Autumn Statement Preview 2014

Last year, George Osborne took to the micro-blogging site Twitter to announce his Autumn Statement. Sadly, there was no mention of this year’s speech on the Chancellor’s social media account, but we do know it will be on Wednesday December 3rd and if he follows last year, Mr Osborne will be on his feet around noon.

Before we look at what we can expect in the Autumn Statement, let’s first look at some of the background to it: the picture is rather murkier – and perhaps less optimistic – than it was last year.

First of all there is a General Election just around the corner: the next Election will be held on May 7th 2015. Traditionally, that would mean a Chancellor of the Exchequer gearing up for a raft of tax giveaways in the Autumn Statement and in the March Budget. We doubt that will be the case this time.

The central theme running through George Osborne’s period as Chancellor has been deficit reduction – and it’s unlikely that he’ll give up on that now. Generally speaking, Osborne’s time as Chancellor has been viewed favourably in the financial markets: the recent IMF report which was critical of many countries and spoke of an ‘uneven’ recovery in global markets, was full of praise for the UK. Osborne is unlikely to throw that reputation away.

Besides, his hands are tied. As he said when speaking to the BBC after the IMF published its report, “The UK is not immune to what is happening on the continent”. What is happening is a serious slowdown, with even the German economy recently reporting a fall in output.

UK growth is generally expected to be 3.1% this year. However, a recent report from the Ernst & Young Item Club has forecast a fall to 2.4% next year. The Chancellor has also found himself faced with falling tax revenues: most of the new jobs that are being created are low paid jobs, and more people are becoming self-employed.

Throw in the political uncertainty from the Scottish referendum result and the rise of UKIP and George Osborne’s room for manoeuvre is limited. He appears to have already told his Cabinet colleagues that there is no money for extravagant giveaways, and the rest of us can expect to receive the same message on December 3rd.

So what can we expect? After all, this is the Chancellor who gave us “the most radical reforms to pensions for a hundred years” and totally re-wrote the rules on Individual Savings Accounts. Despite the limits he has to work with, we can still expect George Osborne to pull at least one rabbit out of the hat.

It might well be another re-writing of the ISA rules – or a new type of ISA – designed to encourage peer-to-peer lending. Start-ups and small businesses are still struggling to find capital from conventional sources. Not surprisingly, there are now an increasing number of sites appearing on the web allowing businesses to ‘crowdfund’ – to raise money from the general public. There are suggestions that the Chancellor may officially recognise this trend and the help it is giving to emerging businesses and take steps to encourage this lending by the general public.

For more established businesses, there are strong suggestions – not least from Business Secretary Vince Cable – that there will be steps taken to hand small businesses rate relief. They should expect something “positive in the pipeline in the Autumn Statement” according to Mr. Cable. This may well be linked with moves to encourage investment in UK high streets, which continue to struggle.

After the pensions changes were announced in the March Budget, Pensions Minister, Steve Webb, glibly announced that the Government, “wouldn’t be bothered” if people used their pension pots to buy a Lamborghini. George Osborne seems inclined to trust the good sense of the British people, but don’t be surprised if there is further tinkering with the pensions rules. Now the dust has settled, there are suggestions that the new rules have created some loopholes which the Chancellor may be keen to close.

He’ll also continue with his wider crackdown on tax evasion, although as the Daily Telegraph recently commented, digital companies operating in several countries are increasingly needing “international, not local” taxation systems.
Finally, expect the Chancellor to take further steps to address the skills shortage in British industry. In a recent study by the accountants Grant Thornton, 40% of UK businesses identified skills shortages as their biggest problem, with a significant number saying that a reduction in national insurance contributions would make them more likely to take on apprentices. A move in this direction would come as no surprise.

Whatever other surprises the Chancellor comes up with on December 3rd will be covered in our Autumn Statement Bulletin. As last year, we’ll be preparing this as the Chancellor is speaking and we’ll be working into the evening – so we’d expect the Bulletin to be available to our clients the following day.

Stock Market Falls – October 2014

On 3rd September this year, the FTSE 100 index briefly touched 6,898.62: this was within 52 points of the all-time high of 6,950 reached in the final trading session of 1999.

