Another year to ignore the headlines!

10th January 2013

INVESTMENT MARKET OVERVIEW – FROM JUSTIN URQUHART STEWART, 7IM

As we start the New Year, the same question always arises: ‘Is this the right time to invest?’ And the answer is always the same: you cannot time the market – it is the time in the market that matters. Despite many of the ludicrous headlines designed to frighten us all, 2012 was generally positive for investors.

I always urge investors to not look at the individual indices see-sawing up and down, but rather focus on total returns (including those seemingly dull little dividends and yields). A one year return on a broad asset based portfolio should have given a return of around 9%, which given all the fears in 2011, is a perfectly respectable return.

So what is the direction for this year? Well, the global economy is still growing and may even grow a little more than expected. We are all far too fed up with the diet of bad news from fiscal cliffs to Euro issues, but progress is being made. Even in a world of low and slow growth, good asset allocation and good compounding at the lowest of costs should be at the forefront of investors’ minds. Investment is a longer term view, not a shorter term bet.

Markets are as ever wonderfully perverse. One of the best market performers had the worst economy – Athens with a total return of 37%. So obviously if we apply that logic to Spain, should we expect similar returns? No – Spain was down 1%, whilst the fashionable commodities, as measured by the CRB Index were down 3.4%.

Chinese pledge to tackle corruption

Image courtesy of Lim Darmawan, Flickr

Crouching Dragons, hidden millions – a good reflection of the Chinese confidence in their authorities is the amount of currency being found by customs authorities at Canadian and US airports. For those of us now used to a life free from any foreign exchange controls, this may seem somewhat quaint (some may recall that in 1966 a maximum of £50 cash could be taken out of the UK – this was finally abolished in 1979).

However, the Chinese strictly control money being taken out and limit it to $50,000 per person per annum, and thus the Canadian authorities announcing that they had seized around $13m in undeclared cash over a 12 month period would indicate that some people don’t trust their domestic authorities.

Given the new Chinese government’s pledge to tackle corruption, this may well be an area of greater interest for them. Apparently, between 2007 and 2011, the authorities collected over $200 million in fines from such currency offenders. The old references to Chinese laundries may well be coming back, but this time as money laundries. Here be dragons (with bulging suitcases)!

G8 Summit
The 2nd of June will be the Diamond anniversary of the Coronation which will enable us to bring out the bunting again and stare at the fuzzy black and white television pictures of a damp day in London.

For those wanting something a little different, the G8 summit on 17th/18th June in Northern Ireland might be of interest, where the meeting will be hosted by this year’s chair, the British Prime Minister. Lough Erne in County Fermanagh will be the location and no doubt security will be at its most effective.

The G8, although gathering the headlines, seemingly has less impact than the broader membership of those more vibrant growing nations within the G20. Astonishingly, the world’s second largest economy, China, is still not included within the G8.

Fiscal Fudge

Image courtesy of joana hard, Flickr

Enough has been written on Fiscal Cliffs and the main thing that we should all note is this – it’s not over.

It was a Fiscal Fudge, serving only to highlight the ineptitudes of populist short term democracy which makes the job of passing unpopular but necessary decisions almost impossible. This is especially shown up with the two year term (and thus a one year attention span) of the congressmen of the House of Representatives. Therefore, as they move ever closer to the next election (and more to the point certain local primaries) the ability to apply clear rational thinking will become even more difficult.

Gold Update
A short word on gold. India, the world’s largest consumer of the metal, with an estimated 60% being bought as jewellery, is contemplating a further tax rise on the import of the shiny stuff.

The amount of gold imports has a significant effect on the country’s widening current account deficit, and thus a rise from the current 4% tax rate to 5 or 6% could create serious problems. Whether this is enough to put consumers off purchasing gold for the wedding season (September to January) remains to be seen, but with an estimated 10,000 weddings each year there is still going to be some significant demand.

Nestlé vs. Cadbury

Image courtesy of jthornett, Flickr

And finally…..so what would you call ‘four trapezoidal bars aligned on a rectangular base? Not exactly a great marketing line for a product that we would know better as a Kit-Kat. Nestlé have just won a ruling to protect its trademark from a decade ago.

Its great rival Cadbury has apparently tried to produce a ‘close competitor’ but may now have to go back to the drawing board and come up with a more imaginative design. This comes after Cadbury also trying to trademark the colour purple! Mind you any company that comes out with such an awful marketing tag as ‘Joyville’ for what was originally a great British business based in Bourneville deserves to lose.

This post was prepared by Justin of Seven Investment Management (7IM). He is one of the most recognisable and trusted market commentators on television, radio, and in the press. Originally trained as a lawyer, he has observed a unique understanding of the market’s roles and benefits for the private investor. He co-founded Seven Investment Management (7IM).

His blogs and presentations are always witty as well as thought provoking and we are delighted to publish his blog on our website. This article reveals that it’s fine to take an interest in what is happening in the world. But care needs to be taken in extrapolating the headlines into your investment choices. If you would like to discuss anything written in this post, please get in touch.