March started off with a bang when US President Donald Trump announced that his administration will impose steep tariffs on imported steel and aluminium in order to boost domestic manufacturing, saying that the action would be ‘the first of many’. This has brought about threats of retaliation by a number of the main US allies and the fear that Trump’s extreme protectionism may destroy the post-World War II trading system and result in a global trade war. Claiming that other countries are taking advantage of the US, the 45th President seems confident about the prospects of a global trade war, tweeting: ‘Trade wars are good, and easy to win’ a day after his initial announcement. Although the tariffs are stiff, they are considerably small when seen in the context of US economy at large. However, the outrage that his decision has fuelled and the fact that China has already taken steps to hit back signal global hostility and economic instability.
The Response
Donald Trump’s decision from the beginning of March was followed by a chain of events, including the EU publishing a long list of hundreds of American products it could target if the US moves forward with the tariffs, the US ordering new tariffs on about $50 billion of Chinese goods and China outlining plans to hit the United States with tariffs on more than 120 US goods. In an attempt to soften the blow, the White House announced that it will grant exemption to some allies, including Canada, Mexico, the European Union, Australia, Argentina, Brazil and South Korea. Trump gave them a 1 May deadline to work on negotiating ‘satisfactory alternative means’ to address the ‘threat to the national security of the United States’ that the current steel and aluminium imports imposes. Trump said that each of these exempted countries has an important security relationship with the US. He also added: “Any country not listed in this proclamation with which we have a security relationship remains welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports of steel articles from that country”.
China vs. the United States
China is one country that is not listed. However, by the looks of it, China is not a country that will be discussing “alternative ways to address the threatened impairment of the (US) national security”. Instead, they fire back. China is the main cause of a glut in global steel-making capacity and it will be hardly touched by the US’ import sanctions. However and even though they do not want a trade war, they are ‘absolutely not afraid’ of one. Following Trump’s intentions for tariffs on up to $50 billion of Chinese products and the proposed complaint against China at the World Trade Organization (WTO) connected to allegations of intellectual property theft, China's Ministry of Commerce said it was "confident and capable of meeting any challenge”.
In response to Trump’s attacks, the Asian giant published its own list of proposed tariffs worth $3 billion, which includes a 15% tariff on 120 goods worth nearly $1billion (including fruit, nuts and wine) and a 25% tariff on eight goods worth almost $2 billion (including pork and aluminium scrap). Despite their actions, China’s Commerce Ministry urges the US to ‘cease and desist’, with Premier Li Keqiang saying: "A trade war does no good to anyone. There is no winner."
Is Trump going to win?
During his presidential campaign, one of Trump’s promises was to correct the US’ global imbalance, especially with China, however, it seems like his recent actions are doing more harm than good. Even if his tariff impositions result in a few aluminium smelters and steel mills in the short term, they risk millions of job losses in industries that rely on steel and aluminium; potentially endangering more jobs than they may save.
A country’s trade patterns are dictated by what the country is good at producing. China is known to be the world’s largest producer of steel, whilst steel is simply not one of the US’ strengths. Steel produced in America is 20% more expensive than that supplied by other countries. Naturally, it makes sense for US-based manufacturers to prefer buying their steel from overseas. Once Trump’s suggested tariffs are added onto steel and aluminium shipments from abroad, they will worsen US’ trade deficit and will impact the stock market. In an article for Asia Times, PhD candidate at the University of California at Berkeley Zhimin Li explains: “Domestic companies will inevitably suffer from higher input costs and lose their competitiveness. As a result, they will become less able to sell to foreign markets, leading to a deterioration of trade balances for the US.”
He continues: “Moreover, more expensive manufacturing materials will translate to higher prices at the cash register, putting upward pressure on inflation and prompting the US Federal reserve to raise interest rates even more aggressively than anticipated. This will add to investors’ anxiety and foster an unfavourable environment for equities.”
Looking at it all from China’s perspective doesn’t seem as scary or impactful. The tariffs on metals wouldn't hurt Chinese businesses considerably, as China exports just 1.1% of its steel to the US. But steel tariffs are not as significant as the coming fight over intellectual property.
On the other hand though, China has the power to do a lot to infuriate Trump. One of the products that the country depends on buying from the US are jets made by the American manufacturing company Boeing. However, Boeing is not China’s only option - they could potentially turn to any other non-US company such as Airbus for example. The impact of that could be tremendous, as in 2016 Boeing’s Chinese orders supported about 150 000 American jobs, according to the company’s then-Vice Chairman, Ray Conner.
