Europe: Look underneath the bonnet

The past fortnight has proven a difficult one for even the most resolute investor. Eurozone issues have created significant falls in indices around the world. Trying to find clear and concise opinion is very difficult as everyone tries to come to terms with what is going on and more importantly where we are heading.

The following is a statement issued by Standard Life Investments and I have decided to share it with you given that I believe it sums up the comments we have been following from numerous investment houses.

Commentators are vying to create the most frightening metaphor for the future of Europe: standing on a precipice, walking through a mine field, facing Armageddon. European share prices are down about 15% from their recent peaks, while bond yields in Spain and Italy are near levels which previously have triggered a response from the ECB.


Of course, markets are volatile when they are trying to price in the outcomes of new elections in Greece, parliamentary polls in France and the Irish referendum, against a backdrop of European summits. Political bargaining, opinion polls and votes will be the currency to analyse – often on a daily basis.

It is impossible to forecast the outcome of so many inter-linked events. For some time, Europe has faced a three pronged choice: muddle through, crisis or collapse. Collapse refers to the break up of EMU as we know it. Crisis refers to some form of Greek exit from EMU, possibly disorderly and possibly relatively contained by massive central bank support. The most likely scenario remains the first one – buying time and muddling through, which has been the case since the Euro-zone crisis erupted two years ago.

The pressure on governments to buy more time is considerable – not only because the risks of a major collapse are abundantly clear but also because, underneath the doom and gloom, two positive trends are appearing – small flames which need to be fanned into life.

The first is that the conditions are falling into place for growth in Germany, the engine room of EMU. It is beginning to experience wage pressures and a stronger property market as the recovery widens from exports and manufacturing. The second positive trend is the improvement in competitiveness in the rest of Europe. Some of this improvement is being forced on economies by government austerity packages, say in Ireland or Greece, while some is being voluntarily adopted, say by workers agreeing to wage restraint and productivity improvements at companies across Europe. The adjustment process will last many more years, but a start has been made.

European policymakers face vital decisions at their summits in May and June. Compromise on all sides can buy time for the necessary economic adjustment needed across Europe to develop even further. Failing to do so would lead to even more disorderly markets than those seen in recent days.



We also sought comment from The Chief Investment Officer at Equip who look after many of our clients funds. When asked if we should be adopting greater defensive measures Shane commented: -

"A good question, particularly with all the column inches the Eurozone is attaching. Our "diversfied basket" is giving us a defensive position whilst retaining a long-term outlook for the Portfolios. What we dont want to happen is an attempt to time the market fluctuations and end up getting torn in half. The underlying managers are also well placed and although we will experience some volatility I would hope we come out of it rather well"

Let's hope next week gives us some respite and we are all rewarded for sitting tight through these troubled times.

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Car Insurance For Teenagers

We appreciate that the cost of insurance is one of the biggest issues for young motorists. The average cost of insurance for a new driver is £3,000, often more than the value of their car, but now What Car? magazine has drawn up a top ten list of money-saving tips:


1. Increase your excess.

Boosting the amount you pay in the event of an accident can have a direct effect on your premium. A £400 increase on your excess can bring down the premium by almost the same amount. Average saving, £277.

2.Stick with a lower trim. Going for the top-of-the-range trim level might well bump you up an insurance group. Average saving, £432.

3. Research the level of cover.

Third party or third party, fire and theft cover is usually cheaper than comprehensive insurance, but the average saving is so small that we would always recommend choosing the best cover you can afford. Average saving, £53 (third party only).

4. Add a parent.

Convincing a parent to join you on a policy can bring the cost down significantly. Our sample driver reduced his premium by more than £1100 just by adding his 52-year-old accountant mother to his policy. Average saving, £1005.

5. Extra training.

Insurers appear to be undecided on the merits of the most popular driver training, Pass Plus. Some don’t offer any discount for taking the six-hour course, while the average premium reduction for those who do is substantial. Check with your insurer before you commit. Average saving, £456 (if offered).

6. Get a no-claims discount.

Many insurance companies will now let you build up a no-claims discount on someone else’s vehicle, so try convincing a parent to let you use their car. Average saving, £253.

7. Leave out the mods.

Some insurers might not charge you for adding alloy wheels, but that full bodykit could end up costing you more in higher insurance premiums than its price suggests. Average saving, £305.

8. Stick to a curfew.

Restrict your driving hours to between 6am and 11pm. This may not be for everyone, but it could save you cash. Average saving, £492.

9. Stick with a smaller engine.

A step up from a basic 1.25-litre unit to a still-modest 1.4 can bump up insurance premiums by more than £250. Average saving, £265.