Since then the FTSE has fallen significantly. At the time of writing this update, it stands at 6,247 – down more than 500 points (over 9%) from September 3rd.

Not surprisingly, many clients are worried by this and have asked us why the fall has been so sudden and so dramatic.

We therefore thought it would be useful to set out some notes explaining the fall and trying to put it into context. Hopefully, this will reassure our clients, but as always if you have any further questions, please don’t hesitate to get in touch with us.

Perhaps the first thing to say is that the FTSE is not alone: the major stock markets in Europe have also fallen, as have stock markets around the world. As you’ll see below, the UK is doing well compared to other economies: but these days we live in a global market and the UK stock market is as much affected by events overseas as it is by what’s happening at home.

The rise in the UK and European stock markets on September 3rd was on hopes of a ceasefire in the Ukraine conflict. True enough, there is now an uneasy truce in the region (with Vladimir Putin taking time off from the Russian Grand Prix to order his troops to pull back from the Ukrainian border) – but as the dust has settled in the Ukraine, so the focus of world discontent has moved elsewhere. Several events have happened at once and this has created a lot of uncertainty; the one thing stock markets dislike above all others.

First of all the UK – along with a host of partners – is now committed to taking action against the Islamic State (IS). As you’ll know if you have seen the news recently, the coalition partners are currently relying on air strikes as the battle rages for the strategically important town of Kobani. What’s already becoming clear is that the battle against IS will not be over quickly – military strategists are already talking of ‘years not months’ – and markets are naturally worrying about the cost of a sustained conflict.

Sometimes, though, stock markets do overreact to military situations. Many of you will remember a day in the Second Gulf War (fought in 2003) when our tanks became ‘stuck in the desert.’ The media claimed they’d be there throughout the summer, with troops facing temperatures in excess of 50 degrees and the war dragging on indefinitely. The stock market duly dropped to just above the 3,000 level. As we now know, Baghdad fell to US forces on April 9th – and in hindsight ‘the day the tanks got stuck’ was a superb buying opportunity.

While the war on IS has been the headline news, less well reported – but of more significance to global stock markets – was a very downbeat assessment of the world economic outlook from the International Monetary Fund. The report was published at the beginning of October, with the IMF cutting its forecasts for global economic growth which, it warned, would be “weak and uneven.”

Chief IMF economist, Olivier Blanchard, warned that the recovery was becoming “more country specific.” This was good news for the UK, where the IMF remained positive, but there were sharp downgrades for Russia, the Middle East, Japan and the Eurozone.

Speaking to the BBC, George Osborne had warned that the UK economy was bound to be affected by the slowdown in Europe. “The UK,” he said, “is not immune to what is happening on the continent.” As we’ve reported in our regular monthly bulletins, there have been fears about the Eurozone stagnating for some time, and matters were made worse by German industrial output falling sharply in August (although this was partially explained by late school holidays which impacted on factory output).

Markets in the Far East have also been unnerved by the clashes over the planned elections in Hong Kong and the IMF’s warnings about the global economy – with the Japanese index falling by 1.4% on the day the IMF report was published.

All in all therefore, there has been a lot of global uncertainty – and as we mentioned earlier, the one thing stock markets crave is certainty. When you throw in the political uncertainty at home following the Scottish referendum and Clacton by-election results, it is little wonder that the FTSE is down, and down significantly in the short-term.

However, it is important to remember that investing is a long-term proposition – and all the investments and savings of our clients are part of carefully-considered long-term financial planning strategies.

If you have any further questions or queries, please do not hesitate to get in touch.

