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UPDATE ON THE PORTUGUESE ECONOMY

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LOGO CAIXABI AZUL E VERDE

The latest indicators reported for the Portuguese economy show a more positive evolution, which resulted in an improvement in most confidence and activity indicators, after reaching historical lows in the end of 2012 and early 2013.

CAIXABI AZUL E VERDE

CAIXABI AZUL E VERDE

We also note that the more positive performance of the Portuguese economy takes place at the same time European economies, particularly the Euro-Zone, also present a less negative framework, as reflected in the GDP numbers of the 2Q13 (+0.3% quarter-on-quarter basis), which was in line with official estimates like the ones presented by the ECB that considers that the European economies could recover gradually in the second half of this year and in 2014, supported by an accommodative monetary policy.

The Bank of Portugal and INE (Statistics of Portugal) recently published the economic indicators for September 2013 including the latest data for the Portuguese economy. According to the data published by INE, the Portuguese GDP grew 1.1% during the 2Q13 (QoQ basis) after 10 consecutive quarters with negative performances. On a YoY basis, Portuguese GDP recorded a negative change (-2.1% in 2Q13), but showed some improvements compared to the figures of the previous quarters (-4.1% YoY in the 1Q13).

The positive performance of the Portuguese GDP in the second quarter was largely explained by a less negative contribution of private consumption, investment, and an acceleration of the growth of Portuguese exports of goods and services.

It should be mentioned that, according to the Bank of Portugal, the coincident indicator of economic activity for August declined -0.5% YoY, compared with -1.0% for July and -2.1% on January of 2013. But although this indicator kept its negative value, it also improved since the beginning of 2012. With similar developments we see that the indicator for economic sentiment performed well during last few months.

PORTUGUESE ECONOMY

PORTUGUESE ECONOMY

The confidence indicators also presented less negative figures during the last months: (i) the confidence of the manufacturing sector stood at -14 points in August, compared with -20 points in December of 2012; (ii) the confidence of retail business stood at -12 points in August, compared with -24 points in the end of 2012; (iii), the confidence in the construction and public works stood at -57 points in August, compared with -67 points in December; (iv), the services confidence stood at -21 points in August, compared with -34 points in December and finally; (v) the consumer confidence, stood at -48 points in August vs. -57 points in the end of 2012.

The coincident indicator of private consumption during the second quarter also improved and stood at -3.3% (-4.3% in the previous quarter), which was reflected in the retail business data that declined less in the same period.

On the investment side, the indicator that measures that component of GDP remains negative (-10.0 points in June), but less negative than previous figures reported during the first quarter. We highlight the positive values related with investment in transportation equipment. An example of the improvement in investment is the positive performance on sales of light commercial vehicles, which showed a 9.0% growth in the second quarter of 2013 and 9.8% in the quarter ended in August.

We also highlight a more positive background regarding external demand, which has supported GDP growth during the second quarter. Domestic exports of goods (by value) in the three months ended in June grew by 6.3 % compared to the figures of the same period of 2012, while imports rose 2.1%. We highlight the positive performance of Portuguese exports to Spain (+11.6%) as well as to countries outside the EU (+13%).

The International Monetary Fund, European Commission and European Central Bank (Troika) recently concluded the eighth and ninth assessment of the Portuguese Economic Adjustment Programme. The targets related to the budget deficit for 2013 and 2014 are kept unchanged, respectively in 5.5% and 4.0% of GDP. In the last Assessment of the Portuguese Economic Adjustment Programme, the estimates for GDP growth have been revised up slightly. Thus, for 2013 is now estimated a decline in GDP of 1.8% (-2.2% before), benefiting from a positive behavior of GDP from the second quarter (+1.1% QoQ) and the estimates for 2014 are now of +0.8%.