10. Shop around.

“We want more insurance companies to recognise the benefits of additional young driver training and reward those who take it with a lower premium,” What Car? editor John McIlroy said. “A full 74% of young motorists say they would take extra tuition if it saved them money. It would without doubt make the roads much safer for all road users because, above all, it’s experience that makes us better drivers.”

Ireland Bounces Back

Ireland, which had to be bailed out by eurozone partners following the collapse of its property and banking sectors, has seen its stock market soar by 14.8 per cent since the start of 2012. Investors in Irish stocks are celebrating gains that have catapulted them into Germany's league of success this year.

This builds on a gain of 10.8 per cent in 2011, when it was one of only two stock markets in developed Europe to show a positive return, along with the Netherlands. But Ireland currently ranks third in the Russell Developed Europe Index for stock returns, while the Netherlands has plunged to third from the bottom in the league of 18 countries. Denmark has the best-performing stock market this year with returns of 20.7 per cent, followed by Germany with gains of 15.7 per cent, according to the index compiled by Russell Investments.

Greece has managed to stage a turnaround, coming in sixth with returns of 12.4 per cent, after ranking as easily the worst performer in developed Europe with a market plunge of 55.2 per cent in 2011. The UK is in tenth place with a return of 8.6 per cent, as of the market close yesterday. This year's laggards are debt-ridden Portugal and Spain - the former already bailed out and the latter the subject of fearful speculation it will be the next domino to fall in the eurozone crisis. Portugal's stock market has fallen 4.1 per cent so far this year, while Spain's is 12.1 per cent in the red.

'This is quite different to what we saw in 2011, when Spain actually outperformed Germany despite the news headlines favouring Northern Europe. 'Spanish equities haven’t fared well over the first part of this year, far worse than the other countries in the Russell Developed Europe Index,' said Ronnie Sabel of money manager Russell Investments. 'Many European countries have clawed back most of the losses of 2011 so far this year – and even Greek equities have showed a positive year-to-date return of just over 12 per cent. But the huge differences we see amongst the developed European markets shows how volatile and unpredictable they can be.'

What happens when people stop moving?

A large number of people in the UK simply cannot afford to move house according to a survey that is published today (Monday 16 April). This has an affect on the property market just as much as first time buyers not being able to get on the housing ladder because it causes things to stall somewhere along the line.

The research commissioned by Countrywide, one of the UK's biggest property services group is significant. It shows that almost 12% of UK adults are unable to move home due to financial constraints and for nearly half of 18 to 34 year olds list deposit affordability is the biggest barrier to buying a property. And despite the growth in the last 18 months of the private rented sector, only a third of private rental tenants are happy where they are, indicating that they are reluctant renters and would probably by a home if they could.

With the UK government having just introduced initiatives like NewBuy in an attempt to stimulate the housing market, the fact that people can't afford to move is a bit of a blow. It is a fairly deep piece of research with over 6,000 UK adults, including private rental tenants, home owners with mortgages, shared equity stakes, owner occupiers and those living rent free taking part in the survey.

Asked about their reasons for not moving home, 62% claimed they were happy where they live, 21% were unable to afford a deposit, 16% could afford mortgage repayments, 16% list moving costs and fees (e.g. stamp duty) as a barrier to moving and 12% cited job insecurity as a concern.

Market uncertainty also played less of a part, with only 5% of survey respondents listing the anticipation of house prices falling as a factor preventing them from buying a property at this time. Some 45% of those aged 18 to 34 cited deposit affordability as a barrier to buying a property, indicating that that deposit affordability is a primary issue but not the solitary factor preventing house sales.

The youngest respondents also stated that they felt less confident when it came to their employment prospects, with 18% listing job insecurity as an obstacle. Also, nearly a third, some 31%, of 18 to 24 olds highlight mortgage repayments as a reason for not buying.Encouragingly, homeownership aspirations remain high throughout the UK and across all ages, with only a third of private rental tenants referencing happiness with their current property as a reason for not moving.

Of those renting, over half, 56%, of tenants cited deposit affordability as a barrier to getting on to the property ladder. This survey suggests that it is not just first time buyers being unable to get a mortgage and failing to save enough of a deposit that are the issues. Based on current levels of activity, the average home owner will move house once every 25 years as opposed to once in every 12 years.

Anyone can see that these levels are unsustainable and with the growth outlook for the UK economy not good, although a double dip recession is likely to be avoided, it all leaves the property market stalled and even the government incentives are not enough at present to raise the game.