MoneyWeek roundup: ten reasons to be bullish
James McKeigue Mar 16, 2013
Investors are in a party mood. They’ve shrugged off eurozone worries and a looming ‘triple dip’ in Britain. The FTSE 100 is edging closer to its all-time high.
In Monday’s Right Side, Bengt Saelensminde explained why there could be more gains to come. “I recently upped my UK equity allocation”, says Bengt. “Because it strikes me that regardless of a stagnating economy, many corporations are doing just fine.”
In all, Bengt has ten reasons to be bullish. Here’s a reminder of the first five:
Corporation tax is falling. “Despite horrific budget deficits, Osborne has continually lowered corporation tax. First from 25% to 23% - and next year it goes down to 21%. Quite a boon for corporations!”
Borrowing costs are plummeting. “Low interest rates and a dearth of places for investors to put their savings mean that large corporations can borrow incredibly cheaply.”
The weak pound. This makes exports more competitive, makes shares more attractive to foreign buyers and, given that most FTSE100 earnings come from abroad, makes them go up in sterling terms.
Global outsourcing is booming. A lot of Britain’s multinationals are taking advantage of cheap input costs abroad to boost profit margins.
Excess capacity is falling. Better management of corporate inventory means that today’s corporate titans don’t end up with stockpiles of unwanted goods. That makes demand more sustainable.
Bengt acknowledges that the bull run has to come to an end sometime, but for now he is putting his faith in shares.
Could an independent Scotland actually work?
Another issue that is picking up steam is the debate on Scottish independence. In her recent blog posts, Merryn Somerset Webb, who lives in Edinburgh, has been playing close attention to the media war for the hearts and minds of Scotland. On Wednesday, she took to her blog to analyse the latest media coverage.
The Mail on Sunday was keen to raise the issue of passports, says Merryn. “According to the SNP, ‘Scots will continue to be British citizens even if the country votes to leave the UK.’ They would still travel on British passports and use all the UK’s diplomatic services abroad – although over time, the government expects them to take dual citizenship and eventually be Scottish citizens.”
This didn’t particularly impress labour politicians in Scotland, notes Merryn. “What is the point of separation, they asked, if nothing is to change? And why would the British government be happy for Scots – having voted to leave the UK – to use the facilities of any British embassy or consulate around the world, while the Scottish government would contribute nothing for those services? Yet another example, everyone agreed, of the SNP not being much fussed about detail.”
Another thorny issue is Scotland’s post-independence EU membership. As The Times pointed out, Scotland currently contributes around £124m to the cost of EU membership. But under independence, Scotland’s contribution would rise to more like £378m. And, if it couldn’t keep its share of the UK rebate, the eventual cost could be as much as £673m.
The Mail continued with the financial theme, says Merryn. It picked up a leaked report from Scotland’s Finance Secretary, John Swinney, that shows that “whatever the SNP might say in public, they expect Scotland to have a slightly larger deficit than the UK by 2016/17; that running an economy dependent on volatile oil revenues is tricky stuff and that an independent Scotland will have little choice but to have a go at cutting its welfare and pensions bill.”
Of course, people south of the border can hardly gloat, says Merryn. “This isn’t a Scottish problem. It is a Western problem.” Indeed, independence would give Scotland the chance to break the mould and be one of the first Western democracies that actually lives within its means. Not likely of course, concedes Merryn, but it would make a refreshingly honest pitch in this debate.
The debate continued below the article as readers weighed in with their views.
‘BD’ was the most dismissive of an independent Scotland. “After independence Scotland will be the new Portugal: an underperforming midget with booze as its only real export. Except Scotland won't have Portugal's nice weather.”
However, ‘LG’ agreed with Merryn that this could be a unique opportunity for the Scottish people. “I think the central theme of living within one's means is right on. I am all for independence if the purpose is to create a sound economy. If it’s to perpetuate the welfare culture that exists in some parts of Scotland now, where living on benefits is a career choice, then count me out.”
It’s an interesting debate, and one that’s attracting plenty of reader input. So if you haven’t done so yet, click here to have your say.
