We would like to share below, the current market views of Canaccord Genuity Wealth Management, a UK-based fund manager who manage and administer over GBP32 billion in assets (as at March 2022).
 
This is the view of only one fund manager and is not necessarily the house view of AP Advisers Limited. It is for information only and is not a recommendation or solicitation to invest or disinvest. We believe however, that it offers a more balanced commentary on current market conditions...  
 
Volatility is rattling markets as we write, with concerns about inflation, interest rates and economic growth. Although it is impossible to forecast short-term movements in risk assets, it is possible already to see how there might be opportunities to take investment risks in the near future.

What is the US Federal Reserve aiming to do?

The market movements this year have been remarkable by their speed. The US Federal Reserve (Fed) has announced its planned interest rate hikes in full, and markets have reacted very quickly to its statements. Clearly, the Fed has been as surprised as investors by the acceleration and broadening of price rises. The Fed’s primary objective has switched very fast from achieving full employment to controlling inflation at any cost, and it has realised that the current level of employment in the US needs to be curtailed in order to bring inflation down to its 2% target. There are currently 1.7 job openings per jobseeker in the US. All the Fed is trying to do is to level that playing field so that wages don’t feed into price rises. This means slowing the US economy by reducing consumer demand, which it has suggested could be achieved without a recession, i.e. with a simple slowdown.

How have markets reacted?

Government bond yields have soared this year, triggering the worst losses to bondholders in living history. This year alone, US 10-year treasury yields have more than doubled from 1.50% to 3.30%, UK gilts from 0.96% to 2.46%, and German bonds from a negative -0.19% to +1.63%. The magnitude and speed of these movements has caused equity markets to correct sharply. The US officially entered a bear market (defined as markets falling 20% from their peak).

How are equities performing?

Within equities, however, there has been more discrimination than within bonds. The FTSE All-Share has been one of the most defensive markets in the world, due to its high energy and commodity components. European equities, though, have fared worse than the US. The main differences in performance, however, are seen not so much between countries but between sectors. The energy sector is up 40% this year whereas information technology is down 30%. This is where the crux of the problem lies: the world has piled up on tech stocks whose future has changed very rapidly as interest rates have surged, whereas energy shares have been forgotten for decades. In simple terms, higher rates reward companies with steady earnings and dividends as opposed to those with faster growth but profits further out. The biggest losers in markets have therefore understandably been ‘profitless tech’: companies with a great investment thesis and a bright future but no immediate prospects of breaking even. Even the largest US tech firms such as Facebook (Meta), Amazon, Apple, Netflix and Google (Alphabet) (known previously as the ‘FAANGs’) – have succumbed to higher rates.

What is the likelihood of a market rebound?

The speed of movements in one direction usually foreshadows a similar speed in the other direction. What is currently missing is the catalyst for a move up. Such catalysts can be of two kinds – technical or fundamental. Technically, an oversold market tends to rebound sharply. Fundamentally, the Fed can take markets out of their misery by changing its rhetoric. If the Fed raises rates sufficiently enough to see inflation pointing durably downwards, it will then have no reason to keep a hawkish stance and will be mindful of the cost to the economy of keeping rates too high for too long.

When could a recovery start to happen?

We don’t know at this stage, but right now, we are probably at the peak of investor gloom and a technical recovery is likely to happen in the next few weeks. The more fundamental rally could come when inflation figures start to moderate in a consistent fashion. Although forecasting that point is beyond analysis, the likelihood is that the point will come sooner than people expect. Unlike the 1970s, the current inflationary surge has not been fed by a weak US dollar, deficient technology, abysmal productivity and cost-of-living adjustments in union contracts. The spike in inflation has indeed broadened within the consumer basket, but wages have lagged prices massively, which should help inflation return to a lower level faster than during other inflationary periods in history.

It is important to note that a high percentage of the excesses accumulated in the long cycle since the 2008 financial crisis are now being unwound very quickly: crypto-currencies, SPACs (special purpose acquisition companies), concept stocks, etc. This should help cleanse markets of their froth much faster than in previous bear markets.

Are there any bright spots in equities currently?

It is interesting that in the middle of the carnage of some equity markets, many areas have remained resilient: Japanese and Asian equities, energy and materials sectors, value shares compared to growth shares. All it would take for other sectors to join them would be a halt to the relentless pace of rising interest rates. We could well see this happen in the next few months and it would be a shame for any investor to miss this recovery.

