Investors scan the horizon for new risks in 2018
Among the wide range of opinions expressed by FT staff and experts, Merryn Somerset Webb, FT personal finance and investment columnist, argues that we are ‘coming to the end of one great 30-year cycle, and so everything has to change as it turns.’ Meanwhile, Robert Armstrong, FT Chief editorial writer, puts the case for the bears, speculating that a London house price crash might be the trigger for a wider downturn.
That would most likely occur should a hard-left government headed by Jeremy Corbyn come to power in the UK. Labour’s promise to rebalance the country’s lopsided housing market might have helped draw support from young renters, but investors and experts see the business consequences of a Leftward shift in government somewhat differently, and suggest ways that FT readers might hedge against the worst of it.
Ms Somerset Webb believes that fear of a Labour government rather than Brexit is already depressing valuations of domestically-focused UK companies, such as house builders, retailers and utilities. In particular, investors worry about a run on sterling and soaring bond yields as government debt balloons (by an estimated £37bn). Labour dismisses these concerns as ‘wild speculations.’ As for their personal wealth, higher income tax will hit those earning £80,000 – £200,000 most, while those earning more than £1 million may have their tax returns made public. Nor do the experts rule out new wealth taxes and curbs on tax-avoiding trusts.
But investors looking beyond the UK shores for safety might think twice about investing in big brands, long prized for their dividends and apparent stability, according to Miles Johnson, FT’s Capital Markets editor. ‘Could it be that today the very things the market judges as the most boring and dependable of them all will pose the greatest threat to investors’ wealth over the next decade?’ he asks. Their valuations are outpacing their sales, while barriers to entry whether in advertising, manufacturing, logistics and marketing are falling. Many ‘incumbents are being forced to buy challenger brands at high and dilutive multiples,’ he argues.