2014....here we come!

The only certainty that can be offered by future predictions is that they will be wrong. At this time of year many pundits and alike prepare thoughts for the future year and I have penned some of my own generic views for the future year. It should also be clear that financial planning should usually be considered to be a medium to longer term view and looking at one year, future or past, may be of limited overall benefit. However, in conjunction with the medium to longer term view mentioned above may add value.

One of the main targets for financial predictions in the UK is the FTSE 100 index and its end value at 31 December 2014. Ending at 6749 at the end of 2013, my view is that it will continue to climb to 7550 points. I appreciate that this is a little over 10% increase, however I still believe that both the US and UK Equity markets have mileage in them (mainly led by the US market) and I think we will see this come through over the course of 2014. Dividend returns I believe will remain strong and this may be of interest to savers who are suffering from low Bank of England base rates and deposit returns.

It is of note that there is a disparity between the two markets, in that the US main indices, the Dow Jones, broke its previous ceiling in 2013. The UK market has yet to do this, but is indicating its emergence to a growth phase. I think that this anticipated growth will not be without its volatility, again mainly led by the US, with tapering of its easing mechanisms and also the political malaise of the debt ceiling. Volatility is a natural companion of all stock markets, and we may also see volatility (possibly positive) in the underlying currencies of Sterling and the Dollar.

Europe may also show some signs of recovery, however, I still believe that the inherent issues surrounding the Euro and the Eurozone will weigh heavily against the constituent countries and its industries.

The UK also has a General Election at the latest in May 2015. From this perspective, there is likely to be an objective to create a 'feel good' factor (as far as this can be achieved or measured), by the current administration, to promote success at the polls in around 16 months’ time. Whether this can be achieved, based on the limited slack in the current UK budget, remains to be seen.

As one final word of warning, anyone who knows me will know that I am ever the optimist, this being indicated in my last book, The Recession is Over, Time to Grow, published in June 2013. I can be wrong, as any other person offering a prediction.

Past Performance is not a guarantee of future performance and indices can fall as well as rise.

If you would like to review your existing investments, ISAs and pensions and, as an example, their investment allocations, then please contact the team at either our Guildford (01483 578800) or Woking (01483 330800) offices to arrange a time to meet. To reference this further, you may find our Investment Risk Scale of interest on our website in your financial planning. A link to this can be found here.

No individual advice has been provided during the course of this Blog.

Keith Churchouse, FPFS 
Director 
ISO22222 Certified Financial Planner 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

USA Leading or UK Lagging?

We have all witnessed a degree of increased globalisation over the last 20 years as a result of the information age.  Many large corporations have expanded their global presence and ventured more into overseas markets than ever before. This in turn has led to the major stock markets, and correspondingly the indices, being more closely correlated over time. 

We are all very aware of the Credit Crunch and the following aftermath in the markets, in currencies, cash-flow and economies around the world. However, we are now starting to witness much more positive data regarding the recovery of the UK economy as well as that of the USA. 

Obviously past performance is not a guarantee of future performance. 

This raises the question, are they recovering at the same rate?

USA Leading?

The Dow Jones Industrial Average (DJIA) closed above 16,000 for the first time on Thursday 21 November 2013, finishing at 16,009.99. This has seen the index growing over 22% from 02 January 2013, when the index opened at 13,104.30.

Even looking at the S&P 500 Index, which some believe to be a better ‘yardstick’ of the US stock market than the DJIA, this has risen 25% from opening at 1,426.19 on 02 January 2013 to close at 1,795.85 on 21 November 2013.

UK Lagging?

In comparison, the rise in the FTSE100 (as an example) is somewhat short of this increase, showing a growth of just 13% from an opening of 5,897.19 on 02 January 2013 to close at 6,681.33 on 21 November 2013. Therefore, if we are using the FTSE100 as the measurement of the recovery of the UK equity market, the UK is only recovering at approximately half the rate of the USA. This is an interesting observation, rather than a direct comparison. 

