Money news, advice and predictions for savers and spenders. This week: why the experts think Barack Obama will be good for the stockmarket.
By Jeremy Gates
The 44th President of the United States takes office with so many cares on his shoulders that it seems almost greedy to ask Barack Obama to save embattled stock markets, especially Wall Street, in his early months in power.
But a poll of fund managers conducted by The Association of Investment Companies (AIC), whose 350 members manage nearly £80bn, reveals 28% of them are backing the US as the best performing region for shares in 2009. No other country can beat that.
For savers trying to build private pensions, or grandparents putting cash into a Child Trust Fund maturing beyond 2020, the AIC poll suggests they won't go far wrong "backing Barack".
Tom Walker, manager of Martin Currie Portfolio Investment Trust says forecasting the precise timing of recovery in the US economy remains a fool's errand.
"What we can say with more confidence is that it will be the US that leads the rest of the developed world out of downturn.
"More importantly, the stock market will, at some point, start to look beyond the current recession and to anticipate accelerating growth."
Martin Currie funds have long been top performers in the US: Walker's current favourites include McDonald's, as families cut the costs of days out, Proctor & Gamble, Google, IBM and Hewlett Packard.
"We'll look back in five years' time and see this period was a very positive buying opportunity for North American equities," Walker says.
Russell Cleveland, at Renaissance US Growth Investment Trust is bullish too: "While the US is not out of the woods economically, 2009 could be a much better year for investors and Obama's inauguration will be positive for them.
"Investors are going to go from 'Get me out' in 2008 to seeking bargains in 2009, so a more realistic situation is developing. The RENN Capital slogan is 'Just Fine for 09', so stay tuned for a much better year."
Ahead of the AIC poll, Tony Aherne, who monitors fund performance at Moneyspider.com, also backed the US.
"It was first to fall and will probably be first to recover", says Aherne. "The other big positive for the US is the collapse in oil and other commodity prices, with US gasoline prices down more than 50% in the last six months compared with only 25% in the UK.
"This is a huge tax cut for consumers. The US went into recession at the end of 2007, earlier than anyone realised. Hopefully, 2009 could see signs of recovery."
Barclays Wealth is predicting growth in US equity prices of over 15% in 2009 and a further 9.3% in 2010. For sophisticated investors able to lock money away, Barclays offers an Investment Note, for sums of £500 upwards, which links to the value of the S&P 500 Index (tracking the top 500 US companies) over three years.
Mick Gilligan at Killik & Co is much more cautious. He actually thinks London has better recovery potential than the US.
But Gilligan thinks Obama's $150bn 'Green' energy programme over a decade to slash US reliance on oil could boost BlackRock New Energy Investment Trust, a £97m fund which has been a white-knuckle ride since its launch by Merrill Lynch in 2000.
This so-called "fund form tomorrow" has 34% of its cash in the US. It has long been a favourite with older investors who feel time is on their side to build a lump sum for children over some years.
Now may be a sensible time to start a regular saving plan - or perhaps to tuck a lump sum into an ISA to cut tax liabilities. If Obama can't make the 'Green' agenda stick, who can?
Darius McDermott, chief executive at discount broker Chelsea Financial Services says: "The consensus is that the US led the world into severe economic problems, and will probably lead us out, because it is 16-18 months ahead of Britain in the cycle.
"However UK investors in US stocks know their easy money came in the third and fourth quarters of 2008, when sterling lost 30-40% of its value against the dollar. If you think the pound will continue to weaken against the dollar, buying US equities comes with a currency kicker as well - but many doubt this will actually happen," he says.
"Obama may bring a brief feelgood factor to US shares, the economic fundamentals are really more important than emotional issues.
"British investors invariably go underweight in US stocks, but there is a case for dripping cash into US funds on bad market days, in funds like Martin Currie North America, M&G American and Schroder US Small & Midcap."
Chelsea Financial Services, a pioneering discount broker since the mid-1980s, makes no initial charge on all three funds, while the funds themselves charge 4-5% to new investors.
Will the "Obama effect" affect the finances of families visiting the US this summer?
David Lamb, Head of Treasury at Edinburgh-based No 1 Currency, with 270 bureaux de change in UK High Streets says: "I think we are pretty close to a short-term peak in the dollar, with the pound currently touching the depths at $1.45.
"In a three to six month time frame, I can see the pound back at $1.60- 1.70, and gaining in strength for short haul as major problems hit the euro too. I would not buy my US holiday money until nearer a summer departure date."
:: INFORMATION: Chelsea Financial Services (0207 384 7300); No 1 Currency (0131 476 7373); Killik & Co (0207 337 0400); Barclays Stockbrokers Investment Notes (0845 300 9040) do not guarantee return of all money invested.
WILL MORTGAGE PRICE WAR GIVE BORROWERS A BOOST?
Already hailed as the most competitive mortgage lender in 2008, HSBC Bank could lend a mighty £20bn in mortgages in 2009 to grab a 14% share of total lending of £145bn this year predicted by the Council of Mortgage Lenders (CML).
That's the assessment of Ray Boulger, senior technical manager at brokers John Charcol who says HSBC's market share was about 3% in 2007.