It is unusual for equity and bond markets to fall so sharply at the same time. It means that both markets could recover simultaneously, with not only shares but also government bonds, corporate bonds and various other credit markets providing upside to investors.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

This is not a recommendation to invest or disinvest in any of the themes or sectors mentioned. They are included for illustrative purposes only.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

The information contained herein is based on materials and sources that we believe to be reliable, however, Canaccord Genuity Wealth Management makes no representation or warranty, either expressed or implied, in relation to the accuracy, completeness or reliability of the information contained herein. All opinions and estimates included in this document are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information contained herein.

With the tragic events unfolding in Ukraine and with thought for the victims of this terrible conflict, we have compiled some points made by recent asset manager commentaries to give you some perspective. This is for your information only and should not be construed as investment advice.
 

• The duration of the conflict is impossible to predict but it should not stray beyond Ukraine. Should it enter NATO territory, the consequences become potentially much more serious. 
• Assuming it remains within Ukraine, the direct economic impact globally should be limited as Ukraine is a small economy and Russia’s is smaller than the UK. The sanctions imposed on Russia will likely be very damaging to their economy.
• This conflict has shaken stock markets in a predictable pattern. Oil and gas prices have surged, and safe-haven assets like the US dollar, government bonds and gold have risen.
• Russia has experienced the steepest stock market falls, but in developed markets the falls have been relatively modest, with the US holding up better than Europe given the large dependence on Russian gas in the Eurozone.
• The West (particularly Europe) could take a bigger economic hit in the short to medium term, with higher energy prices, loss of business with Russia, and loss of corporate and consumer confidence.
• With the EU’s dependence on Russian gas and oil, a suspension of supplies would affect economic growth in Europe. The US is largely insulated as it is self-sufficient.
• If the conflict remains within Ukraine, it should not cause a major bear market, but rather a short-term shock. Volatility and sharp falls remain possible, but markets had already discounted some of the fears, and had been falling for several weeks prior. 
• Once the conflict is over, volatility should subside. Global growth may then slow significantly due to higher energy prices but may bring the current imbalance of supply/demand back into kilter.

• The immediate impact could be inflation due to energy prices compounding the post-Covid inflationary impact of strong demand and disrupted supply chains.
• Geopolitical events are deeply worrying for investors, but perspective is required. The humanitarian cost is appalling, but wars always end. It comes at a time when the global economy is recovering from the pandemic and while higher energy prices could cause short-term issues, the broader impact should hopefully be limited.
• A secondary effect is that central bank rate hike expectations may be dampened. This is a significant change as many were worrying that rate hikes may be higher than expected. Slower rate hikes could support equity markets in the medium term. 

In Summary:
The US economy is more resilient than Europe, not only because it is self-sustaining in energy, but because the US consumer is healthier financially. Money dished out in the pandemic is still largely unspent, helping consumers cope with rising prices. This is not the case in Europe. China is also resilient, as the source of most supply chains with low inflation. Other Asian countries could also benefit. Of course, US stock markets are dragged down by the conflict but not as deeply as Europe.

It is vital to retain a blend of asset classes in your portfolio, including lower risk bonds and cash as well as equity-based funds. We also believe the long-term investor should not panic-sell in a market dip which could be brief. Unless the war goes beyond Ukraine, markets are expected to recover with time. Obviously, the situation can change daily, making it more important to simply sit tight. 

Contact us here if you wish to discuss you personal portfolio positioning at this time.

This blog post is designed to inform British-domiciled expatriates and those returning to (or connected with) the UK of the recent changes in the Autumn budget. The following are some key points:

• Tax rates for Income Tax, Capital Gain Tax (CGT) or Inheritance Tax (IHT) remained unchanged.  
• The personal income tax allowance; basic rate (£12,570), and higher rate limits (£37,700 & £150,000) have been frozen until April 2026. This means there should be an increase in Government tax receipts.
• Similarly, the IHT nil rate band, CGT annual exemption, and pension lifetime allowance are frozen until April 2026, should see an increase in tax receipts.
• The CGT reporting and payment window following the sale of UK residential property has been extended from 30 to 60 days. The change comes into effect for sales on or after 27 October 2021.

HM Revenue & Customs (HMRC) have recently revealed that IHT receipts from April to September 2021 were £3.1billion, £700million higher than in the same period a year earlier. 

HMRC have also been given more powers to clamp down on mass-market tax scheme avoidance promoters. The changes will contain four measures intended to make it difficult or impossible for organizations to promote these schemes.
 
One potential way to plan for UK inheritance tax mitigation is the use of accepted trust structures which hold client assets and are not viewed as being tax avoidance schemes by HMRC. Although these may be effective in the mitigation of UK inheritance tax, they may not act similarly in other jurisdictions where an individual's estate may be subject to local estate duties.

