Share Prices & Company Research

Press Release

26 April 2019

From Greece to Japan

With the recent focus on Brexit and the US-China trade talks, it may have gone largely unnoticed that the yield on Greek debt touched its lowest point since 2005, prior to the Eurozone debt crisis. The benchmark ten-year Greek paper fell to a yield of 3.274%, which is a significant contrast to the 40% yields noted in 2011. The International Monetary Fund has predicted robust gross domestic product (GDP) growth of 2.4% for Greece throughout 2019. The success comes as we continue to observe loose monetary policy from the US Federal Reserve and the European Central Bank.

An interesting article in the Financial Times this week highlighted a notable contrast between the level of national savings in the UK and other member countries of the Organisation for Economic Cooperation and Development (OECD). As a nation, Britain is spending more money than it is earning. In the third quarter of 2018, the UK borrowed 5.1% of GDP from overseas, showing a very low level of national savings in contrast to places such as Germany, where saving is more of a habit. Despite this, Britain’s borrowing has fallen to the lowest level for 17 years for the financial year to April 2019, according to figures from the Office for National Statistics. Total borrowing fell to £24.7bn in 2018/19, down from £41.8bn in 2017/18. Bulging UK borrowing is now a familiar story, especially in terms of consumer credit thanks in particular to the growth of unsecured car finance borrowing. 
For those with capital to invest, buy-to-let property has long been a favourite asset class for private investors. However, the attractiveness of buying a property to rent out has been falling in recent times due to changes to stamp duty rules, requiring the payment of a 3% stamp duty surcharge on the purchase of additional properties. By 2020, owners of additional homes will no longer be able to offset mortgage interest costs against any rental income. In a further dent to the buy-to-let proposition, the Government is considering a ban on Section 21 notices that allow landlords to evict tenants eight weeks after their rental agreement has expired, which in some circumstances may have allowed landlords to evict an incumbent tenant and let the property to a new tenant at a higher level of rent. The Investors Chronicle put forward the argument that this change tackles a symptom rather than the cause, which is an overall shortage of housing stock. Arguably, any change must consider both the needs of an ordinary landlord to achieve a return on capital and those of tenants too.
Looking through our macro lens once more, we will soon observe an unprecedented shut-down in Japan which begins today (26th April). Japanese bond and equity markets will be closed until 7th May as a national ‘Golden Week’ holiday is observed to mark the Emperor’s abdication in favour of his son. When markets finally reopen, some commentators suggest that the market reaction could be severe as indices absorb whatever has occurred across global markets in the interim period. Foreign exchange trading is set to continue but with much lower liquidity levels than usual in Japan, and it is hoped that another flash-crash in the value of the Yen will not occur. In January, when Japan reopened following the Christmas and New Year holiday, a 3% move in the Yen was observed over ten minutes against the US and Australian dollars.

Nicholas Thompson, Investment Executive
From Greece to Japan
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