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Sources: Osborne warns of UK slowdown due to Eurozone woes http://www.bbc.co.uk/news/business-29551541 IMF (8/10) says recovery is weak and uneven. Sharp downgrades for Russia, Middle East, Japan and the Eurozonehttp://www.bbc.co.uk/news/business-29520881 But postive on Britain (to the delight of the more patriotic tabloids and UKIP) Chief economist Olivier Blanchard said “The recovery is becoming more country specific.” Asian stocks reacted badly to the news with Japan’s Nikkei Dow index falling 1.4% http://www.bbc.co.uk/news/business-29531859 Beginning of month 1/10 Q2 growth revised upwards to 0.9% http://www.bbc.co.uk/news/business-29422267 Fears of recession grow stronger as German output falls due to later school holidays – was expected to fall 1.5% but down 4% - biggest drop since January 2009 http://www.cityam.com/1412664596/german-industrial-productions-suffers-biggest-drop-since-january-2009

Important pension notice: 55% ‘death tax’ abolished

Ahead of the major pension changes already announced for April 2015, the Chancellor, George Osborne, this week announced another shift in pension policy that could have a big impact on many savers and their financial planning requirements.

Speaking at the Conservative Party’s Annual Conference, Mr Osborne announced the abolition of a so-called ‘death tax’, which can see any pension remaining on death taxed at a rate of 55%, before it is passed on to a beneficiary. The change, as with the other changes to pensions already announced, will be introduced from April next year.

The 55% tax is already waived when pension savings are passed to a spouse or a financially dependent child under the age of 23. The government estimates that the new change announced by Mr Osborne will impact an extra 320,000 people outside of the above groups. The details of the changes revealed different permutations for beneficiaries depending on how old the pension holder is at the time of their death.

• If the deceased is 75 or over, beneficiaries will pay only their marginal rate of income tax, with no limit on how much of the pension fund can be accessed at any one time.
• If the deceased is under 75, access to the pension fund will be tax free, including situations where the pension has already entered drawdown.

The proposal only impacts defined contribution pensions, although there may be new options to consider for individuals in final salary schemes. Similarly, the vast majority of the 320,000 people per year the government estimates this change will benefit will be individuals already in retirement. For those who pass away having not yet started to access their pensions, passing on savings to a beneficiary is a simpler affair, as your pension is counted as being outside of your estate for tax purposes.

The change has been seen by many as a continuation of the changes announced by Mr Osborne during March’s Budget. During that announcement, the Chancellor effectively abolished the need for savers to rely on an annuity in retirement, a device which could also see a portion of pension savings effectively wasted, when it comes time to pass on your estate to your family. The new taxation system announced this week effectively aligns the taxing of pension savings on death with the new approach to pensions which is due to become active in April 2015.

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Sources: George Osborne Conservative Party Conference speech (29/09/14), http://www.theguardian.com/money/2014/sep/29/who-benefits-abolition-55-percent-tax-pensions, http://www.bbc.co.uk/news/uk-politics-29402844

Understanding Active vs Passive investment strategies

The debate about whether a passive or an active investment strategy produces a better return for investors is one that has rumbled amongst financial planners for as long as passive strategies have been in existence. For you as a client, the method favoured by your adviser can have a major impact on your investment experience, so understanding the two different approaches is important.

An active strategy is one in which the investor – possibly a fund manager or other investment professional – will make investment choices on a regular basis, buying or selling holdings when they think it is necessary, often when they believe they can make a peak profit. An active strategy is highly involved and requires constant management.

A passive strategy meanwhile is one which requires hardly any trading whatsoever. Instead, money is invested into funds linked to indexes, such as the FTSE 100, by way of just one of many possible examples. Relying on the market to make your gain, passive investing is typically seen as a longer term strategy and, although it may sound easier than active from a management point of view, there is still a lot to do in terms of selecting the right funds and creating a well-balanced portfolio of asset classes that meet client’s needs.

On the active side, proponents claim that such a strategy is the only way to generate better-than-average returns; the only way to ‘beat the market’. After all, passive strategies, though divested across indexes and asset classes, are by their very design market-linked. If the index your passive strategy invests in goes up, so will your investments, with the negative being true if the index falls. Your investment may never outperform the market but it will also never lose more than the market as a whole.

Passive proponents, meanwhile, point out that active investment strategies typically cost more in fees, with these fees potentially impacting on the ability of the strategy to produce a better return. Those who favour passive investments also point out the increased volatility of active strategies, stemming from the higher frequency of investment movements and the timing of those movements, which also produce the potential for market-beating gains

The Scottish Referendum: The Results and its Implications

It was a once-in-a-lifetime chance for independence.