Now HSBC is about to get a market share exceeded only by HBOS which got around 20% for several years. Even giants like Nationwide, Abbey, Lloyds TSB and doomed Northern Rock struggled to get a 10% share of gross lending.
Boulger says HSBC figures will look even better in 2009, because few of its borrowers will redeem if they go onto standard variable rate (SVR) loans when fixes expire.
HSBC cut its SVR to 3.94% after the base rate cut of January 8.
However Boulger isn't too excited by HSBC's cheapest-ever variable rate loan - just 2.99%, a 0.95% discount on SVR to undercut new fixes from Alliance & Leicester (3.19%), Abbey (3.69%) and Woolwich (3.79%).
Borrowers with 25% deposits could go for one of two new HSBC lifetime trackers: 4.09% with a £599 fee, or 4.39% with no fee.
David Bexon at new homes website SmartNewHomes.com, says HSBC could "reignite competition in the mortgage market, forcing other lenders to take their heads out of the sand and start doing their job-lending."
Meanwhile, Boulger says HSBC likes headline-grabbing rates.
"But its 2.99% loan has a maximum loan-to-value (LTV) of 60%, minimum loan size £250,000, minimum income £75,000, and arrangement fee £999," he says.
"Fewer than 5% of the population earns above £75,000, so this HSBC loan isn't for most people."
However, with HSBC online bank first direct also offering a market-leading tracker base rate plus 1.89%, currently 3.39%, maximum LTV 80% Boulger says HSBC is "clearly the only bank with an appetite to take advantage of the present situation to expand market share.
"HSBC is being canny. It didn't compete where there was serious over-capacity in the mortgage market, and can now build a mortgage book with decent margins, cherry-picking better quality customers with the volume of loans which it feels comfortable to accept."
Boulger thinks rivals won't bother to respond: "Other lenders are focussing more on fixes and trackers", he says.
Andrew Hagger at Moneynet.co.uk says buyers should reflect that they can buy today with a much smaller mortgage and lower monthly repayments than 18 months ago.
In September 2007, he calculates, first time buyers at £130,000 borrowed £123,500, with a deposit (5%) of £7,800, and monthly repayments of £810.12.
By June 2009, they will be able to buy at £97,500, with a loan of £87,750 and deposit (10%) of £9,750. Repayments at £548.66 are nearly 30% lower.
Boulger concurs: "Affordability for first time buyers is hugely better than 18 months ago and back to levels of several years ago. For anybody with a deposit of 20%, affordability is better than it has been since the 1990s."
:: INFORMATION: John Charcol (0800 718 191 and www.johncharcol.co.uk).
POUNDNOTES
:: Savers might still get a decent return from two new fixed rate bonds from Bank of Cyprus UK, says Andrew Hagger at Moneynet.co.uk. On minimum £1 deposits, the three year bond pays 4.35% AER/gross, while a shorter nine month bond pays 4.12% AER/gross.
Enquiries: 0845 850 5555
:: Has your moggie got toothache? Sainsbury's Finance reckons Britain's dogs and cats require over 135,000 dental treatments each year, worth a massive £28.5m. Sainsbury's Pet Insurance covers up to £7,500 of vet fees.
Enquiries: 0800 056 5758 and www.sainsburys.co.uk.
:: The flight of nervy investors from equities into cash appears to be stalling, says Lloyds TSB Wealth Management which reckons the average investor had £52,000 invested in equities in November 2007 and just £22,500 by July 2008. By December 2008, this had risen slightly, to £23,500.
Nathan Moss, managing director at Lloyds TSB Wealth Management says: "Money is still moving to safer investments, such as cash and bonds, as confidence in the future of the markets continues to be shaky."
Lloyds TSB Wealth Management offers financial solutions to those with a minimum income of £60,000 per year (joint income £80,000) or at least £100,000 in savings and investments.
:: Sainsbury's Finance has cut its loan rates for any online applications of £7,000 or more (up to £25,000) to 8.1% APR typical. With an instant loan decision, money is available within 24 hours.
:: HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
West Bromwich BS 0845 3300 622 4.75% High Income Over 65 90 Day (D) £5,000 Mly
ICICI Bank UK www.icicibank.co.uk 4.65% (F) HiSAVE Fixed Rate 12 Month Bond £1,000 OM
Anglo Irish Bank 0845 455 2222 4.60% (F) Fixed Rate Bond 1 Year Bond (B) £500 OM
FirstSave www.firstsave.co.uk 4.50% 90 Day Notice 90 Days £100 Yly
Julian Hodge Bank 0800 028 3746 4.25% (F) Capital Millenium Bond One Year Bond £1.000 OM
:: TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 3.39% for term 80% £799 Yes
HSBC 0800 494 999 3.45% for term 60% £799 Yes
Co-Op Bank 0800 633 5286 4.14% to 31/3/12 75% £995 Yes
Mansfield BS 01623 676 345 4.49% for two years 75% £599 Yes
Yorkshire Bank 0800 202 122 4.49% to 31/3/11 75% £599
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T- Operated by Telephone
*W- Operated by Internet
*H- Operated by Internet/Telephone
*S- Available only to those aged 50 or over
*R- Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
