic forum on Wednesday:
“If oil prices fall any further, then the budget’s parameters will have to be adjusted. We have to understand this and prepare for the worst-case scenario.”
Top global miner BHP Billiton (LON:BLT) has announced that it will book a $7.2 billion writedown on the value of its U.S. shale assets, after plummeting commodity prices led to a sharp slump in 2015 earnings.
BHP Billiton Chief Executive Officer, Andrew Mackenzie, said:
“Oil and gas markets have been significantly weaker than the industry expected. We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the Onshore US business from 26 a year ago to five by the end of the current quarter.
“While we have made significant progress, the dramatic fall in prices has led to the disappointing write down announced today. However, we remain confident in the long-term outlook and the quality of our acreage. We are well positioned to respond to a recovery.”
A slump in oil prices by 70 percent over the last year has led to difficulties for all commodities companies. Ratings agencies Moody’s and Standard & Poor’s have both warned that the BHP Billiton’s dividend policy poses a risk to its credit rating.
BHP saw a sharp drop in share price on the news, currently trading down 5.49 percent at 620.90 pence per share (1043GMT).
Britain’s construction output unexpectedly fell in November, according to the latest figures from the Office for National Statistics, another sign that growth in the UK economy may be slowing down.
Construction output fell 0.5 percent – its biggest annual drop since May 2013 – a far cry from the 0.5 percent rise widely expected by analysts.
Output dropped 1.1 percent on an annual basis, with the ONS attributing the unexpected fall to bad weather. Falls in construction output are a bad sign for the economy, to which it contributes 6 percent of GDP.
The ONS confirmed that construction output would need to increase by 2.6 percent month-on-month in December to fourht-quarter fall overall.
The Competition and Markets Authority (CMA) have approved a controversial takeover of EE, the UK’s largest mobile network, by telecoms giant BT.
The deal, valued at around £12.5 billion, has been under consideration by the CMA for six months, after objections were raised by other operators over the reduction of competition in the British market. The takeover was given final clearance on Friday, when the CMA declared that it was unlikely to harm competition since BT was “smaller in mobile” and EE a “minor player” in broadband.
John Wotton of the CMA said: “The evidence does not show that this merger is likely to cause significant harm to competition or the interests of consumers.”
The deal is aiming to be closed on January 29th, creating a giant telecoms firm that will serve over 35 million customers.
BT chief executive Gavin Patterson said: “The combined BT and EE will be a digital champion for the UK, providing high levels of investment and driving innovation in a highly competitive market.”
BT (LON:BT) shares remain more or less the same, trading up 0.07 percent at 467.32.
Despite the Greek prime minister Alexis Tsipras saying in 2010 that that the participation of the IMF was not necessary and believing that the programme could be handled by euro zone authorities alone, on Thursday Greece “fully accepted” the proposal for the International Monetary Fund to take a role in the bailout programme.
The Eurogroup chief Jeroen Dijsselbloem said;
“Tsakalotos (Greek Finance Minister) confirmed to me that the Greek government accepts that the IMF needs to be part of the process. It was absolutely clear to him, it was part of the agreement this summer,”
Jijsselbloem has however confirmed that the intervention from the IMF is not straightforward, saying that the IMF will require Greece to push through pension reforms and the euro zone.
The EU’s economic affairs commissioner has warned Athens “not to play games” with the IMF in their role in the three year, 86 billion euro rescue package agreed in July.