It was a leap in the dark that would end 300 years of union and cooperation.

Younger voters would overwhelmingly vote Yes.

Women voters were swinging back to No.

The Twitter trends map showed a clear majority for #YesScotland.

The bookmakers were convinced it would be a No.

The arguments went on up to and throughout polling day – but in the end, the result was decisive.

At 6:08am on Friday 19th September, the result in Fife was declared and Scotland had voted No. It would remain a part of the United Kingdom.

Despite the opinion polls predicting a close fight – and the occasional one having the Yes campaign in the lead – the Better Together campaign polled just over 2m votes against 1.6m for Yes. In percentage terms, 55.3% against 44.7% – with only 4 of 32 council regions voting in favour of independence. As Professor John Curtice of Strathclyde University put it on the BBC, “The No vote has won comfortably and rather more comfortably than the opinion polls were suggesting.”

So What Happens Now?

Politicians and commentators will argue long and hard about what caused such a decisive majority: in the end it seemed that the Scottish people were simply not prepared to take the risk of independence. So is that really an end to the matter? Will we wake up on Monday morning – after the winners have spent a weekend celebrating and the losers have drowned their sorrows – with the UK unchanged? Will it be ‘business as usual’ as though the referendum campaign never happened? We’re fairly sure that the answer to that question is also ‘no’: in many ways a victory for the No campaign throws up as many questions as a victory for Yes would have done. To paraphrase the Chinese curse, we are about to live in interesting times.

As soon as the result was confirmed, prominent politicians across the political spectrum were agreeing that, “if you voted No you were not voting for things to stay the same.” That appears to be true. In the final weeks of the campaign, Messrs Darling, Brown and Cameron seemed happy to wander around Scotland signing blank cheque promises for wide ranging devolution.

The problem is that change has to be delivered and it has to be paid for. Whether Tory MPs and their English electorate will be so willing to honour the promises made in the final days of the campaign is very doubtful. Put simply, English MPs will not win any votes by promising that their constituents will fund Gordon Brown’s “robust delivery” to Scotland. Rail Minister, Claire Perry, was the highest-profile Tory to go public, leading calls to scrap the £1,500 a year subsidy every Scot receives under the Barnett Formula. She declared, “Cool, calm analysis, not promises of financial party bags to appease Mr Salmond are what is needed from tomorrow. [A No vote must not result in] a raft of goodies that will be paid for by us south of the border to try and appease the Yes voters.”

Perhaps not a well-planned career move by Ms Perry, but a very accurate reflection of how a great many English voters and their representatives will be feeling. David Cameron – aided and abetted by William Hague – was quick to try and assuage these feelings, promising that English issues would in future be decided solely by English MPs. The coming squabble over reform of the constitution will only intensify as the next General Election approaches.

Business reaction to the result

Before the referendum there were dire warnings: a Yes vote would see any number of major employers leaving Scotland and would almost certainly lead to higher prices in the country. As you might expect, both the pound and the stock market rallied as a No vote became more and more likely and at the time of writing (on Friday morning), the FTSE is up 55 points and Sterling has hit a two year high against the Euro.

Will this euphoria last? Our suspicion is that it may not as the implications of the constitutional battles that lie ahead begin to sink in, but this clear result will certainly go some way to settling the financial markets after months of uncertainty. There was an interesting article in the Telegraph a few days before the vote, when respected fund manager, Neil Woodford, wrote that, “Yes or no, the Scottish vote has changed everything. As far as the economy is concerned,” he commented, “this creates a new dynamic of complexity and uncertainty. Inevitably this uncertainty will have a dampening effect on consumer sentiment, business confidence and investment intentions.”

The Long Term

In the short term then, we don’t need to worry about border controls, whether or not Scotland can keep the pound or whether Berwick Rangers can continue to play in the Scottish Football League.

We do, though, need to worry about the politics. Alex Salmond’s concession speech was widely praised as ‘gracious’ but it included a telling three words: “Scotland,” he said, “has, by a majority, decided not at this stage to become an independent country.” If the UK Government fails to deliver on its 11th hour pledge of ‘Devo-max’ – which has never been accurately defined – then “at this stage” may be back on the agenda rather quickly.

