Ajarn Finance

A welcome rebound in the markets

Perhaps now the only way is up

8th March 2010

Last week saw a welcome rebound in most world markets after a shaky start to the year. They have by no means returned to the highs they reached prior to the meltdown but they have shown a resilience no-one would have imagined 18 months ago. The old adage of ‘don't panic; hang in' when things get rough has proved its worth yet again. Of course, if we all had access then to the Iveagh Wealth Fund then, we would have done as well as the Guinness family for whom it was set up. The fund went mainly into cash before the crisis and avoided the heavy losses that affected everyone else.

Several indicators point to an improving scenario in the US, which still has the greatest impact on global markets. These include a decrease in market volatility, a reduction in the rate that workers are being fired and a general rise in dividends. Elsewhere, Asia continues to show positive growth and is not dogged by the debts that have affected western nations.

On the downside, we have seen nervous market reaction to the near bankruptcy of the Greek economy, fuelling fears that other debt-laden countries - such as Portugal, Spain and Ireland - could be in trouble too.

On balance it looks like we are slowly on the road to recovery from the abyss of 18 months ago. But we are constantly reminded that investing is for the long term.

PROPERTY - IS NOW THE TIME TO BUY?

If you were one of the 16 million American homeowners who are ‘under water', that is, who owe more on their mortgages than their homes are worth, you would probably rue the day you went into property. Not only the US is affected; this is a problem affecting owners in many countries. But the problem is not property purchase itself; the problem is that as with financial investments, people buy when prices are too high. Worse, where the property market is concerned, they borrow heavily in the mistaken belief that the prices will keep on rising. True, prices can keep rising for a number of years, but at some point when they reach unsustainable levels, the bubble bursts. This occurs almost predictably in regular cycles.

The downturns spell disaster for many but also offer opportunities to those who are shrewd enough to find renewed value in collapsed markets. Like stock markets, property offers real growth in the long term and protection against inflation, but investors must be wary of timing and be prepared for short term volatility. Over the years we have dealt with a number of international property expert companies who seek out developments that would normally be in heavy demand in locations such as London. Thanks to the depressed market and lack of availability of mortgages, these companies are able to purchase blocks of properties in specific developments at a heavy discount which can then be passed on to individual buyers. These companies can also obtain mortgages for expatriate investors, probably much more easily and much larger than would be available locally.

QROPS - A BOOM FOR BRITS WITH UK PENSIONS

Although intended to apply to all EU countries, to date only British expatriates are able to benefit from this dramatic opportunity to break free from the straightjacket of locked-up company pensions. Under existing rules company pensions are very restrictive, although in theory most offer secure, defined benefits that are payable for life. Where they fall down is that they are dependent on the financial health of the company providing them and in any event do not become part of the pensioner's estate upon his death. Several million expatriate Brits are expected to take advantage of the new rule which allows them to move the pensions offshore. We are working together with several QROPS providers to facilitate transfers. If you have a significant UK pension tied up from previous employment this is an option you need to explore before the government changes the rules to stem the large outflows that are now taking place. If your former company is not financially strong there is all the more reason to take action soon.

If you have lost track of any former pensions there is a tracing service available at this website 

CRITICAL ILLNESS COVER AVAILABLE AGAIN

A few months ago the only major international provider of critical illness cover pulled out of Thailand and several other Asian countries. Fortunately the breach has been filled by Friends Provident and Royal London 360, who now offer a choice of term or whole of life cover. Why is critical illness cover so important? Because you are five times as likely to suffer a critical illness than to die before retirement. In the UK cancer is likely to affect 1 in 4 men and 1 in 5 women. With odds like that, critical illness cover makes a lot of sense, particularly if you are an expatriate, because of the additional cost and inconvenience a critical illness may cause. Couldn't happen to you? - It happened to all of the following under 65's: Eva Peron, Kylie Minogue, Olivia Newton-John, Bill Clinton, Dudley Moore. 

Eric Jordan

Managing Director, Professional Portfolio International

Contact Eric / View PPI website

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