We are all living through a tumultuous period as the effects of the global pandemic really begin to have an impact. However one of those effects is not all that bad, people have been saving more money than they were before COVID. So the question now is, should we save or spend?

It is quite understandable people are reticent to spend or invest savings when their job security may remain uncertain, and the old adage of always ensuring a sufficient emergency fund in the bank still rings true. However if you are now sitting on a cash pile in excess of 6 months' normal spending, your money may be under-employed.

In order to prop up economies, governments throughout the world have been printing money to support companies and individuals alike. However that comes at a cost, and that is usually inflation. Already, we are seeing signs of price increases on common goods and services on a global basis.

For example in the UK, the current rate of inflation is 3.2% whereas cash interest rates lag far behind at only 0.1%. In other words, the value of people's cash is being eroded in real terms by 3.1% per year. To illustrate, had you put GBP1,000 in a savings account 10 years ago, its purchasing power today would only be GBP877. Over a similar period, if you had invested GBP1,000 in a relatively conservative portfolio,  its value would be GBP1,400 today, even after accounting for inflation.

Most of us know that over the long-term, an investment in equity-based assets like a carefully selected basket of stocks and mutual funds is much more likely to make higher returns than cash, albeit that it comes with a risk premium.

The markets have raced ahead strongly since the panic of the initial COVID outbreak and many investors are worried about a looming correction in stock markets. It is not an unfounded concern which is why we might recommend a 'phased investment strategy' if an investor has excess cash to invest. This means gradually releasing your cash in smaller portions over 12 months or so to greatly reduce the risk of adverse market timing, and average out market prices.

So the advice would be, ensure you have an adequate emergency fund, perhaps pay down some debts which attract high interest, and invest the excess to beat inflation and make your money grow in real terms.           

As you probably know from your own experience making an international transfer at Japanese banks can be extremely painful and will typically involve you visiting the bank within your lunch hour, filling out an overly detailed form, paying 4,000 yen or more in transfer fees and worst of all, being given an unfavorable exchange rate to boot.
 
But thanks to fintech companies such as Wise and Revolut there are now cheaper and faster solutions which allow you to fund your overseas investment accounts with just a few clicks and no hidden fees.
 
Wise (formerly known as TransferWise) is a UK fintech company with a global outreach which has been providing its foreign exchange service in Japan since 2016. You might have already used their services. Revolut is another UK fintech company which launched its service in Japan in August 2020 and competes in the same space.
 
Wise and Revolut are using an innovative way to transfer money from one country to another. They do not move money cross-border. For example, if you wish to send JPY to your investment account in the Isle of Man, you transfer the funds locally to their account in Japan. Then they send an equivalent amount in your preferred currency from their Isle of Man bank account to your investment account provider. So, there are two domestic transfers but no international transfer.
 
Of course they charge a fee, but they can be significantly cheaper than those charged by traditional banks. In particular, when sending JPY to bank accounts denominated in a different currency, they use the mid-market exchange rate.
 
Please find below a few comparisons as at June 7th, 2021.
 
Amount received in USD for JPY 100,000
 
Revolut:                    USD 913.35
Wise:                         USD 906.40
Rakuten:                  USD 889.30
Shinsei:                     USD 885.76*
SMBC (Prestia):       USD 873.61*
 
Amount received in USD for JPY 1,000,000
 
Revolut:                      USD 9.122.20
Wise:                           USD 9,073.75
Rakuten:                    USD 9,035.60
Shinsei:                       USD 9,020.56*
SMBC (Prestia):        USD 9,020.27*
 
 
*Amount does not take into account additional bank transfer fees of 4,000 yen +/-.
 
Please note: Payments to/from Wise and Revolut accounts registered in Japan are capped at 1 million yen (or at an equivalent value in other currencies) per transaction due to local regulations. However, if you wish to send more you can simply split your transfers over a period of days. It is also possible to schedule payments.

So how does this work in practice when you want to fund your investment account either with a one-off lump sum or regular contributions? The flowchart below should explain…

​With Wise and Revolut you can open an account and get it approved within 1-3 business days and once your account has been approved you can fund it via local bank transfers. No more frustrated lunch hours spent in a bank!
 
If you already have an investment account through AP Advisers you can more easily fund it by opening a Wise or Revolut account and set up one-off or regular payments. Simply send an email to info@ap-advisers.com and we would be happy to discuss the best solution for you.
 
If you have yet to open an investment account, please contact us here for a free, no-obligation consultation.