In the last regular assessment to the Economic Adjustment Programme for Portugal, the Troika concluded that, despite the necessary adjustments, the program is being implemented successfully. In general, all performance criteria and structural benchmarks underpinning the review have been met. More broadly, there has been strong progress in reducing economic imbalances, some two-thirds of the 10 percentage points of GDP structural primary adjustment required to stabilize public debt has been effected and the current account deficit has narrowed sharply. Partly reflecting these developments as well as the demand by yield, Portugal was able to start its return to the international bond market for the first time since 2010.

Between 2011 and 2013, the Portuguese economy has moved from a situation of net external financing needs of about 10% of GDP to a surplus of 3%, according Economic Bulletin Autumn disclosed by Bank of Portugal, which is one of the most remarkable features of the adjustment process of Portuguese economy.

It’s important highlight that the focus of the Portuguese Government since June 2011 has been the implementation of the Economic and Financial Adjustment Programme signed with the Troika in May 2011, which had three main pillars:

  • Consolidation of public accounts (reducing the budget deficit as % of GDP and the public debt sustainability over the long term);
  • Structural transformation of the Portuguese economy in order to create conditions for improved competitiveness and consequent promotion of sustainable growth in the long term;
  • Stability of the financial system.

The fulfillment of these main pillars is essential for the country to be able to establish its credibility and resume full access to credit markets at acceptable costs.

Lisbon, 10 of October, 2013
CaixaBI, Best Investment Bank in Portugal

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COVID-19 and PCL property – a market on the rise?

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COVID-19 and PCL property – a market on the rise? 1

By Alpa Bhakta, CEO of Butterfield Mortgages Limited

Over the last five years, demand for prime central London (PCL) property has been fairly inconsistent. Sudden peaks in interest from buyers could be followed by periods of stagnate price growth. Nonetheless, the advantages of PCL property investment, particularly by international investors, has remained well known.

Well-funded development and neighbourhood re-generation schemes, alongside an influx of overseas investment, has resulted in a vibrant market with a diverse range of opportunities for prospective buyers.

Nonetheless, the PCL market has not been immune to the impact of the COVID-19 pandemic. During the first half of the year, the lockdown meant physical valuations and onsite inspections could not take place. People in the UK were also discouraged from moving properties unless they found themselves in extreme circumstances.

However, as we now enter the final weeks of 2020, I believe there’re plenty of reasons to be optimistic about the future prospects of the PCL property market. Buyer demand has resulted in a new wave of activity, and this is resulting in significant house price growth. Indeed, it was recently revealed by Halifax that the average rate of house price growth in November was at a four-year high.

Obviously, there are multiple factors that have helped sustain this strong level of house price growth. Most notably, the Stamp Duty Land Tax (SDLT) holiday has succeeded in coaxing buyers back to the property market––be they seasoned buy-to-let (BTL) investors or first-time buyers––by offering up to £15,000 in tax savings on any given property purchase.

However, it’s worth considering the other factors underway in London’s property market. With the UK in a second national lockdown, many investors will be keen on hedging against future COVID-imbued market uncertainty through acquiring safe-haven assets like British property. As you’ll read below, this is having a positive impact on the PCL market.

Investors are flocking to PCL opportunities

The PCL property market has managed to be one of the most active areas of the UK’s real estate market during the whole of 2020. When discussing why this is so, we must first begin by understanding the behaviours of overseas buyers.

Given that international investors represented over half (55%) of all the PCL property purchases recorded in the second half of 2019, anything to further incentivise or dissuade such foreign actors would hugely impact PCL property transaction figures.

Earlier in the year, alongside the announcement of the aforementioned SDLT holiday, UK Chancellor Rishi Sunak indeed announced that he would be implementing 2% SDLT surcharge for non-UK based buyers of British property from April 2021 onwards.

So, for those seeking properties worth over £5 million in the UK capital, a 2% additional cost may represent a substantial amount of wealth. To avoid this, many overseas buyers who may have been contemplating a PCL property acquisition have rushed to buy such properties before this surcharge is applicable. This trend will undoubtedly continue until 1 April, 2021.

