Julian Knight: Don’t forget ‘Old Europe’ if looking for investment growth
While the emerging Bric countries are still attractive, Germany, France and Switzerland still have their place
Sunday 08 August 2010
Two out of three independent financial advisers now think that their clients ought to invest more in countries such as China, India, Brazil, Russia and the other emerging economies, according to research from Barings. Hallelujah!
The IFA community finally wakes up to the fact that there is a fundamental shift in wealth and power from west to east and it’s best if they pin their clients to the winningside for once. The idea that clients should have about 5 per cent of their portfolios (this is the percentage that many IFAs have used when advising clients) in the powerhouses of the emerging economies has been a bad call for a long time – try double or triple that and you’re nearer the mark.
These markets are more likely to suffer setbacks but the growth and demographic story is so compelling. And privately some IFAs admit it. One of the country’s leading investment IFAs told me recently that he was putting half of his personal new investments into ETFs investing in stock markets in the big emerging economies. That’s a lot more than 5 per cent. Of course, many investors are risk adverse, and at the back of their mind is the big question of political instability; hence IFAs, when drawing up their clients’ portfolios, not only have to ask how they can best make money long term but also what the client will actually swallow. It’s a lot easier sell to advise putting 10 grand in Neil Woodford’s giant Invesco UK equity income fund than, say, a Malaysian ETF.
But there is something nagging in the back of my mind. Whenever I hear IFAs pushing a particular investment area I tend to look for the exit. They do have a history of jumping on a bandwagon just as it comes to a shuddering halt – technology, pharmaceuticals, commercial property funds, guaranteed income bonds, just to name four areas where the today’s must-have has turned into tomorrow’s must-rid.
So although I am an unashamed fan of emerging markets, I can’t help but think that you need an effective hedge if you’re to increase your exposure right now. And the hedge comes for me in the most unloved of equity sectors – Europe, or Old Europe, according to Donald Rumsfeld’s infamous putdown. I know we still have the Pigs (Portugal, Ireland, Greece and Spain) and untold liabilities to sovereign debt squirrelled away in the balance sheets of many of Europe’s biggest banks. There is also the issue of demographics; with Italy, for instance, fast becoming a country of pensioners.
But Europe, unlike the UK, isn’t largely about banking and services, they still produce stuff. Take Germany, for instance. It is one of the few countries in the world that can claim to have fair balance of payments with China as it produces fantastic manufacturing machines for export. They, the French, Swiss and Italians have more than their fair share of high-end prestige brands that make money. And European firms once shy of paying dividends – all a bit too Anglo-Saxon, don’t you know – are doing so increasingly.
Europe is not, of course, a great growth story. In fact, in City speak it could be referred to as a “sunset” continent (in the same way TV and papers are supposedly sunset industries) but it’s got a lot more going for it than many investors and IFAs have given it credit for over the past few years. Perhaps post-euro crisis it’s time to look again to balance out your more exotic eastern foray.
2007 and all that
Three years ago this week, investment bank BNP Paribas admitted to its investors a “complete evaporation of liquidity”. It may have escaped many at the time but it was the clearest sign yet that the credit crunch was under way. We all knew a month later, of course, when queues were forming outside Northern Rock. The next 15 months brought us to the very brink of something akin or perhaps worse than the Great Depression. It’s been bad but not that bad. But with the banks seemingly returning to profit – although a little edgily with the part-nationalised ones – surely it’s time to draw a line under all this. Not as far as many private investors are concerned.
The “casino” operations still continue; the bonuses are as big as ever; state finances in much of the world are in crisis coping with the recession, and heaven help us if the double dip occurs. Outside of this, investors’ attitudes to banking shares are still unsure. According to TD Waterhouse, three of the four most bought shares are Lloyds, RBS and Barclays, yet these same banks are the top three sells also. It’s been this way ever since the dark days of early 2009. Confidence has returned but it’s clearly still fragile.
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 19-23 January
Bargain Hunter: From The Outsider to 1984, catch a cut-price classic, read it in the rye
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Money Insider: Smart alternatives to the pensioner bond
- 1 Rowan Atkinson to sell £10 million McLaren 'supercar' he crashed into a tree and a lamppost
- 2 The truth about 'girl things': Three cheers for Heather Watson's honesty
- 3 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 4 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 5 Men behaving badly: Urinating while standing, 'manspreading' and the gendering of selfishness
British Muslim leaders outraged after Eric Pickles says followers of Islam should 'prove their identity'
UK terror fears: My jihadist son returned from Syria mentally scarred – now he is being ignored
Nigel Farage: NHS might have to be replaced by private health insurance
Billy Crystal: 'Stop shoving gay sex scenes in my face'
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village