How Investable is the UK?
The FTSE 100 index is enjoying 10.49% gains over 1 year, with 1.29% appreciation over the past 1 month alone. The UKs all share index is hovering around 7,404.44, with a modest 3.66% year to date return. Every time the GBP depreciates, the FTSE 100 index moves in the opposite direction. At 7,404.44, the FTSE 100 index is trading near the top end of its 52-week high (7,598.99).
During the month of July, international investors pulled money out of the United Kingdom and decided instead to invest their funds in alternative investments such as corporate bonds. The IA (Investment Association) statistics confirm this latest shift in investment activity.
Among the least preferred options for investors in June, July and August are the investment Association UK equity income sector and the Investment Association UK all companies sector. Net outflows of £86.3 million and £213.5 million were reported.
UK companies enjoy capital inflows
Smaller UK companies fared a little better with £10 million of inflows, but this did little to assuage concerns about total redemptions of £290 million in July for the overall UK equities market. This figure, although deeply troubling remains beneath the £322 million (12-month average) in net equities outflows.
Investors are choosing to pour their money into alternatives such as global equity funds. The IA global sector reported its second consecutive #1 ranking with £607 million in net retail sales. In June 2017, that figure was £465 million. Corporate bond demand is growing at an alarming rate, as are multi-asset funds. July’s net retail sales amounted to £3.5 billion, the highest July figure on record, and the 12th month of successive positive inflows for net retail sales.
UK authorised funds have enjoyed net inflows of £23.1 billion – greater than the 2016 figure of £6.8 billion and the 2015 figure of £16.9 billion. Brexit-related fears continue to worry UK investors.
The Investability of the UK economy remains in question given that multinational corporations are seeking to set up shop elsewhere in Europe. While domestic enterprise is looking less investable to locals and foreigners alike, global markets are increasingly attractive.
US economy equally pressured
These growing tensions within UK economic circles are not limited to Britain. For example, declining confidence in President Trump has also led to a slight outflow of funds from the US. There are several reasons cited for this, notably overvalued investments, increasing geopolitical tensions, and the reluctance of the Fed to hike interest rates before its meeting on December 13, 2017.
As far as corporate bonds go, income is all important. UK investors are still looking for fixed income streams, and corporate bonds and fixed-interest-bearing investments fit the bill well. With the Bank of England refusing to raise interest rates yet, the appetite for fixed deposits and corporate bonds may be somewhat limited, but it is more viable than UK equities which are under pressure. Brexit negotiations continue to hang over investors like the Sword of Damocles, but inflation is slowly rising.
UK regulators shun ICOs
Meanwhile, the Financial Conduct Authority (FCA) is following in China’s footsteps by pooh-poohing the latest economic investment option in ICOs (initial coin offerings). These are the cryptocurrency equivalent of IPOs (initial purchase offers) on stock markets.
ICO investing – otherwise known as token sales – have generated some $1.7 billion for companies in 2017. However, UK regulators are concerned that this money-making scheme may simply be generating huge profits for a handful of savvy snake oil salesman.
The FCA has labelled ICOs as highly risky speculative investments. According to FCA regulators: ‘… You should be conscious of the risks involved and fully research the specific project if you’re thinking about buying digital tokens.… only invest in ICO projects if you are an experienced investor.’
What are your thoughts about the current state of the UK economy, and investments in ICOs? Do you think that the UK should follow China and ban ICOs?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.