China could also target American imports of sorghum and soybeans, whilst relying more on South America for soy. NPR notes: “Should China take measures against US soybean imports, it would likely hurt American farmers, a base of support for Trump.” An editorial in the state-run Global Times argues: “If China halves the proportion of the U.S. soybean imports, it will not have any major impact on China, but the US bean farmers will complain. They were mostly Trump supporters. Let them confront Trump.”
The list of potential actions that can threaten the American economy goes on, but the thing that we take from it is that the US could well be the one to lose, regardless of where China may apply pressure. So, is businessman Donald Trump, in an attempt to cure America’s international trade relations, on his way to be faced with possible unintended consequences and do more damage than good? Are his seemingly illogical policies threatening to make Americans poorer, on top of firing the first shots of a battle that no one, but him, wants to fight? Will this lead to hostility in the international trading system that will affect us all?
We’ll be waiting with bated breath.
Analysts currently expect the Bank of England to hike interest rates in May, but some are opposed, claiming the market is misjudging the BoE’s plans. Bond market guru Mohamed El-Erian says the potential rate hike is "far from a done deal."
Last week the BoE left interest rates on hold, adding to suspicious they may raise them in May. After all, the BoE has been hinting at increased rates since last November’s hike.
This week Finance Monthly asked experts: What are the indications? What's the BoE's plan? What are your thoughts on future implications?
John Goldie, FX Dealer & Analyst, Argentex:
Carney and Co. were not expected to spring any surprises last week, opting to keep interest rates on hold again, much as the consensus had suggested. While the vote to retain the current status of the asset purchase facility was unanimous, there were dissenting votes from serial hawks, McCafferty and Saunders, who saw that the time was right for the Bank to raise interest rates to 0.75%. Many of the major banks have brought forward their forecast for a hike to May, though Bloomberg's interest rate probability tool sets this likelihood still at only around 65%. Commentators are certainly warming to the idea, but most believe that it will be almost another year before a subsequent hike is carried out.
This may be underestimating the path of inflation, wage prices and - importantly – overstating Brexit concerns. Carney has repeatedly suggested that Brexit remains one of the greatest challenges to their forecast models, however, the price action in Sterling already belies a growing optimism, or acceptance, that the economic impact of the 2016 referendum is far less negative than suggested by the major players prior to the event. With a transition agreement in place, a move into the critical trade negotiations is a huge step forward even if it brings us to a position with the greatest potential for deadlock.
With headline inflation remaining high and now wage prices heading in the same direction, the UK's second hike in just over a decade will indeed come next time around. Furthermore, with a May hike enacted, the door will then open for a second hike of the year in Q4, an eventuality that the market is yet to price in. With Brexit concerns reducing on the growing optimism that a transition agreement will provide the time and space for a trade arrangement to be thrashed out, the prospect remains for Sterling to trend higher in the weeks and months to come.
We have been bullish on GBPUSD for more than a year now and even with such a consistent trend higher in the last 12 months, the pound remains historical cheap by nearly any measure. There will be times when negotiations with the EU falter, and with it Sterling will stutter, but with a focus on the policy outlook from the central banks and a long-term chart to hand, the medium-term future continues to look bright for the pound.
Samuel Leach, FX trader and Founder, Samuel & Co. Trading:
When the BoE begins to hike interest rates the main concern I see is the impact this will have on over indebted consumers. I have been paying close attention to UK unsecured consumer debt, which is currently at all-time highs of more than £200bn. Furthermore, the annual growth rate in UK consumer credit is 10% a year which is considerably higher than household income growth (2%), therefore a very concerning place to be. These are unsustainable levels now and an interest rate hike could tip these consumers over the edge. Particularly, those on interest rate tracker mortgages. This will then have a ripple effect on businesses as consumers rein in spending to pay off their debts.
For entrepreneurs it is damaging because funding is an issue as it is, let alone with higher interest rates as it will put off potential investors. The first thing businesses cut back on is risky investments and purchases, so entrepreneurs and small businesses will see the biggest brunt of it in my opinion. For the financial markets we should see strength come into GBP. That, combined with the soft Brexit announcement we had earlier last week could push GBP back towards 1.5 – 1.6 against the USD.
