By Trevor Abrahmsohn, Managing Director, Glentree International
Prior to the 70s London and Paris were quaint souvenir cities steeped in heritage but hardly known as a Mecca for international commerce. New York was the place where international finance happened and if it didn’t happen there it didn’t happen anywhere else. Merchant banks such as Goldman Sachs had their headquarters in New York and experimental subsidiaries in London in order to explore the terrain at the time with the immerging European markets. In the last 40 odd years since the important structural changes, mainly brought in by Thatcher and her reforming government, London has been transformed to the colossus it is today.
More IPOS take place in London then in New York or anywhere else in the world. A merchant bank of any significance will now have its head office in London before New York which demonstrates the degree of changes and emphasis that London has on the banking and commercial scene.
There is no question that, in the US, New York is the centre for commerce, Washington the centre for politics, Los Angeles the centre for the film and television industry and Detroit for cars. An entrepreneur would need to be in the centre of the particular industry in order to further their progress. In contrast, the centres of excellence of many industries are all in London that is ‘the happening place’.
For instance, a family could have their kids study in some of the finest universities in the world, whilst the parents could both have separate careers, all served by one capital.
Many years ago, people used to laugh at London’s cuisine but today it has the one of the most eclectic selections of restaurants and rivals New York. Culturally speaking the capital is rich in all forms of art, music and theatre. Invariably a play that ‘makes it’ in the West End becomes a world-beater. Our film industry has consistently beaten the US at the Oscar Awards and often a blockbuster movie is launched in London before anywhere else. Even the couture is ‘cocking a snoop’ at the French who had it their own way for so long.
In the Diplomatic Core London is the first or second most cherished place to live and many international monarchs, potentates, chiefs, sheiks, presidents and prime ministers have their second homes in London.
The property market has been the first place to receive monies from any part of the world where there is a sudden influx of wealth or political uprising i.e. the breaking down of the Cold War. The oil bonanza in the Middle East and Nigeria in the 70s. The fall of the Shah of Iran, the republican ousting of the Greek Monarchy and more recently the Arab Spring.
Over the years the British Empire has exported so much of its culture, customs and judiciary that even though the former colonial states are free to choose anywhere in the world to invest they still aspire to want a piece of English heritage in order to live the celluloid dream of the ‘English Squire’ by buying property in London.
As the stock markets ebb and flow the banking fraternity provide a good measure of the buyers for super prime property in London who invariably make this their permanent home.
Not only is purchasing property in London tax efficient with relatively low outgoings but the income yield on buy-to-let property has been, on average, 4% together with capital growth over time of about 7-8% which means a collective return of 11-12%. In international terms this is unique. In common with most other financial capitals of the world property prices do drop after recession by up to 25-30% in some cases but they recover within 18 months (sometimes earlier). Whilst other property markets in other capitals languish for years at a time.
Whilst Paris has remained this arthritic foreigner city, isolated from international commerce, London has embraced new technology and customs to the extent that it is at the cutting edge of many industries.
The capital is so well regarded that it could be an independent state since the rest of England is usually of not much interest to the international investor.
Whilst it may be one of the biggest cities in the world, interspersed within it are a plethora of green open semi rural spaces such as Hyde Park, Regents Park and Hampstead Heath that means that you can live in this glorious capital and not be far from the delights of the quasi countryside. By way of illustration a person could buy a property in Hampstead in up to 11 acres of land and be nestled between the medieval villages of Highgate and Hampstead with two golf courses and 900 acres of heath land on the doorstep.
The location is such that the centre of London is only 15 minutes away and a private/ commercial airport is with in half an hour and you will pay a fraction of the price that it would cost you in Hong Kong. In New York such an entity does not exist unless you are prepared to travel over an hour into the suburbs.
The political and economic environment has always encouraged international investors and as such the capital is a tax haven for entrepreneurs and long may it continue to be so.
Analysis: Central banks say no tapering. Markets aren’t buying it
By Sujata Rao and Dhara Ranasinghe
LONDON (Reuters) – Central bankers worldwide have been unequivocal: There are no plans to cut back on money-printing any time soon, let alone raise interest rates.
Markets don’t seem to be buying it.
U.S. 10-year Treasury yields rose on Wednesday to one-year highs above 1.4%, extending this year’s near 50 basis-point jump that has dragged up sovereign borrowing costs in Europe, Japan and elsewhere.
