Insider outlook
Another installment of our panel of experts
As the credit crunch seems to linger on, do you think there will be resurgence in markets, or will there be more of a long term slowdown in global economics?
Alessandro Belluzzo – Partner, London Office – Belluzzo & Associati
There are many effects throughout the economy. Tighter lending criteria will inevitably undermine activity, as falling house prices in many markets have undermined confidence and consumption. Rising inflation pushed up by rising food prices, the outlook at present is not good. That said, I don’t see a prolonged recession but a difficult year or two ahead.
Sohail Jaffer - Partner, International Business Development - FWU International
Stock markets seem to believe that the worst is behind us. The authorities have provided liquidity and major banks have recapitalised. However, the increasing strain on food stocks and the declining dollar has made food expensive. With food shortages, fuel prices on the rise and soaring commodity prices, all threaten higher inflation.
Ted Keen - European Transfer Pricing Leader - Ballentine Barbara
We will certainly see a resurgence in markets, it’s just a question of when. Central banks are working hard to inject liquidity and confidence into the banking system while addressing the moral hazard issues that exacerbated the crisis. My guess is that investors will be far more optimistic six-to-twelve months from now.
How do you feel the expansion of the EU will affect your performance?
Alessandro Belluzzo – Partner, London Office – Belluzzo & Associati
The consequences of EU expansion will take some years to be apparent. However, we are optimistic. Much of our business involves taking advantage of cross border opportunities and opening up trade areas can yield many benefits. Time will tell but we continue to focus on our strengths and on our client’s goals so we are well positioned to continue our strong performance; even in a larger and more diverse EU framework.
Sohail Jaffer - Partner, International Business Development - FWU International
The harmonisation of operating standards will facilitate expansion of business in the enlarged EU. The development of these financial intermediaries is strongly interlinked with the problem of an aging population and ongoing pension system reforms. There is a large variation in insurance premiums within the EU and the financial service suppliers are finding it easier to penetrate the different markets.
Ted Keen - European Transfer Pricing Leader - Ballentine Barbara
In my own business, expansion of the EU will certainly have a positive effect on performance. Accession to the EU requires governments to bring their fiscal systems in line with existing members. An important part of that fiscal system is how a national tax authority monitors and enforces arm’s-length transfer pricing by multinationals doing business in its country. Accession to the EU will mean more transparent enforcement grounded in economic analysis and evidence, which will be a big improvement.
Government intervention or private responsibility?
Alessandro Belluzzo – Partner, London Office – Belluzzo & Associati
Both. It depends on the circumstances but both are essential in the right time and space.
Sohail Jaffer - Partner, International Business Development - FWU International
In times such as a credit crunch or high inflation, intervention is a way of minimising the economic impact. However, the consequences of government support such as specific subsidies can not last in a globalised economy. The process of growth is mainly stimulated by private initiative, regulating the market and producing prosperity.
Ted Keen - European Transfer Pricing Leader - Ballentine Barbara
The notion that a benign government ought to step in and fix the market whenever it fails is misguided. Government regulation is a political process, in which the regulators often have little choice but to rely on information and guidance from the powerful interest groups being regulated.
With the summer under way, do you feel markets are more optimistic or pessimistic (on the whole) this time of year?
Alessandro Belluzzo – Partner, London Office – Belluzzo & Associati
Overall, more pessimistic. I doubt that even the elusive London sunshine could lift some of the current sentiment and concerns in the financial markets.
Sohail Jaffer - Partner, International Business Development - FWU International
I would define my view as cautiously optimistic for this time of the year, considering we currently are in a bear market rally. The FTSE 100 Index is up 73 percent compared to 2003 and market looks attractive on P/E.
Ted Keen - European Transfer Pricing Leader - Ballentine Barbara
As an economist I don’t imagine there’s a seasonal pattern to confidence. People certainly seem more pessimistic this summer than they were this winter.
You’ve just lost £10,000 in shares. Sell up or hope for the best?
Alessandro Belluzzo – Partner, London Office – Belluzzo & Associati
Re-evaluate the portfolio. Relative gains/losses rather than absolute monetary gains/losses must be considered, but selling after large losses is often the worst time to sell. I would review the individual equities in the portfolio as well as the overall allocation between the different asset classes.
Sohail Jaffer - Partner, International Business Development - FWU International
We need to get invested when we feel that we are at or near the market bottom. A number of stocks bargains in developed economies are available even if we are early by three or six months we will most likely still come out looking reasonably well
Ted Keen - European Transfer Pricing Leader - Ballentine Barbara
One thing almost all economists agree on is that investors with a long term horizon will always do better to buy-and-hold a diversified portfolio of equity shares than to try to time the market. I will not be re-evaluating my portfolio in light of recent losses. If I were about to retire, I might think differently, but in that case I would’ve moved out of equities and into safer investments a year or two ago.
