Economists Warn of Government Defaults
One of the world’s most respected economists has warned that the soaring budget deficits will force a slew of governments to default on their debts.
After Fitch cut its ratings on four of the largest banks in Greek, Athens was reported to be putting the finishing touches to a new package of austerity measures to avert its looming budgetary crisis.
75% of Bosses Fear Double Dip
According to a survey, it is revealed that more than three fourths British companies believe that the country faves a ‘double dip’ recession.
It would see the economy slide back into negative growth. Four in ten companies said that trackling the country’s huge debts should be the Government’s top priority. The British Chambers of Commerce said that after an election, we have to get a serious grip on the country’s public finances and escalating debt. It came as the Institute of Diretors said banks were turning down nearly 60% of companies seeking cash.
No Time to be Going Negative on Equities
The reaction of many institutional and retail investors to the dire performance of equities over the past decade, and the equally unwelcome volatility induced by stock markets’ sickening rollercoaster ride, has been a negative one.
Greenwich Associates spoke last week of “strong indications” that many German institutions will not attempt to rebuild significant equity positions but will instead rely more on fixed income.
A week earlier, a survey of European and North American pension funds by bfinance, a consultancy, identified strikingly negative sentiment towards equities on a three-year view, with a net 21% of schemes planning to cut their exposure, even as they eye larger holdings of a swathe of traditional and alternative assets.
And UK pension funds have already set off in this direction, with the average fund having an equity exposure of 44.2% last summer, compared with 54.9% in 2007, according to the National Association of Pension Funds.
While wariness of the recent woeful risk/return dynamics of stock markets is understandable, are investors missing a trick, cutting their allocations just at the point they should be doing the opposite?
Research by Fidelity International suggests stock markets exhibit mean reversion on a decade-by-decade basis. In other words, fallow decades tend to be followed by bountiful ones that are powerful enough to bring the long-term return from equities back to the historic norm.No Time to be Going Negative on Equities
Calls for Norway to Go More Passive
The Norwegian Government Pension Fund suffered its worst year in 2008, losing NKr633bn or close to a quarter of its value. Critics likened it to gambling.
About NKr80bn of the losses were directly related to active management, which has prompted calls for a more passive investment strategy. In April, Norway’s finance ministry started a broad review on whether to continue active management of the NKr2500bn fund, the world’s second largest sovereign wealth fund.
A new academic report, commissioned by the government in connection with the review, says the fund has been taking “appropriate” risks. But it recommended one notable change: incorporating systematic risk factors, such as volatility and liquidity, into the fund’s benchmark.
Millions Use Credit Card for Mortgage Payment
According to Helter, more than one million householders have used credit cards to pay their mortgage or rent in the past year. A survey by YouGov for the housing charity found that 6% of the population and 8% of Londoners who are liable for covering mortgage or rent payments had used their credit card.
Shelter warned that a default on a credit card payment could trigger repossession.
Companies Set to Bring Forward Dividends
Many UK companies are drawing up plans to accelerate the payment of dividends in a move that would allow wealthy private shareholders to avoid the impact of the new top tax rate due to take effect from April.
Tax advisers said the decision earlier this week by Rathbone Brothers, the listed wealth manager, to pay a so-called second interim dividend in March rather than a final dividend in May was likely to prompt others to make a similar move.
Ted Baker, the fashion retailer, and Arbuthnot Banking Group are among those considering following Rathbones’ example, the Financial Times has learnt. In both cases, directors own a substantial chunk of the equity.
Many private and public companies were due to pay a dividend after the cut-off date. By bringing forward the payment, shareholders could save substantial sums in tax.
Tax experts said that smaller, private companies were more likely to make such a move than public counterparts with a high share of institutional investors. Some companies may be unwilling to do so due to the disruption to cash flow, given that dividends must be paid from retained earnings.
Greece’s Credit Rating Downgraded
Greece’s credit rating was downgraded in spite of the efforts by its new socialist government to slash public spending and pull it out of economic crisis.
Moody’s investors Service became the third rating agency to downgrade Greek government bonds, changing them from an A1 category to A2. Standard and Poor and Fitch have also lowered their assessment of the country’s ability to repay debt. Greece’s public debt has reached £275 billion.
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