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Expat Investor : October 2008
INVESTMENT NEWS Investors’ portfolios fail to keep pace with emerging markets FSA alert expats on latest scam Many investors who originally bought shares through Pacific Continental have complained to the FSA that they are being ‘cold-called’ by firms offering to buy the shares, or to put them in touch with a buyer – for a fee. These so called ‘recovery firms’, often calling from outside the UK, are not authorised by the FSA and are not permitted to approach UK consumers to promote financial services. Commonly known as ‘recovery rooms’, these firms offer to buy the shares at an attractive price but demand an advance fee. This is a scam – as soon as the fee is paid, the firm disappears with the money and without purchasing the shares. The FSA stresses that investors Sterling investors could be missing out on some of the world’s strongest economic growth because the conventions on asset allocation have failed to keep pace with world changes, according to Fidelity International. While anecdotal evidence suggests that many investors are inclined to allocate less than 5% of their portfolio to emerging markets – traditionally seen as a highly volatile area of investment – these countries have nearly doubled their share of global GDP to 30% in less than two decades. China has climbed its way up the world league table of economic growth and is forecast by the International Monetary Fund (IMF) to be the third most important country in terms of GDP by the end of the year, behind Japan and the US. Seven of the world’s 20 largest economies are now to be found in emerging markets, with Russia and Brazil also both in the top ten. Yet even the MSCI ACWorld Index, one of the most popular benchmarks for international equity portfolios, has only a 12% exposure to emerging markets. Peter Hicks, Executive Director UK Retail, says investors may want to consider revising their asset allocation models in light of the growing economic significance of developing nations. “Now that China’s economy has overtaken that of the UK, Germany and France, it is difficult to ignore the emerging markets story. But the changing economic realities make it worth rethinking traditional level of TOP 20 ECONOMIES BY GDP (PERCENTAGE SHARE) Rank 1990 1 USA 27.4 2 Japan 3 Germany 4 France 5 Italy 5.9 5.4 6 UK 4.7 7 Canada 2.8 8 9 Brazil 2.4 10 China 11 Australia 12 Spain 2.5 1.8 1.5 13 Netherlands 14 S.Korea 15 16 Sweden 17 Switzerland 18 Turkey 19 Belgium 20 Austria India 1.5 1.4 1.2 1.0 0.9 0.8 14.4 7.3 Japan Germany France China Italy Canada Brazil Spain Mexico S. Korea India Mexico 1.2 Netherlands 1.1 1.1 Australia Taiwán Argentina Turkey Russia Switzerland exposure investors have to these markets. Obviously there are risks with investments in emerging markets – corporate governance standards are in some cases lower than in the West and their equity markets can be as volatile as British banking shares – but over the longer term the performance of stock markets tends to be correlated with economic performance. Isn’t it time for investors to raise their exposure to emerging markets from just 2.3%? “Matching the GDP figure of 30% may be too much of a leap but for more adventurous investors, a weighting of 10–20% might be a more realistic reflection of these economies’ stature.” Fast Facts 88170 2000 USA 30.8 14.7 6.0 UK 4.6 4.2 3.8 3.5 2.3 2.0 1.8 1.8 1.6 1.4 1.2 1.2 1.0 0.9 0.8 0.8 0.8 Germany 2008 (estimated) USA 23.6 8.1 6.6 6.1 Japan China Canada India Australia S. Korea Netherlands Turkey Indonesia Belgium Sweden France 4.7 UK 4.7 3.9 2.8 2.7 2.7 2.6 2.0 1.7 1.7 Italy Russia Spain Brazil Mexico 1.6 1.4 1.2 0.8 0.8 0.8 Friends Provident is urging investors to think beyond property when it comes to financial planning. Research undertaken before the credit crunch shows a third (33%) of consumers were depending on property or equity release to fund their retirement. Calculations from Friends Provident show that if house prices fell to the level of the last property slump in 1992, the average homeowner could be left with a negative equity of – £89,850 based on figures from the Council of Mortgage Lenders (CML) showing the current average mortgage is £129,000 at 80% loan-to-value. With research from the life and pensions firm finding that two-thirds (65%) of UK consumers haven’t started saving for their retirement, it is warning them to avoid sole Online Brokerage for Offshore Investors • Trade Forex, Futures, CFD’s and Shares offshore • European, North American & Asian Stock Exchanges • Backed by TD Waterhouse and Fortis www.internaxx.lu Tel: (+352) 2603 2003 Your International Online Broker in Luxembourg Internaxx Bank S.A., 46a avenue J.-F. Kennedy, L-2958 Luxembourg, R.C. B 78729. Fast Facts 88006 October 2008 ? EXPAT INVESTOR 11 reliance on property. JeremyWard, Head of Pensions Marketing, warns investors, “If house prices continue to fall, people could find themselves in serious financial difficulty with negative equity on their property and no personal pension. This is a dangerous situation to be in if people don't have any savings or a pension to purchase an annuity for their ‘winter’ years. “Our research shows a potential crisis for some people in the future. People have depended on the property market in the past to fund their retirement, but with the uncertainty over the past few months and the current credit crisis they should not put all their eggs in one basket.” Fast Facts 88171 The UK’s Financial Services Authority (FSA) has issued an alert that at least ten ‘recovery firms’ are targeting a scam at investors who bought shares through Pacific Continental Securities (UK) Ltd (Pacific Continental). should: ? Always check the FSA Register first before dealing with a firm. ? If you have been contacted by an unauthorised firm, let the FSA know by calling its Consumer Contact Centre on 0845 606 1234 or completing an online reporting form. www.fsa.gov.uk A pension can be more than property