Markus Kuger, Senior Economist, Dun & Bradstreet:
The Bank of England vote to hold interest rates is not surprising, as recent figures indicate a moderation in inflationary pressures. However, with wage growth finally picking up, our analysis suggests that interest rates are likely to increase later in 2018, despite the tepid real GDP growth figures.
Based on our current data and analysis, we are maintaining a ‘deteriorating’ risk outlook for the UK but this could change to ‘stable’ depending on the outcomes of the EU summit this week. If the 28 EU leaders agree on the much-needed transition period until December 2020, the risk of a hard Brexit in March 2019 will drop significantly. That said, implementation risks remain high and the long-term future of EU-UK trade relations are still unclear. Against this backdrop, a careful and measured approach to managing relationships with suppliers, customers, prospects and partners is key to navigating through these uncertain times.
Jonathan Watson, Market Analyst, Foreign Currency Direct:
The Pound spiked up following the latest UK interest rate decision which saw GBPEUR and GBPUSD touch fresh levels as the recent improved expectations were realised. Whilst Inflation had fallen slightly lower than expected it remains above target and rising wage growth too has given the Bank of England a freer hand in raising interest rates.
Rising growth forecasts for the UK also add to the increasingly rosy picture for the UK, progress on Brexit with the agreement of the transitional phase has also added to the buoyant mood. Whilst the current stance of the Bank is for a rate hike in May any serious changes in economic data could derail that.
A rate hike in May is now very likely but with that looking so likely, the Pound may not move much higher. The next 6 weeks of economic data ahead of the decision on May 10th will now be pored over for any signs of either caution from, or indeed signs of further hikes down the line. It would seem likely that with the UK and global economy forecast to grow further in 2018 and 2019, the Bank of England will continue to need to manage rising Inflation as the economy grows.
In my role as a specialist foreign exchange dealer my clients have been quick to utilise the forward contract option to lock in on the spikes and moves higher for the Pound. Whilst the longer-term forecast has improved lately, the uncertainty over Brexit and the fact the UK remains behind other leading economies in the growth stakes, indicates a risk averse approach. Locking in the higher levels still remains the most sensible option to manage your currency exposure and volatility from the Bank of England and interest rate changes.
Robert Vaudry, Investments Managing Director, Wesleyan:
With two members of the Bank of England’s monetary policy committee voting to raise interest rates it is becoming more likely that at least one increase will take place this year, probably as early as May.
Whether the era of ‘cheap money’ has finally come to an end remains to be seen. Any rise will be welcomed by savers who will potentially see an increase in rates on saving accounts, but the cost of borrowing will increase too. Those on variable mortgages could experience higher interest rates for the first time and need to understand the financial implications this could have. However, it is important to remember that even with the interest rate rises expected, interest rates remain low by historical measures and below the rate of inflation.
It’s also important to not become complacent and we’d advise everyone to remain mindful that there may be uncertainty in the months ahead, especially as stock markets remain volatile.
If you have thoughts on this, please feel free to comment below and let us know Your Thoughts.
With this week’s market commentary from Rebecca O’Keeffe, Head of Investment at interactive investor, Finance Monthly learns about global markets, the US-China trade war and about recent activity in the M&A sphere.
A turnaround in Asian markets has seen US futures rise and eased the pressure on European equity markets. The last two months have seen global sentiment become more fragile, but the one thing that has kept markets going is the reliance on investors to buy on the dips. The last week had undermined that position in what was a worrying sign for the wider markets, but investors appear to be feeling slightly more resilient this morning.
Steve Mnuchin has taken on the unenviable task of attempting to resolve the trade dispute between the US and China via negotiation – however, he may be trying to reconcile the irreconcilable. The idea that, as one of the largest holders of US treasuries, China will be expected to help finance the growing US fiscal deficit but is also expected to reduce its trade surplus with the US by as much as $100bn to satisfy Trump’s demands appears to be a major contradiction. The question for investors is whether this adds up.
Another day, another flurry of activity in what has become one of the most vitriolic and antagonistic hostile merger bids since Kraft purchased Cadbury in 2010. GKN and Melrose investors have just three days to wait until the final count is in and much will depend on short versus long term investors. This bid has raised several questions about the difference in UK takeover rules versus other European countries and, irrespective of the result, may provide a catalyst for the Government to review the current rules to make sure they have the right balance between competition and protection.