The reckoning is that the spending step-up by U.S. President Joe Biden’s administration and post-vaccine economic reopening will fuel a global growth-inflation rebound, forcing central banks to “taper” or withdraw stimulus ahead of schedule.
A brighter outlook may indeed justify higher yields. But what has started to spook markets is a sudden move up in so-called real yields, or returns in excess of inflation. That shift can tighten financial conditions, suck cash from stock markets and in general, hamper the recovery.
It’s spooking policymakers, too. From the Federal Reserve’s Jerome Powell to New Zealand’s Adrian Orr, many have weighed in this week to stress policy will remain loose for some time.
But the mantra they have chanted for years seems now to be falling on deaf ears.
Powell, the world’s most powerful central banker, knocked yields just a couple of bps lower even after commenting that the inflation target was more than three years away.
Euro zone yields only briefly heeded European Central Bank chief Christine Lagarde’s warning on Monday that the bank was “closely monitoring” the recent rise in yields.
(GRAPHIC – Who’s uncomfortable with rising bond yields?: https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrdbewve/de2402.png)
(GRAPHIC – Powell reassures bond markets but yields stay high: https://fingfx.thomsonreuters.com/gfx/mkt/xlbvgdmzapq/US2402.png)
The reason, according to ING Bank is that markets are pricing “with an increasing degree of conviction” the end of ultra-easy policies.
“Market confidence in the strength of the U.S. recovery is so strong and widespread that the tapering boat has sailed already,” they said, predicting “tapering” to happen by the end of 2021, earlier than the early 2022 predicted by Fed surveys.
“We expect consensus is converging to our view,” they added.
Money markets show investors expect a Fed rate rise next year; some bet on an even earlier move. Euro-dollar futures suggest a roughly 64% chance of a 25 basis-point rate hike by the end of 2022. A week ago it was seen at 52%.
If travel, dining out and shopping fully resume in coming months, it could unleash trillions of dollars in pent-up savings worldwide. Just in the United States, personal savings totaled $2.38 trillion at a seasonally adjusted annual rate in December, higher than at any time before the pandemic.
(GRAPHIC – U.S. savings: https://fingfx.thomsonreuters.com/gfx/mkt/azgpoeylypd/Pasted%20image%201614185996035.png)
That makes it an inflection point of sorts for the economy, according to April LaRusse, head of fixed income investment specialists at Insight Investment. At times like this, even strong forward guidance can fall flat, she said.
“Markets hear central bankers saying ‘Stop it, markets, you are going too far’, but they are worrying central banks might change their mind as new data emerges,” LaRusse said.
“Markets are saying: ‘Yes, we believe what you are saying, but conditions could change and could necessitate a change of policy’.”
It’s a similar picture elsewhere.
In New Zealand, Orr’s highlighting of potential downside risks to the economy contrasted with the buoyant picture painted by data.
Bond yields shrugged off his comments to hit 11-month highs. More importantly, overnight index swaps (OIS), instruments allowing traders to lock in future interest rates, have started pricing a small possibility of an end-2021 rate hike.
Not long ago it was seen cutting rates below 0%.
BNY Mellon noted across-the-board rises in one-year forward inflation swaps — essentially gauges of future inflation — from Canada to Australia.
“Risks are now more toward further removal of easing prospects,” they added.
There is of course the possibility that the pledges to keep policy ultra-loose in the face of recovering growth only fan inflation expectations further. So, could markets force central banks to act rather than just jawboning?
Here the Fed faces less of a dilemma than its peers.
Japan’s 10-year yields are near the highest since late 2018 at 0.12%, posing credibility issues for a central bank that aims to hold yields around 0%.
The ECB too, already struggling to lift growth and inflation, may have to step up bond purchases under its emergency asset-purchase programme to combat rising yields.
“At the moment it’s a tension between markets and central banks rather than a conflict, though that might come,” said Jacob Nell, head of European economics at Morgan Stanley.
“The attitude of the Fed is that if markets think growth is stronger than we do then that’s fine, it will help growth and inflation expectations. So the Fed won’t fight the market — it just doesn’t believe it.”
