This week´s Prima Panama newsletter announced an article at the Finance Daily ( http://www.financedaily.co.uk/showArticle.aspx?loadid=00880 )A Sound Investment: What To Invest in Now
With volatile markets, stock exchange slumps, property declines and experts predicting a year of market uncertainty, are the old favourites like property and shares still smart investment choices? Experts agree that it will be harder in 2008 to make the right investment decisions. However, that shouldn’t deter you from investing.
Dr Kate Warne, an Edward Jones Market Strategist, suggests that you review your portfolio to ensure that you have quality investments; make sure that your portfolio is diversified and have a plan to stay invested during times when the market is choppy.
“These strategies historically have worked to help long-term investors achieve their financial goals,” she says. “While slower growth is a concern, it should also help calm worries about higher UK inflation during 2008. Globally, economic growth is expected to remain reasonably strong, which should provide a generally supportive environment. However, as in 2007, currencies and financial institutions appear likely to continue to be turbulent.”
So which investments in the current climate are lower risk?
Property: Confusing Times
Currently, there seems to be a consensus among property professionals that the market this year will fall, or at the very least be flat. House prices in the fourth quarter of 2007 rose by less than the long-term average of 8%, and the slowdown is expected to continue or even worsen.
Scotland remains the most promising investment area. For the fifth consecutive year, Scotland recorded the biggest price rises, with a 13.1% increase; the only double digit increase. A key factor driving the increase in house prices in Scotland has been its relative affordability. Scottish house prices continue to be the most affordable in the UK. At £144,897, the average price of a house in Scotland is 26% less than the UK average of £197,071. Northern Ireland is another promising option. To find out how other areas fared, Click Here.
If you’re in it for a long term investment though, it’s not all bad.
“Conflicting data on the state of the housing market may leave homeowners, property sellers and prospective house buyers feeling confused,” says David Kuo, Head of Personal Finance at Fool.co.uk.
He, along with other commentators, predicts that the price of an average house in the UK will fall this year before resuming growth at the long-term rate of 8% per annum after that.
“We believe that the average price of a house could fall up to a fifth to £157,290 in 2008 before rising to £185,410 in 2012,” he says. “However, this would be £13,000 less than the price of a typical home now.”
Not convinced? If the pound continues to swing in value compared to the Euro and U.S. dollar, overseas property may be a better investment.
Overseas Property Investments
Property markets across the world have experienced some tough times in 2007 as international economic events have shaken consumer confidence, but the property market across Europe has fared relatively well despite market fluctuations. The EU’s economy continues to grow above trend. Record low unemployment, together with relatively modest borrowing rates and a strong housing market, is reflected in rising expansion and consumer confidence.
As returns from property in the UK are expected to slow significantly, they are expected to be well below those forecast for the Euro zone market. Rental growth forecasts strongly suggest that European property will outperform the UK across all sectors, making it a hot buy-to-let option.
“There has been a surge of interest for Continental European property from UK investors over the last few years,” says Maria Grubmueller, Head of Research for the Close Investments property division. “There is, however, the possibility of oversupply in some of these markets as development has been boosted by foreign investment and is not always matched by the economic development and demand.”
The world’s established property markets have maintained a consistent level of interest over the last 12 months and, despite speculation to the contrary, many are expected to continue being popular. Countries such as France, Portugal, Italy and Cyprus will do particularly well in 2008 according to Vanessa Bird, of financial services company Baydonhill.
“There has been considerable nervousness over the economy recently, but the majority of the established markets will remain robust over the next 12 months,” she says. “The key is the diverse selection of buyers who look to purchase in these destinations, from second home owners to those relocating for retirement. The huge variety present here – in terms of age, financial circumstances and motivation for buying – is the driver behind the constant supply of purchasers.”
Don’t go for France or Spain though, unless you’re going for a stable, long-term investment and looking very carefully at where demand outstrips supply. Interest in Spain has decreased by 2% since 2006 and is 10% lower than interest levels in 2005. Interest in France remained steady from 2006 to 2007 however enquires last year were down 7% compared to 2005.
Experts say the biggest investment potential is in the emerging markets – in particular the likes of Bulgaria and even Panama, Egypt, Brazil and China. The past 3 years have seen a surge in interest in less traditional overseas property destinations, according to HiFX’s Annual Global Property Hot Spots roundup.
For a quick and easy round-up of some of the best overseas properties on offer, visit www.JustOverseas.co.uk.
To read more about 2008’s predicted property winners, Click Here.
To read an interview on overseas property investment with A Place in the Sun’s presenter and property expert Amanda Lamb, Click Here.
The Stock Market: Temporary Glitch?
The stock market has recently seen a much publicised fall, and with conditions remaining uncertain and volatile, fears are rife that investing in shares may not be the smartest move after the shock announcement by the US Federal Reserve to cut interest rates 0.75% to 3.5%.
One in five stock market investors have moved some of their money into more cautious investments, such as cash or bonds over the past three months.
“Investors have undoubtedly been rattled by the recent stock market turbulence, and the widely-reported ‘credit crunch’ has prompted many to review their investments,” says Nathan Moss, managing director of wealth management at Lloyds TSB.
Of investors who made changes to their portfolio over the past three months, one in five (21 per cent) moved some of their money into more cautious investments such as cash or bonds, 17 per cent kept their stock market investments the same but invested more in other investments while nearly one in ten (9 per cent) decided to invest more money in equities to take advantage of any subsequent rises in share prices. To find out more, Click Here.
On the positive side, there are hopes that short term falls in stock markets will not have an enduring effect – and even now, there are some smart investment options. The Lincoln Far East Trust is finding good value in Taiwan and Korea, in particular those countries’ information technology, telecoms and utilities sectors, while continuing to underweight China, which looks increasingly overvalued.
Taiwan is one of the highest-yielding stock markets in the region and an attractive target for investors looking for an alternative to the overheating stock-prices of China. Taiwan and Korea will benefit from Asia’s growing domestic economy, but they have good defensive qualities that will stand them in good stead if China’s export-led growth were to encounter difficulties. Such difficulties could be prompted by a US economic slowdown or protectionist policies in response to China’s failure to allow its currency to appreciate.
“The valuations of companies in China and India can make the Far East as a whole look expensive, but if those markets are taken out of the equation then the region looks much more attractive,” says Will Hale, Head of Distribution at Lincoln Unit Trust Managers. “Investors who want to participate in the long term story of the region would be well advised to look at the value-driven approach in this fund.”