For now, that is our take on the Scottish Referendum. The votes have been cast and Scotland will remain a part of the United Kingdom. But it will be a United Kingdom whose constitution, voting arrangements and governance look rather different. There’s going to a lot of making-it-up-as-we-go-along and a lot of political infighting as successive Governments try to balance Scotland’s demands with middle England’s willingness to pay. The future will certainly be interesting: it will also be unpredictable.

Rest assured that we will do our best to mitigate this by keeping in regular contact with you and – as always – being available to answer any questions that you might have.

Scotland has decided!

The voting is done and Scotland has decided. It is now understood that further constitutional change will happen following the clear result of the referendum.  HK Wealth will consider the implications of these changes in due course for our clients and the implications for their ongoing financial planning. 

Quarterly Economic Review – July 2014

Quarterly Economic Review – July 2014

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The UK

It’s easy to forget that when George Osborne stood up to deliver his Budget speech in March 2013 there were real fears that the UK was heading for a triple-dip recession. A year later, the Chancellor was able to deliver a much more confident “Budget for makers, do-ers and savers” as he unveiled the most radical overhaul of the UK pensions system for a hundred years. There were also major changes to the Individual Savings Account regime, with the new rules – and higher allowances – coming into effect on 1st July.

(If you have any questions on the changes to either pensions or ISAs – and on how they might affect your own financial planning – then, as always, please don’t hesitate to contact us.)

The other big political event in the UK was the election for the European parliament in May. This was widely seen as a triumph for UKIP and a disaster for the Lib Dems, with the Conservatives and Labour desperately trying to put a positive spin on disappointing results. We’re now less than a year away from a General Election, and at the moment those fonts of all knowledge – the bookmakers – have the Conservatives as favourites to gain the most votes but Labour as favourites to gain the most seats.

This time next year we expect to be writing about the ‘new coalition Government’ – but how that coalition will be made up is currently anybody’s guess.

Traditionally, business and stock markets dislike uncertainty. At the moment, business confidence in the UK is good – as confirmed in surveys by both the CBI and the British Chambers of Commerce – and the factory output figures indicate one of the strongest periods of growth in the last 22 years. The stock market however, is stuck in the mud. The FTSE-100 index closed 2013 at 6,749 and closed June at 6,744 – down five points in six months. Contrast this with the US where the Dow Jones index has reached an all time high, going through 17,000 for the first time, despite – as you’ll see below – the economic news being far from rosy at times.

The other big story in the UK which ran through the second quarter of the year was the continuing rise in house prices, particularly in London and the South East. The latest figures show that the average house now costs 9.9% more than it did a year ago – and in London that figure leaps to 18.7%.

Bank of England Governor, Mark Carney, has recently written that the Bank will not hesitate to take “proportionate action as [it is] warranted.” You don’t need to be an economic genius to work out that this means interest rate rises, with most commentators expecting them to start moving upwards before the end of the year.

Europe

As many of you will have seen, David Cameron has managed to fall out with most of Europe over the election of Jean-Claude Juncker as the next President of the European Commission. Cameron cites the recent elections as evidence that it is no longer ‘business as usual’ and hence the need for someone new and different.

Europe’s leaders take the view that it is business as usual and Mr Juncker will do very nicely, thank you. It’s difficult not to have some sympathy with the Prime Minister when the elections for the European parliament saw the rise and rise of extremist parties all over Europe, including the spectacular success of Marine Le Pen’s Front National in France.

Maybe the ‘business as usual’ attitude was best summed up by Christian Schulz, senior economist at European equity specialists, Barenberg. “The Eurozone is on track,” he commented. “In the absence of any major geopolitical or financial stability accidents it should not require a large financial stimulus to keep going.”

As he was speaking, pro-Russian and pro-Ukrainian forces were having a little “geo-political accident” little more than 1,000 miles away. As Google maps helpfully tell us, you can drive from Berlin to Kiev in around 15 hours (in ‘current traffic conditions,’ obviously). In geo-political terms, that’s round the corner.