Global Witness and leading anti-corruption MP Margaret Hodge have recently called on the UK’s Financial Conduct Authority to take action over the role of RBS and Standard Chartered in handling more than US$2 billion of embezzled funds in a major international corruption scandal. The call comes as Global Witness publishes a new analysis of the role of the bankers, auditors and lawyers in enabling Malaysia’s 1MDB corruption scandal that is likely to have robbed the Malaysian people of an estimated US$4.5 billion.
According to the US Department of Justice the billions embezzled from 1Malaysia Development Berhad (1MDB), a government owned-company, by a variety of people were spent on luxury properties, high-end art and lavish lifestyles, as well as payments to the Malaysian Prime Minister Najib Razak. Most famously, money taken from 1MDB allegedly funded the Leonardo DiCaprio film the Wolf of Wall Street.
Global Witness and Margaret Hodge have written to the Financial Conduct Authority (FCA) calling for it to investigate the role of two UK-based banks, RBS and Standard Chartered, for their oversight of their Swiss and Singapore branches’ money laundering controls. Regulators in Singapore and Switzerland have fined the two banks’ foreign branches a total of $12 million for breaches of anti-money laundering regulations in relation to the scandal. Those investigations were completed over a year ago, with Swiss regulators passing their findings to the FCA at that time. However, there has been no sign of any action from the UK authorities.
In response to Global Witness’ findings, prominent Labour MP Margaret Hodge said: “It is time for the FCA to take firm action to hold banks that handle dirty money to account. The FCA must also explain its apparent inaction over this case, when other countries completed their investigations over a year ago.”
The role of the two banks feature in Global Witness’ new analysis of how a range of banks, lawyers and auditors either turned a blind eye, signed off on suspicious transactions or were simply not obliged by the rules to question origin of funding.
“Our analysis shows that the international anti-money laundering system is not working,” said Global Witness Senior Campaigner Murray Worthy. “The 1MDB scandal would simply not have been possible if the system worked; the financial professionals involved would have spotted this dirty cash and prevented the money from being ever being taken.”
The report concludes that for the banks involved in the 1MDB scandal, this was not a problem of inadequate regulations but a failure of bankers to follow those rules. The banks were either simply not conducting the checks that they were required to do, or they were willing to ignore the risks they saw.
Murray Worthy continued: “The UK should not allow banks based here to handle the proceeds of crime or corruption, wherever they operate in the world. The people of Malaysia are now facing a bill greater than the country’s annual healthcare budget as a result of this scandal – and these banks enabled this scandal to happen.”
(Source: Global Witness)
Following a weekend at the Oscars, a frozen UK and a tax based feud between Europe and the US, Finance Monthly hears from Rebecca O’Keeffe, Head of Investment at interactive investor on the latest global markets news.
Global equity markets are fragile, and investors are wary as the increasing rhetoric over the weekend on tariffs and a potential escalation of a full-blown trade war make it possible that things could get very ugly very quickly. History has not been kind to investors during periods of protectionism and recent tweets suggest that President Trump is leaning in rather than stepping back from threats to unleash a global trade war.
This all makes it very difficult for investors to know what to do. Any global company could instantly and significantly suffer if its principal products suddenly become subject to retaliatory trade restrictions. Downside risks are therefore widespread and elevated, and it will be tricky to find sectors or companies that offer a genuine safe haven against such risks.
The major headache that the EU faces on trade is not the only issue facing European investors this morning as Italy looks to have taken a step to the right and moved towards populism and change. The complexity of the Italian voting system makes it very difficult to establish what happens next and when, but neither of the anti-establishment Five star movement or League parties are an attractive option for markets or the euro. Against this negative backdrop, investors can only be grateful that German coalition talks finally reached a conclusion, with Angela Merkel managing to hold on to her position as long-serving Chancellor, albeit in a fragile alliance.
Larry Summers proposed eliminating high denomination currency to help curb illegal cash transfers. Bloomberg looks at how this would impact a $1 million handoff.
Douglas G. Fathers is the Founder and Managing Director of SCG Fund Services (an Equityhub Group company) and is responsible for the overall day-to-day operations and management of the business. As an accomplished entrepreneur and business leader with a diverse background with over 32 years managing global companies in various industries, his unique perspective has been the stimulus towards his current success. SCG Fund Services launched in 2005 and for past 13 years have specialised in offshore fund formation. Today, SCG is considered one of the foremost consulting firms in the offshore fund industry with a presence in The Bahamas, BVI, and the Cayman Islands. As part of this month’s Professional Excellence feature, we spoke to Douglas about fund management in The Bahamas.
