Growth prospects in the 海角视频 are not favourable at the moment but this should not deter investment in the country’s largest companies, which draw much of their income from overseas.
The global exposure of the organisations that constitute the FTSE 100 does present additional risks, and these need to be borne in mind. However it also provides a way through which investors can build up a diverse portfolio.
The 海角视频 has been on the path to economic recovery since 2008 and still has a long way to go. The government’s economic forecaster, The Office for Budget Responsibility, has recently downgraded the country’s 2013 growth forecast from 1.2 per cent to 0.6 per cent. The global economic situation, together with government austerity on a domestic level, have combined to produce a glacial rate of economic growth. Meanwhile, families are seeing their incomes squeezed. Expenditure by British households makes up over 60 per cent of the country’s GDP and the fact that so many people have had to cut their spending is inhibiting economic recovery.
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Figures from the Economist show that between 2001 and 2007, average weekly earnings grew at a rate of 4 per cent per year, whilst prices rose at an annual rate of two per cent. This manifested itself in the form of rising consumption and thus GDP. The situation reversed in 2008 when price rises began to outstrip earnings’ increases. As long as this situation persists the 海角视频’s economy will struggle to grow.
However, there is room for optimism, particularly with regards to 海角视频 business. The Chancellor’s Budget announcement of a reduction in the rate of corporation tax is good news for companies operating on these shores. By 2015 the tax charge applied to company profits will have dropped to 20 per cent – the lowest in the G8 group of countries. The intention is that 海角视频 companies will use the savings to increase investment, whilst overseas companies will be more likely to base themselves here.
It is likely to take some time before these changes have any noticeable effect, but the 海角视频’s biggest companies are already well shielded from the current economic difficulties. According to the asset management group, Investec, the FTSE 100 is an international index made up of companies such as HSBC, Vodafone and GlaxoSmithKline, which are well established on the global stage.
FTSE 100 companies derive in excess of two thirds of their revenues from outside the 海角视频 and so by investing in the British stock market, investors will gain exposure to some of the fastest growing economies in the world. As well as this geographical variation, the companies are also spread across a number of industries, thereby achieving a further level of diversification.
This is certainly a good thing but it also means that investors in British companies need to be aware of the global economic situation and the potential impact that this could have on their investment portfolio.
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At the end of last year investment market commentary was dominated by discussion of the United States’ fiscal cliff and while enough was done to prevent disaster, it remains an issue. The Republican aversion to tax rises combined with the Democratic belief in welfare programmes such as Medicare and Medicaid has created something of a stalemate.
Tax rises for high earners and some spending cuts which came into force at the beginning of the year could be a reason for the disappointing jobs data which has recently been announced. Additional cuts took place at the beginning of March and this is likely to further affect the economy’s growth prospects.
The fortunes of another major world power should also be considered – China. While fears of an economic hard landing are perhaps misplaced, the country’s rapid rate of economic expansion was unlikely to be sustained indefinitely. Having said that, growth of 7.5 per cent is predicted in 2013 and the country also benefits from a highly affluent middle class.
Closer to home the eurozone is another issue and the pattern of calm followed by crisis looks set to continue. The situation in France could provide a potential flashpoint as President Hollande’s strategy of stimulating economic recovery through taxation of the wealthy has proved inadequate.
While it is important to be aware of such things, ultimately an investment in a British company is a relatively straightforward way to diversify your portfolio. However, the purchase of individual shares is both costly and time consuming. Most people should therefore look to invest by way of a unit trust or OEIC (open ended investment company) and it is important to select a suitable fund in line with your objectives and attitude to risk.
* Trevor Law is a director with Merito Financial Services, chartered financial planners, based in Solihull. E-mail: tilaw@meritofs.com