With the dispute in the Ukraine going to rumble on for some time – and with Russia controlling a significant percentage of Europe’s gas supply – it seems bound to impinge on ‘business as usual’ sooner or later. And contrary to Herr Schulz’s optimism, there were real fears of deflation by June as inflation in the Eurozone fell to 0.5%, meaning that yes, a large financial stimulus might indeed be needed.

The winter of 2013/2014 was unusually mild and – as if one were needed – this gave a boost to the German economy as consumer spending remained high through the winter months. The German DAX index closed June 2014 at 9,833 – up 23.5% on June 2013 as the country maintained its economic progress.

German manufacturing continues to prosper and figures for April confirmed that the country’s trade surplus had widened again – up from €16.6bn in March to a five month high of €17.4bn. Compared to the previous month, exports were up by 3% to a total of €93.8bn.

Trade Surpluses and Deficits

You’ll see us commenting a lot on trade surpluses and deficits in these Reviews. What are they? And why are they important?

A trade surplus is exactly what the name suggests – a country has exported more goods than it has imported. So in May 2014, China had a trade surplus of $35.9bn and Germany had a surplus of €17.4bn.

A trade deficit is exactly the opposite – the country has spent more on imports than it has received for exports. The most spectacular example of this is the United States, with its deficit of $44.4bn in May.

Does it matter? After all, if US consumers can afford to pay for their flat screen TVs, does it matter where they’ve come from? The economic theory used to be that trade surpluses and deficits would correct themselves in the long run – but that doesn’t now appear to be the case. China looks like it will always have a trade surplus and the US like it will always have a deficit.

Ultimately – if we just look at the China/US relationship – China is stockpiling dollars in its foreign currency reserves. This will eventually give China a measure of control over the US currency. Were it to sell the dollars it would force the value of them down, eventually making the flat screen TVs even more expensive.

Whilst the outcome of having a deficit or a surplus is far from certain, it seems a reasonable conclusion that, in the long run, you surely can’t run a trade deficit indefinitely without adverse consequences at some point.

The other major European economy, France, fared less well in the quarter, although there were encouraging signs in June as unemployment and inflation remained steady and the trade deficit narrowed slightly to €3.39bn. (To put that in perspective the most recent figures put the UK trade deficit at £2.5bn.)

Other major European news centred on Spain where King Juan Carlos abdicated in favour of his son King Felipe VI, the economy finally showed some signs of recovery and Poundland opened their first shop. Should you need some inexpensive Factor 12, the store is called ‘Dealz’ and is in Torremolinos.

United States

At the beginning of July, the Dow Jones index reached an all-time record high, going through the 17,000 barrier for the first time as good news on jobs was released, with unemployment falling to 6.1%. The market is up 14% on a 12 month basis and yet the news has been far from universally good.

At various stages over the past twelve months, President Obama and Congress have come perilously close to failing to agree on a Budget, a ‘federal shutdown’ has loomed as the Government has nearly run out of money and the country continues to have a trade deficit of around $40bn every month. Every two years, the United States adds $1tn of debt.

Is this sustainable? In the short term the answer appears to be yes – whether it is sustainable in the long term as more and more American manufacturing jobs are exported to China is very much open to question.

For now the job of guiding the US economy rests with Janet Yellen, who has replaced Ben Bernanke as Chairman of the Federal Reserve. Having taken over in February and saying that she would continue with her predecessor’s stimulus package “for as long as necessary”, Yellen is now gradually reducing the amount pumped into the economy each month as, hopefully, the US starts to recover without Government help.

What we’re gradually seeing in the US is a move from the old economy to the new economy. In the past twelve months, the city of Detroit – formerly the centre of the US automobile industry – has filed for bankruptcy, whilst a host of companies that have never manufactured so much as a single hubcap (or even made a profit) are valued in the billions. Is that sustainable in the long run?

Far East

As the US has a trade deficit every month, so China relentlessly records a surplus – the figure for May was a five-year high at $35.9bn.

At the beginning of March, the Chinese Government announced a target of 7.5% economic growth for the next 12 months. At the time, the target was seen as ambitious and there were real fears that the Chinese economy was starting to slow down – although it’s important to note that a ‘slow down’ in China is a rate of growth the West can only dream about.