What type of funds does SCG Fund Services assist with? Are there fund structures unique to The Bahamas?
SCG Fund Services specialise in providing global clients with professional guidance through all aspects of launching and operating a fund. Our services extend to all stages of the fund formation process — from entity formation and the preparation of full-colour offering documents to advising clients on the selection of service providers to marketing the fund.
SCG maintains a personalized approach to guiding and educating new and emerging fund mangers in structuring both domestic and offshore funds. Our consultants and attorneys have significant fund experience in both the US and offshore.
In today’s challenging environment, The Bahamas offers several attractive structures used by professional managers, family offices, and project finance professionals. Within The Bahamas modern-day Investment Fund Act, there are four classes of funds including the Standard fund, Professional fund (open-end & closed-end), SMART fund, Recognised Foreign Fund. The SMART fund is unique to The Bahamas and provides managers several options to fit their needs.
Are certain funds more applicable to particular individuals and their circumstances?
Yes, certain fund structures are more applicable to the needs and circumstances of individual or group establishing the fund. For instance, an investment manager launching a fund with a specific strategy is likely to use a professional fund; whereas a private investment group or family office may prefer a Bahamas SMART fund. Strategies with illiquid investments, such as private equity or real estate investment, would favour a closed-end fund structure.
How important is the support function following a licensing?
Most jurisdictions, including The Bahamas, require licensed funds to engage an auditor and an independent fund administrator. These service providers provide investors with transparency and general oversight of the funds management and activities. The fund administrator provides most of the back-office tasks for the manager giving him/her more time to focus on the investments of the fund.
What factors would determine which jurisdiction to setup and license the fund?
There are several factors to consider including the reputation of the jurisdiction itself & its securities commission, the investors perception, foreign government’s perception, cost of setup, on-going fees, ease of setting up a bank account, licensing requirements, and regulatory requirements after licencing to name a few.
What structure should a manager use when setting up an offshore fund?
There are a number of structures to consider and in most cases, it would be determined depending on the location of the manager, location of the investors, and the type of investments the fund will make. Typically, you have four structures that include the Standalone, Master-Feeder, Side-by-Side, and Segregated Portfolio Company.
Standalone structure is one where only one fund vehicle (entity) is used. A Master-Feeder structure is typically used when there is a US presence and where a single manager is seeking investment from both US and non-US or tax-exempt US investors. The structure will comprise a master fund (an offshore vehicle), which conducts the trading, and at least two feeder funds that invest all of their assets into the master fund. A Side-by-Side, similar to a master-feeder structure, is used where a single manager is seeking investment from both US investors and non-US or US tax exempt investors. There will be two funds, an offshore and domestic US fund, both identically managed. Lastly the Segregated Portfolio Company or “SPC”, also referred to as an Umbrella fund, is a company where separate portfolios have statutory segregation of assets and liabilities. These are popular for operating various classes or portfolios with separate strategies.
Address:
Ste 205A-Saffrey Square
Bank Lane & Bay Street
P.O. Box N-9934
Nassau, NP Bahamas
Phone: +1 212 920 6690
Email: sales@scglimited.com
Website: https://scgfundservices.com/
Legacy systems are preventing nearly two thirds (64%) of US commercial banks from developing Fintech applications, research commissioned by Fintech provider Fraedom has revealed.
Interestingly, 82% of the respondents that highlighted this concern were shareholders. Over half of those polled also noted a lack of expertise within banks as an important concern (56%), just ahead of limited resources (53%).
The study included decision-makers in commercial banks including shareholders and senior managers as well as middle managers.
Commercial banks outsourcing services to a Fintech provider is clearly a trend on the rise, with only 22% of US banks revealing that they do not outsource any payment services compared to 30% of their UK counterparts.
Kyle Ferguson, CEO, Fraedom, said: “This research highlights that legacy systems are standing in the way of US commercial banks developing Fintech applications. This in turn is resulting in certain services such as commercial card and expenses being outsourced by more than three quarters of banks. It is now recognised that Fintech firms can help banks overcome these technical issues and benefit from previously untapped revenue-making opportunities.”