Some might argue that the difference could be due to the Sterling to Dollar exchange rate at these dates, which is an important consideration. However, the currency exchange rates on these dates were £1 = $1.6249 (02 January 2013) and £1 = $1.6199 (21 November 2013), therefore the impact of the exchange rate is less than 0.5% between these dates.

Which market / economy will correct and when?

The soon to retire Mr Bernanke, Chairman of the Federal Reserve, has already indicated that he may taper or slow down the fiscal stimulus into the US economy. Many economists believe that the markets have already factored in his statement in this regard, but if they have not, the impact may not occur until March 2014. 

The Bank of England has provided its own stimulus to the economy in the form of Quantitative Easing (QE) to the tune of £375BN. In comparison with the USA, it has not increased this QE programme since July 2012.

It is believed that Mr Bernanke will continue to signal the reduction in the stimulus as the US data on production, employment and other economic factors improve. This could mean that the indices in the US stock markets (DJIA / S&P 500) will not rise when compared with the UK index (FTSE 100) as the fiscal stimulus package in the USA is reduced and eventually stopped. How long will this take? I believe it will be at least 12 months before we see a significant correction between the correlation of the USA and UK equity markets, possibly even longer.

No individual advice has been given in the course of this blog. Past performance is no guarantee of future performance. Investment values can fall as well as rise and are not guaranteed.

If you would like to discuss the investment opportunities with regards to your own individual situation and circumstances or any aspects of financial planning, both personal and business (SME), then please contact the team, either in Guildford or Woking.

Simon Hewitt BSc (Hons) DipPFS

Financial Planner

Chapters Financial Limited

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Where it stops, nobody knows!

It's been an interesting few weeks in various investment markets. With much optimism in the lead up to the American election and with President Obama safely re-installed into the White House, the hangover from the party seems to have set in. With various hopes and fears once again emerging from Europe, there seem to be many 'jitters' in a few of the major financial indexes. Overall, the markets have remained relatively constant over the last 6 months, and using the example of the FTSE 100 (not always the best measure) as a reasonable UK local market equity index, we can see the results.

We can see that from 01 May 2012, the index stood at 5,812.20 and by 10 November 2012 this had moved to 5,769.70. For additional past reference, the FTSE 100 stood at:

Date	FTSE 100 Index Value
10 November 2011	5,444.80
10 November 2010	5,816.90
10 November 2009	5,230.50
10 November 2008	4,403.90

Approximate Figures (Source uk.finance.yahoo.com)

You will note from these results that past performance is no guarantee of future performance and that fund values can fall as well as rise.

I am sure that within the next 4-6 weeks we will see the usual seasonal speculation as to where the FTSE 100 index will be at the end of 2013. I have to admit that I think that 'UK Plc' looks in far better condition, with its various austere fiscal policies, to face the significant and continuing challenges that I believe the global economy has to share with its many contributors over 2013 and beyond. Bearing in mind that the highest peak of the FTSE100 (on 30 December 1999/ 6,930.20 points) was now some 13 years ago (although it got close again to this level in late 2007), it does raise the question as to when the current Index 'value' mould that we have become very accustomed too will be broken, if at all.

Only time will tell, however, it is interesting to note (although not a direct comparison) that the American Dow Jones Index's highest point in past years was 14,164.53 points (09 October 2007) and this was nearly reached again in 2012 (13,610.15 points at 13 October 2012). With the fears of a post-election 'Fiscal Cliff' looming (seems to be the latest buzz phrase) I am pleased to see that this past index high milestone has been approached again in such an economic climate.

Is it time for the UK and its various Indices to do the same. As the title suggests, 'Where it stops.........'

Past performance is not a guarantee of future performance. Fund values can fall as well as rise and are not guaranteed. No individual advice or fund recommendation has been provided in the content of this Blog.

Chapters Financial Limited can help you with your savings and investment allocation and planning.

Keith G Churchouse, Director
Chartered Financial Planner
ISO 22222 Certified Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.