However, the Central Bank introduced some stimulus measures and at the beginning of June it was confirmed that the Chinese service sector had grown at its fastest pace for 6 months, with the non-manufacturing Purchasing Managers’ Index up to 55.5 from 54.8.

The Purchasing Managers’ Index

The Purchasing Managers’ Index (PMI) is best described as a measure of confidence in future economic prospects. It’s a survey taken every month among private sector companies and, as the name suggests, it’s the purchasing managers of those companies that are surveyed for their future buying intentions.

The results are expressed as a figure: any figure above 50 represents overall positive feelings from the relevant managers about future prospects, and any figure under 50 represents negative feelings. Very broadly put, above 50 and the economy is going to expand: below 50 and it’s going to contract. So if we say, ‘May’s PMI increased to 55 from 54 in the previous month’ it means that the purchasing managers were confident in April – and they were even more confident in May.

You may also see a reference to the manufacturing or non-manufacturing PMI. The monthly survey is broken down by sector, so you may sometimes have a month where say, the purchasing managers in the manufacturing sector are feeling confident, but those in the service sector are feeling rather more pessimistic.

Later in the month, figures were released showing that manufacturing activity in China had grown at its fastest pace for the last six months – a clear indication that the stimulus measures had worked. Again, the PMI moved in the right direction, up to 51.0 from 50.8 in May as confidence increased.

As you may have seen on the news, a high powered Chinese trade delegation – led by Premier Li Keqiang – touched down at Heathrow recently. There were representatives of nuclear power, solar power, telecommunications, financial services and car manufacturing on board, all apparently keen to invest in UK plc and deliver infrastructure projects we’re now seemingly incapable of delivering ourselves.

The other big news for China was the signing of a gas deal with Russian company Gazprom. The 30 year, $400bn deal will see Gazprom deliver Russian gas to China which may in the long run mean higher prices for European consumers who are becoming increasingly dependent on Russian gas.

The other Far Eastern countries/stock markets which we’ll cover in this Quarterly Review are Japan, South Korea and Hong Kong – although China is very much the driver of economic activity in the area. Last year, the Japanese stock market enjoyed a stellar year, and was easily the best performer of the world’s major markets. This year it has lost some of those gains – down 7% since the beginning of the year – and despite their impressive trading performances, the Chinese and South Korean markets are also down slightly in 2014. The Hong Kong market has remained resolutely unchanged throughout the year and at the time of writing was 80 points down on the level at which it started the year, a fall of less than 1%.

Emerging Markets

In this section, we’ll concentrate on the world’s three major emerging economies – Brazil, Russia and India, which together with China make up the so-called BRIC nations.

Brazil’s year has so far been marked by civil unrest at the cost of the World Cup and the 2016 Olympics – but in the event the World Cup seems to have largely been a success for the nation, both on and off the pitch. Whether the tournament will provide any benefit to the millions who live in poverty is doubtful though, and it would be no surprise to see the unrest start again as the last VIP boards his plane…

The big event of the year in India was the general election as the world’s biggest democracy took to the polls, with victory going to the Hindu nationalist Narendra Modi. The country is rapidly emerging as the star performer among this year’s stock markets, and the index rose another 5% in June to 25,414 – up 20% on a year to date basis. Brazil is up by a much more modest 3%.

Russia’s interest in the Ukraine has been well documented and the invasion (or democratic decision of the Crimean people, depending on your viewpoint) initially brought forth dire warnings from the West. The threat of economic sanctions sent the stock market tumbling and the country into recession. But by June, Russia was posting a healthy trade surplus of $19.7bn – the highest for two years – with the stock market recovering all the lost ground.

The simple fact is that Russia has the gas the Ukraine and Europe needs: there may be a lot of bluster in the future as Vladimir Putin pursues his ambitions, but a cold winter will quickly bring the West to the negotiating table.

And that is that for the first of our Quarterly Economic Reviews. We hope you’ve enjoyed reading it – we should maybe have warned you to make a cup of tea or pour a glass of wine at the beginning – and it goes without saying that if you have any questions on any of the points we’ve made then don’t hesitate to get in touch with us. We’ll be back in September: see you then.