The research also discovered a growing inclination among commercial banks to partner with Fintech firms. The main reason for this shift is to help bring new products to market faster, as recognised by 94% of respondents.
The second most popular reason given for partnering with a Fintech was that to attract ‘new customer segments’ supported by 82% of respondents, followed by 76% who said it was to help ‘differentiate themselves from competitors’.
“US banks are beginning to see the rewards of partnering with a Fintech provider, especially when helping to bring products to market faster.” Ferguson added: “Established Fintech firms can understand the technical challenges that banks are struggling to cope with in local markets and provide an easy yet very effective solution while often differentiating them from their customers.”
(Source: Fraedom)
From the current situation in the US to oil and gambling stocks, Rebecca O’Keeffe, Head of Investment at interactive investor, shares some thoughts on this week’s news.
The huge importance of politics to equity markets might have led one to conclude that the US shutdown would be a negative factor for markets, but the bullet-proof nature of current markets, combined with limited economic impact on stocks that a shutdown delivers, has seen global markets shrug off any major concerns. The last US government shutdown in 2013 lasted sixteen days, during which the S&P 500 rallied 3.1% and the two prior shutdowns to that in 1996 and 1995 also resulted in gains for equity markets, so there is certainly precedent for investors to ignore these events. It is only if a protracted shutdown starts to impact consumer confidence and spending that investors are likely to sit up and take notice.
Gambling stocks have tumbled in early trade, after the weekend press suggested that the current government consultation might cut the fixed odds betting limit to just £2. Gambling companies have made hundreds of millions of pounds a year from fixed odds betting terminals and were hoping that the minimum stake would be towards the middle of the £2 and £50 consultation range. Although the consultation does not end until tomorrow, the suggestion that the response to the survey has been overwhelmingly in support of a cut to the minimum £2 means that this is indeed a significant threat to bookmakers.
In Germany, it looks like the stalemate that has afflicted German politics since September may finally be reaching a resolution, after the SPD voted to engage in coalition talks with Angela Merkel and her party. This vote will hopefully ensure that a repeat election can be avoided and should allow Chancellor Merkel to retain her place as a key lynchpin of the European Union and a major player in any Brexit talks.
Oil prices are on the rise this morning, as Opec and Russia have signalled their intent to co-operate on supply beyond the current deal terms. However, OPEC and Russia are just one half of the supply story, as producers in the US, Canada and Brazil are all expected to ramp up output in response to higher oil prices. With these new dynamics in the oil market, the possibility of higher supply is a major downside risk for the oil price.
We've seen some huge deals in 2017, from Qualcomm/Broadcom earlier in the year, to Gemalto/Atos in the last few weeks. We also had the 10-year anniversary of the financial crisis and the seating of Donald Trump into power.
As part of this week’s Your Thoughts, Finance Monthly reached out to experts far and wide to ask about their favourite moments in this financial year, from the most significant changes in regulation and announcements of further regulatory developments, to highlights of the most impacting acquisitions and mergers in the UK and beyond.
Andrew Boyle, CEO at LGB & Co.:
A key 2017 highlight for me surrounded Brexit and came in November at an event organised by the Edinburgh law firm Turcan Connell, which featured an SNP MP and a Conservative MEP. I expected a lively but entrenched debate carried out in a partisan fashion. To my complete surprise, the mood at the event was calm, points were made politely and there was an obvious willingness to compromise. It seems this more constructive spirit foreshadowed that of subsequent UK/EU negotiations given the breakthrough in talks with the EU and the clear indication that all parties, including the EU Commission, wanted to move forward. At the moment, the prospect of a transition period will keep the financial markets and company directors guessing what the final outcome will be. However, it is becoming increasingly clear that a failure to reach a deal will be in the interest of neither of the parties, whose economic viability is so deeply intertwined. I hope the new more constructive mood continues into the New Year.
Another highlight was the Budget. Fears of a radical change to EIS and VCT investing rules were unfounded. The Chancellor did refer to limiting EIS investment that shelters low-risk assets, but he offset this by promising increased EIS limits for investing in knowledge-intensive companies.