Remote working and PCL

On the topic of the PCL market’s future, many property speculators were concerned earlier this year that London’s property market would potentially collapse entirely as a result of remote working. With homeworking set to remain the norm for the foreseeable future, commentators predicted that professionals would escape the capital en-masse in favour of roomier, cheaper properties farther from their London employer’s offices.

While there have been some signs of shifting demand from urban London neighbourhoods to suburban ones, according to Rightmove statistics, there has been no recordable effect on the UK’s property market as a result.

Conversely, property specialists Savills have actually discovered that over half of all transactions including properties worth more than £5 million in the UK this year were all located in just five central London postcodes.

A busy few months

Given the performance of the PCL property sector in 2020, I only foresee this market growing stronger and stronger in the years ahead. Recent developments in the production of COVID-19 vaccine have many hoping that we may return to normality by Spring 2021, which would represent fantastic news for those involved in bricks and mortar, should it transpire.

In the coming months, I anticipate a surge in activity across the PCL market as buyers look to take advantage of the tax breaks on offer. As such, it will be important that these buyers have access to the financing needed to complete these transactions quickly. If not, there is a risk any purchase they attempt might be concluded in April 2021 when the current tax breaks in place are removed.

Overall, I cannot help but be impressed by the performance of the property market more generally during the pandemic. Having experienced slow growth in the years following the EU referendum in June 2016, it is clear that buyers are eager to take advantage of the opportunities on offer. This is particularly true when it comes to PCL property.

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An outlook on equities and bonds

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An outlook on equities and bonds 2

By Rupert Thompson, Chief Investment Officer at Kingswood

The equity market rally paused last week with global equities little changed in local currency terms. Even so, this still leaves markets up a hefty 10% so far this month with UK equities gaining as much as 14%.

The November rally started with the US election results but gathered momentum with the recent very encouraging vaccine news. This continued today with the AstraZeneca/Oxford vaccine proving to be up to 90% effective in preventing Covid infections. This is slightly below the 95% efficacy of the Pfizer and Moderna vaccines already reported but this one has the advantage of not needing to be stored at ultra-cold temperatures. One or more of these vaccines now looks very likely to start being rolled out within a few weeks.

Of course, these vaccines will do little to halt the current surge in infections. Cases may now be starting to moderate in the UK and some countries in Europe but the trend remains sharply upwards in the US. The damage lockdowns are doing to the recovery was highlighted today with the news that business confidence in the UK and Europe fell back into recessionary territory in November.

Markets, however, are likely to continue to look through this weakness to the prospect of a strong global recovery next year. While equities may have little additional upside near term, they should see further significant gains next year. Their current high valuations should be supported by the very low level of interest rates, leaving a rebound in earnings to drive markets higher.

Prospective returns over the coming year look markedly higher for equities than for bonds, where return prospects are very limited. As for the downside risks for equities, they appear much reduced with the recent vaccine news and central banks making it clear they are still intent on doing all they can to support growth.

Both factors mean we have taken the decision to increase our equity exposure. While our portfolios already have significant allocations to equities and have benefited from the rally in recent months, we are now moving our allocations into line with the levels we would expect to hold over the long term.

Our new equity allocations will be focused on the ‘value’ areas of the market. The last few weeks have seen a significant rotation out of expensive high ‘growth’ sectors such as technology into cheaper and more cyclical areas such as financials, materials and industrials. Similarly, countries and regions, such as the UK which look particularly cheap, have fared well just recently.

We think this rotation has further to run and will be adding to our UK exposure. This does not mean we have suddenly become converts to Boris’s rose-tinted post-Brexit view of the UK’s economic prospects. Instead, this more favourable backdrop for cheap markets is likely to favour the UK.

We will also be adding to US equities. Again, this does not represent a change in our longstanding caution on the US market overall due to its high valuation. Rather, we will be investing in the cheaper areas of the US which have significant catch-up potential.

We are also making a change to our Asia ex Japan equity holdings. We will be focusing some of this exposure on China which we believe deserves a specific allocation due to the strong performance of late of that economy and the sheer size of the Chinese equity market.

