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Expat Investor : January February 2009
INVESTMENTS Calmer markets – tough choices GRAHAM BARNES, INTERNATIONAL DIRECTOR, THE FRY GROUP The past few months have certainly been a momentous time. Since then, the Government- backed bank rescue seems to be restoring calm and liquidity to equity and bond markets, although oil and shipping are not seeing any particular improvement as I write. Further interest rate cuts are anticipated to happen across many countries, although those with weaker currencies, for example Iceland, might need to raise theirs for the time being) as central banks act against a recession. We seem now to be past the time when banks are likely to collapse and depositors have lost the understandable anxiety that was prevalent before the Government bail-outs began to take effect. Against this background, I offer some tentative thoughts for the private investors who are looking at what options are available to them in the current climate. If you are happy to hold cash – because you feel that all other assets are too volatile – then at least your bank is now safer (please don’t take that as a guarantee). However, your interest rate will almost certainly fall. If you value security beyond all else that won’t matter. Where you seek security still, then consider buying a gilt – that’s a fixed interest offering from the UK Government (for Sterling investors there will be equivalents for those who think in other currencies). There you have the ultimate level of security, a fixed rate of income to a known point in the future and the prospect of capital gains as interest rates fall. Because Governments now stand as the most secure institutions, the return on their bonds is much lower than on those offered by companies. But there are real bargains in the corporate sector. All companies’ debt has been savaged because investors fear the default of the borrower. Yields in the corporate sector vary between 8 and 13%, which suggests that many will default. Indeed, comparing that return from the 4% from Government bonds, you would expect between 35% to 50% of the underlying companies to collapse. That’s *Accounts must be opened with money that is not already deposited with the bank. Full terms and conditions available on our website. Accounts must be applied for and operated online. No cash or cheques. Email address is compulsory. Minimum balance £15,000. Maximum balance is £1,000,000. Minimum withdrawal £5,000. Withdrawals available without notice or interest charge. Withdrawals may be made free to a UK, Channel Islands or Isle of Man bank account by BACS payment (up to 5 working days). 1 free BACS withdrawal per quarter. Charges apply for other types of withdrawal. Rates correct as at 7 January 2009. eSaver Offshore (Issue 2) 4.30% Gross pa/AER variable on balances above £15,000. Interest paid annually on 31 December. Gross is before any deductions. AER - Annual Equivalent Rate illustrates the interest rate if interest was paid and compounded each year. Interest may be paid free from tax offshore depending on your country of residence for tax purposes. EU Savings Tax Directive rules apply to EU resident customers. Alliance & Leicester International Limited is a member of the Depositors’ Compensation Scheme as set out in the Compensation of Depositors Regulations 2008 (as amended). Alliance & Leicester is the registered trade mark of Alliance & Leicester plc. Alliance & Leicester International Limited, PO Box 226, 19/21 Prospect Hill, Douglas, Isle of Man, IM99 1RY, British Isles. Incorporated in the Isle of Man (No. 81918C). Licensed by the Isle of Man Financial Supervision Commission to take deposits. IOM0009 EXPINV JAN 09 January/February 2009 ? EXPAT INVESTOR 7 Fast Facts 22003 unlikely so there are opportunities in this area for worthwhile returns without the risks of equity investment. Why do I mention equities? Simply because this one asset class is where many of us look for long- term growth in capital and income. I previously wrote an article that pointed out the relative attractions to bonds. Since then, equity markets have steadied and rallied, but the bargains remain. That is some comfort for those already invested (at least the rot has stopped) and gives a real buying opportunity for those with cash and the right time scale. I don’t pretend that the way ahead will be wholly bathed in sunshine, but I do feel that the clouds are lifting. Peace of mind with Alliance & Leicester International 4.30% eSaver Offshore (Issue 2) * p.a./AER variable Gross Our online, easy access eSaver Offshore (Issue 2) account offers a great rate, online application and secure access to your account online. Minimumbalance £15,000 Interest paid Annually Click www.alil.co.im/ads/ex Alliance & Leicester International is now part of the Santander Group, which has more than 150 years’ experience in banking, and more branches worldwide than any other international bank. Alliance & Leicester International and Santander are committed to serving our customers and helping them make the most of their money. In 2008 Santander won the Euromoney ‘Best Global Bank’ award. We’re backed by one of the world’s largest banks And what of property? Some markets (being much more illiquid than equities) still have falls to come and with the recession yet to bite on the real world, I feel the time is not quite there. But opportunities will appear – when that time is right though quality and situation will be more important that ever.
March April 2009