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Why small is beautiful in Asian investing
This week’s edition of The New World was all about the best way to make money in Asia. Lars Henriksson has spent the best part of two decades managing money over there, so he has a pretty good idea of the best way to do it.
“When it comes to investing money in Asia, says Lars, big is not beautiful. Big funds are focused on big markets, invest in big stocks and are served by big brokers. And investors tend to only hear about the big funds as they have superior marketing muscles.”
“But that’s not how you make money investing in Asia. As far as I’m concerned, the best investments are found in the smaller markets. They’re smaller stocks and they’re researched by smaller brokers or independent advisors.”
There is also another reason why big funds struggle in Asia, says Lars – their managers are worried about their careers. “This concern for reputation makes it hard for them to try something new. I’ve seen it so many times throughout my career – analysts and fund managers simply following each other into the same investments and ignoring the truly great stories of the time.”
So, when it comes to Asia, most big funds invest in the usual suspects, such as China or Japan. But there are far more exciting places to stick your money, says Lars. “This year among all the Asia Pacific countries, the best performing markets are Laos (up 19.6%), the Philippines (18.7%), Thailand (15.7%) and Vietnam (13.3%).
“They are relative minnows in terms of market capitalisation. But they are also part of a bigger picture. These booming markets are all members of the Association of Southeast Asian Nations (Asean). A topic which I believe is the most exciting emerging-market story you’ll ever invest in.”
Of course, as Lars points out, there are around 23,000 listed companies in the Asia Pacific region, so picking a winner isn’t easy. Fortunately he’s prepared to do some of the work for you. Indeed he’s unearthed three great companies that he gives away for free in his latest report. If you like a good story and want some concrete investment tips click here to give it a read.
Why investors should follow Roman Abramovich
In Tuesday’s edition of his Penny Sleuth email, Tom Bulford, explained why the latest antics of Russian oligarch Roman Abramovich may point to an exciting investment opportunity.
So what has Abramovich been up to? He’s bought a stake in Oxford Catalysts (OGC) a firm that’s working on a way to turn waste into liquid fuel. “He is also invested in AFC Energy (AFC). From its office at Dunsfold Park in Sussex, home of the Top Gear racetrack, AFC is developing low-cost alkaline fuel cells. These have been around since 1839 when Sir William Grove demonstrated the first alkaline fuel cell, and they have been used by NASA since the 1960s in Apollo missions and on the Space Shuttle.”
Turning this promise into commercial opportunity back here on planet Earth hasn’t been easy, admits Tom. “but AFC wants to use fuel cells to generate power from waste hydrogen, and believes that these can be cost competitive against mainstream electricity generators.”
The other area that Abramovich is looking at is underground coal gasification. “UCG is all about generating power from coal, but it has one great advantage: the coal does not have to be dug up. It is burnt where it lies under ground, the gaseous smoke comes up a pipe to the surface where it is cleaned, and can then power generators or be turned into liquid fuel.”
Abramovich has been spotted in Brisbane speaking with representatives from Linc Energy (ASX: LNC) an Australian firm that has pioneered UCG technologies. It’s interesting to see Abramovich make such “a concerted move into alternative energy”, concludes Tom.
Abramovich isn’t the only one getting excited about energy investments. The team at The Fleet Street Letter have unearthed an exciting new development that they believe will rewrite the global energy map. Regular readers will know that David Stevenson and his Fleet Street Letter colleagues are a pretty conservative bunch, not known for making outlandish statements. Which makes their recent prediction, which they’re calling ‘the trade of the decade’, even more startling. Over the last few months they’ve been working away on a report, which they’ve just launched. If they’re right their findings would change the investing world as we know it – it’s essential reading.
The EU has taken a shot at the banks and missed
Before I go I’d like to draw your attention to the latest video tutorial from MoneyWeek’s deputy editor, Tim Bennett. The EU recently made it clear it intends to end the ‘bonus culture’ at banks by limiting payouts. Tim explains the EU proposal, gives his views on whether it will work and suggests an alternative.
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