On the fixed income side, we will be reducing our allocation to short maturity high quality UK corporate bonds, where return prospects look particularly limited. We are also taking the opportunity to add an allocation to inflation-linked bonds in our lower risk, fixed income heavy, portfolios. These have little protection against a rise in inflation unlike our higher risk portfolios, which are protected through their equity holdings.

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Optimising tax reclaim through tech: What wealth managers need to know in trying times

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Optimising tax reclaim through tech: What wealth managers need to know in trying times 3

By Christophe Lapaire, Head Advanced Tax Services, Swiss Stock Exchange

This has been a year of trials: first, a global pandemic and, now, many countries facing the very real possibility of a recession. For investors, private banks, and wealth managers, these tumultuous times have manifested largely in asset price volatility, ultra-low interest rates and uncertainty about when things may level out, as well as questions about what can be done to safeguard portfolio performance.

The answer here lies within identifying and creating efficiencies to maximise performance and minimise cost, and while there is a slew of options as to how to do this, they are often siloed or have a single USP. Tax optimisation, on the other hand, provides benefits to all, not just in increasing returns for investors, but also in creating economies of scale across stakeholders, creating millions – if not billions – in savings for banks.

Evolving tax reclaim

The tax reclaim process used to be a tedious one banks had to manage themselves, and required detailed, industry and country-specific knowledge to stay on top of constantly shifting requirements and regulations. And when we consider that many countries – such as the UK – allow for capital gains exemptions, tax optimisation may not seem like an integral part of the process. However, this isn’t the case for all countries, and can lead to severe after-tax implications on global portfolios.

Furthermore, even if you’re able to avoid double taxation, getting the money back is not always as simple as it sounds. This, combined with the fact that countries often have contradictory taxation rules or requirements, makes navigating the tax reclaim space a challenge even for those with the right expertise and experience.

Ultimately, providing tax optimisation to investors ends up being a heavy lift for private banks and wealth managers, who often don’t have the right solutions, are relying on outdated technology and manual processes. While this is generally fine for business, it is no longer fit for the purpose when it comes to tax optimisation. To date, knowledge and expertise have been the key to protecting and maintaining profitable investments and avoiding tax leakage. However, through tax optimisation services starting to emerge, portfolio managers can now manage and reinvest easily.

Today, technology has evolved the process so that banks are able to access and submit tax reclaim – and the relevant documentation – online, leaving the tech provider to coordinate next steps with custodians and tax authorities behind the scenes. In essence, taking the legwork out of the process while assuring consistency and completeness in execution.

Simplifying tax through tech

While tax optimisation may seem like an easy choice in theory, it is not always the go-to for every private bank or wealth manager. Without the right supports and setup, including innovative technologies and automation, tax reporting must be done manually, leading to labour intensive processes and huge time wastage. Changing these processes can be overwhelming for those used to a certain way of operating.

By making tax reclaim digital, banks will be more able to optimise returns and gain efficiencies while reducing redundancies and unnecessary complexities. Cloud based solutions or platforms can offer a safe and secure solution for banks, wealth managers, and investors to access and submit any information required, processing the data automatically for conformity and completeness.

It is critical that providers who intend to offer tax services are able to do so efficiently with the right software and data processing capabilities. Not only does this drive continuity in service and efficiencies in process, but it is the only sustainable way to handle such a complex landscape sustainably without wasting time or money.

End-to-end, technologically driven tax services offer a huge number of advantages to private banks and wealth managers, the most important of which is the ability to provide continuity through tumultuous times. As we move through the end of 2020 into 2021 this will only be increasingly important as banks, managers and investors look to provide new services to clients and strengthen existing relationships in a difficult market.

As investors seek to find returns amid the global economic downturn, the demand for innovative solutions will only increase. Technology like cloud-based software, AI, and data optimisation can all serve to improve not just the tax reclaim processes, but the overall client experience within capital markets.  Private banks and wealth managers are suitably equipped to provide these innovative solutions, but those who do not prepare themselves effectively and keep ahead of trends will run the risk of losing current and new clients to someone who can offer more for less.

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