(Reporting by Sujata Rao and Dhara Ranasinghe; Editing by Hugh Lawson)
Energy, bank stocks drive FTSE 100 higher
By Shivani Kumaresan and Amal S
(Reuters) – Britain’s main stock index recouped early losses to end Wednesday higher, as gains in commodity-linked and banking stocks on investor optimism about a post-pandemic economic recovery outweighed losses in defensive sectors.
After falling as much as 0.8%, the commodity-heavy FTSE 100 index closed up 0.5%, with oil heavyweights BP and Royal Dutch Shell providing the biggest boost with gains of 5.4% and 3.3%, respectively.
Mining stocks including Rio Tinto plc, Anglo American Plc and BHP added between 0.7% and 1.5%, boosted by higher metal prices.
“One of the main drivers for the FTSE over the next few months is going to be investors’ interest in a possible commodity super-cycle,” said Andrea Cicione, head of strategy at TS Lombard.
“If commodities continued to perform as strongly as they have over the past few months, well that’s going to benefit disproportionately.”
British bank Barclays jumped 3.4%, while other lenders rose as Bank of England Governor Andrew Bailey said Britain will resist “very firmly” any European Union attempts to arm-twist banks into shifting trillions of euros in derivatives clearing from Britain to the bloc after Brexit.
Defensive plays such consumer staples, healthcare and utilities were among the top laggards.
The domestically focused mid-cap FTSE 250 gained 1.2% and marked its best day over a week, on hopes that speedy vaccination will help ease coronavirus restrictions faster.
In company news, Metro Bank fell 9.9% as it posted a much bigger annual loss and said it expects defaults to rise through the year as government support measures set in place due to the COVID-19 crisis are wound down.
Consumer goods maker Reckitt Benckiser shed 1.5% even as it capped 2020 with the strongest sales in its history, while Aviva slipped 0.5% as it agreed to sell its 40% stake in a joint venture in Turkey for 122 million pounds ($173.2 million).
(Reporting by Shivani Kumaresan and Amal S in Bengaluru; editing by Anil D’Silva and Emelia Sithole-Matarise)
European shares end higher on upbeat German data
By Shashank Nayar and Ambar Warrick
(Reuters) – European shares rose on Wednesday as sectors primed to benefit from economic recovery were supported by strong German growth data, although concerns over a possible rise in inflation and lofty equity valuations kept gains in check.
The pan-European STOXX 600 ended 0.5% higher, with Germany’s DAX adding 0.8% as data showed bullish exports and solid construction activity helped Europe’s biggest economy to grow by a stronger-than-expected 0.3% in the fourth quarter.
Travel stocks jumped 1.9% to near one-year highs, leading European sector gains on optimism around major countries lifting coronavirus-induced lockdowns.
Still, global airline industry body IATA flagged further headwinds for airlines in 2021.
“The market has fallen recently due to lofty valuations, but investors are becoming more accepting of the fact that as European economies slowly reopen and earnings improve, the current equity valuations could be justified,” said Chris Beauchamp, chief market analyst at IG Group.
The benchmark STOXX 600 has rebounded nearly 50% from its March 2020 lows, also led by historic stimulus measures, but it has still far underperformed a 75% jump in the U.S. S&P 500.
U.S. Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low despite indications of rising inflation, assuaging some fears of a sudden tapering in monetary stimulus.
“While another stimulus package will certainly be welcomed by market participants, inflation fears are still present, despite those concerns being downplayed by officials,” said Milan Cutkovic, market analyst at Axi.
“As more countries are planning the reopening of their economies, the focus could slowly shift back to value stocks.”
The rotation out growth-driven stocks was apparent, with the technology sector losing nearly 4% this week, lagging all of its regional peers.
In company news, AstraZeneca dipped 0.2% after it told the European Union that it expects to deliver less than half the COVID-19 vaccines it was contracted to supply in the second quarter.
Norwegian salmon farmer Bakkafrost was the biggest percentage loser on the STOXX 600 for a second session after it posted a fourth-quarter loss due to the pandemic.
German sportswear company Puma dropped 2.1% after saying it expects a heavy impact on its results from lockdowns through the end of the second quarter.
Telecom Italia surged 9.2% after it said profit and sales should stabilise this year.
(Reporting by Shashank Nayar in Bengaluru; Editing by Saumyadeb Chakrabarty and Uttaresh.V and Kirsten Donovan)
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