Continued support for early-stage businesses is key to what the Chancellor described as Britain’s position at the forefront of a technological revolution. UK SMEs will increase their total economic contribution to £217bn by the end of the decade –up significantly from 2015. In spite of the economic uncertainty around Brexit, British SMEs remain hungry for growth and are generally optimistic about the future. What often holds them back is a lack of funding, particularly through conventional avenues. SMEs often need to raise money quickly to adapt to changing markets or new opportunities, but obtaining bank financing can be a slow and cumbersome process – and that’s where EIS and VCT investors and indeed alternative lenders can help fund the gap. Specific measures announced in the Chancellor’s budget were positive for companies and investors. For now, government policy remains to support innovative companies notwithstanding the pressure to reduce tax breaks and apply funds elsewhere.
Richard Anton, General Partner, Oxx:
The biggest financial story of 2017, in the world of venture capital and technology start-ups and scale-ups, was the European Investment Fund suspending investment in UK VC firms. As an immediate result of the Brexit vote, FinTech lending was the first to suffer, before full suspension of investment into UK VCs. The EIF had been by far the single largest funder of UK venture capital firms and with the options for supply reduced so significantly, not only does this make competition for funding even more intense, the lack of on-the-ground European experience presents yet another challenge to businesses trying to grow to the next stage.
Thankfully, the British Business Bank has moved quickly to help mitigate the EIF’s withdrawal. The £1.5 billion Enterprise Capital Fund programme has got to work to support UK-based start-ups, recognising that the entire market needs to see small firms confident to apply for finance in order to grow. Perhaps the most encouraging indication that British funding is filling the void is the success of Episode 1 Ventures in recently raising £60m for its fund targeted at British early stage start-ups - £36m of this coming from the British Business Bank.
The withdrawal of the EIF shook up the market more than perhaps was covered at the time. Of course for any business to survive and grow, it needs to adapt to a range of situations, yet the sudden absence of European funding was particularly challenging. It is also one that will have long-term ramifications and when the dust settles the European funding market will look very different.
Peter Veash, CEO, Bio:
Amazon’s purchase of Whole Foods in August is my most significant financial moment of 2017. The deal was lauded by many industry pundits as a match made in heaven, with Whole Foods’ glowing reputation for offering high-quality goods marrying with Amazon’s unsurpassed track record for fast, efficient logistics – a new retail power couple was born.
The upshot? Aside from a slashing of prices across the board at Whole Foods (many by up to as much as 40%), the deal also meant that Amazon tech like the Echo, Dot, Fire and Kindle products are now available to purchase instore, while Whole Foods products are now available to buy online via Amazon. ‘Try before you buy’ Amazon Pop-Up stores have opened in locations all over the country, and Amazon Lockers have also been introduced instore, allowing customers to pick up packages and drop off returns. The deal has also given rise to rumours around the potential roll out of Amazon concept stores, including cashier-free checkouts, which would allow Amazon to push commerce tech to a new level.
The $13.7 billion megadeal knocked some competitor share prices sideways and boosted Amazon's – it rose so much on the news that some were saying they’d essentially bought it for nothing. Most importantly, it gave Amazon the physical outlets to develop the future of truly omnichannel retail, particularly within the coveted fresh grocery market (which the ecommerce giant had been preparing to attack for some time).
Marina Cheal, Chief Marketing & Customer Officer, Reevoo:
2017 marked 10 years since the financial crisis, and it’s been a story of reputations - new players trying to forge a new one, and old ones clinging desperately on to theirs.
The world’s big banks took a spectacular fall from grace, the likes of which hadn’t been seen since The Great Depression: after being perceived as trustworthy, powerful corporate behemoths for decades, consumer trust in these institutions was at an all-time low, with many feeling shaken and disillusioned by the lack of ethics displayed by those responsible for the crash.
Meanwhile, a new breed of disruptive, digital-first fintech brand was evolving to challenge the status quo. In 2017 this group of app-based banks have broken the mainstream. Monzo, Starling, Atom and others are now household names, appealing in particular to Millennials who came of age during the crisis years and had the least trust in the financial sector.
Where big institutions once represented trust, newer and nimbler banks have taken their place. Legacy is a dwindling commodity, replaced by convenience and transparency.
What we’re seeing is the next stage on the road to rebuilding consumer trust, but what people want most of all now is a sense that they are in control of their own money, coupled with an ease of use and friendly, authentic communications from their bank – and right now, the challengers are beating the legacy brands to the punch.
Howard Leigh, Co-Founder, Cavendish Corporate Finance:
This year’s November Budget was my highlight for 2017 as it provided some welcome news for the UK’s thriving Financial Services industry and saw the Chancellor confirm his commitment to maintain the UK‘s leading position in technology and innovation post-Brexit. Although it was anticipated by some that EIS and SEIS investments, were going to be in the Chancellor’s firing line, he instead doubled the EIS investment limits for “knowledge-intensive” companies, demonstrating the Government’s commitment to help UK start-ups. The Chancellor also chose to continue supporting Entrepreneurs’ Relief, which, along with other business-friendly policies, is predicted to support the inflow of billions of pounds worth of investment into growth businesses.
With Britain soon to lose access to the European Investment Fund, it was encouraging to see the Chancellor outline his plans to establish a new dedicated subsidiary of the British Business Bank to become a leading UK-based investor in patient capital across the UK. The new subsidiary will be capitalized with £2.5 billion. and will provide a cushion if negotiations with the EIB and EIF do not encourage then to continue investing in the UK. I hope, as some of it is our money and London is clearly Europe’s centre of social impact investing the EIF will now recommence its activities in the UK.
Finally, another key measure in the Budget was the introduction of a policy that will compel online ecommerce companies, such as eBay and Amazon, to police their own websites, thus helping to stem the £1.2 billion yearly tax loss due to fraudulent sales. I first raised this issue in an Oral question in the Lords some 2 years ago and am delighted to see that the campaign run largely with VatFraud.org and Richard Allen has been successful.
The Autumn Budget was a pivotal moment for the UK’s Financial Services sector and the policies laid out by the Government firmly position it as a friend to business. Not only will these policies help to boost UK businesses in the tech and digital sectors, but it will help enhance the City’s position as a leading global centre for finance and innovation.
Tsuyoshi Notani, Managing Director, JCB International (Europe) Ltd:
PSD2 can revolutionise retail banking, generate further investment into fintech, and drive innovation. We’re focused on increasing partnerships with PSPs and fintech firms, enabling them to secure global reach as a gateway to Asia, so February 2nd, when the UK government confirmed its PSD2 timetable, was a really promising step in the sectors’ quest to level the playing field."
We would also love to hear more of Your Thoughts on your favourite moments of 2017’s finance world, so feel free to comment below and tell us what you think!
Below Dan North, Chief Economist at Euler Hermes North America, lists several updates and thoughts on the latest matter surrounding the US federal reserve.
Discussing the latest US tax cuts decision, FTSE updates and bitcoin news, Lee Wild, Head of Equity Strategy at interactive investor, talks to Finance Monthly about the end of year affairs.
With a week to go till Christmas there’s a whiff of Santa rally in the air. Markets should respond well to a ‘yes’ vote on US corporate tax cuts and possible political agreement to avoid a government shutdown on Friday. UK stocks are better value than their US counterparts and, despite the spectre of Brexit horse trading through 2018, there are no obvious banana skins between here and New Year.
In fact, Trump’s tax reform and the failure of progress on Brexit negotiations to revive sterling, will continue to give overseas earners listed here a foreign exchange kick. This, and typically thin trade as investors wind down for Christmas, should allow the FTSE 100 to consolidate gains above 7,500, something it has failed to do thus far. If it does, don’t bet against a new record high by year-end. It’s only one good session away.
An ongoing shutdown of the North Sea Forties pipeline continues to underpin oil prices, with Brent crude looking prepped for a crack at a fresh two-and-a-half-year high.
Whether or not bitcoin traded above $20,000 over the weekend depends on where you get your prices from. According to coinmarketcap.com it peaked Sunday at $20,089.
That bitcoin passed $20,000 for the first time over the weekend is not a surprise. A week ago, with the price at less than $17,000, we said ‘the music may have much longer to play on this one than people think’.
With every new milestone there’s fresh discussion around bitcoin’s legitimacy and potential, both as a trading instrument and revolutionary digital currency. It was the same when it first broke above $10,000 at the end of November. Valuing cryptocurrencies is like sticking your finger in the wind, but traffic is still very much one-way.
Introducing futures contracts in the US was meant to give short-sellers access to the market and improve liquidity, but availability is still fairly restricted. The introduction of bitcoin futures on the Chicago Mercantile Exchange over the weekend may help, but it will take time.
Until it becomes easier to sell short, buying dries up, or there are tech issues or a major hack, bitcoin will keep passing milestones with alarming regularity. Right now, there’s a long queue of investors, both amateur and professional, still waiting for a ride. This bubble is not bursting yet.
