Back in 2004, Blockbuster Video boasted 9,000 stores worldwide. Today, a single franchise in Bend, Oregon is all that remains. As the company’s longstanding advertising jingle had it … what a difference.
Among the reasons for its demise, the rise of Netflix must surely rankle the most with Blockbuster’s former top brass. In 2000, Blockbuster turned down the chance to buy the fledgling video streamer, then just three years old, for $50 million. But Netflix has everyone’s attention now. It has a market capitalisation of $124 billion and its customers watch, in aggregate, 165 million hours of Netflix content a day.
If you can’t join ’em, beat ’em. Last week saw a new streaming service go live: Disney+; Disney’s share price rose following the announcement. (In response, Netflix announced a new partnership with Nickelodeon.) Disney was just one of the reasons that the S&P 500 struck another all-time high last week, clocking its sixth consecutive week of gains – the longest run of weekly gains since 2017.
Across the Pacific, Chinese stocks had a less good week, suffering the effects of reports that a first-phase trade deal with the US was becoming less likely, even as Alibaba all but confirmed it would be launching a second listing in Hong Kong (its first was in New York). Protests continued to derail everyday life in Hong Kong, where the economy is in recession, and the situation deteriorated over the weekend. On Saturday, Beijing dispatched locally stationed troops to “clean up” the streets and remove roadblocks.
“A lot of the companies in Hong Kong are still up for the year,” said Alistair Thompson of First State Stewart Asia, manager of the St. James’s Place Asia Pacific fund. “We haven’t seen a huge impact on stock markets, although there has been a little more in the last few days. Companies in the retail sector have not been performing well, as shopping centres have closed. It’s also a worry for some companies like Cathay Pacific – airline travel has slowed sharply.”
Chinese stocks have been performing exceptionally strongly in 2019, making it the best-performing major stock market worldwide, but Thompson argues the rise may say more about decisions by MSCI, which is responsible for many of the world’s leading indices, among them the MSCI Emerging Markets Index and MSCI AC Asia Pacific Index, than about fundamentals.
“The main reason for the market performing so well has been that MSCI increased China weighting, which meant that a lot of passive money went into the equity market,” said Thompson. “At a macro level in Asia Pacific, things could actually look quite bearish in the sense that there are excessive levels of debt, interest rates are unsustainably low and we don’t have inflation. But at the company level, we are very excited about the next five years.”
Asia Pacific is not the only region facing macroeconomic headwinds at the moment. Last week, GDP figures came in for both Germany and Japan, showing 0.1% in each country for the third quarter – the news meant Germany has narrowly avoided entering a technical recession. German figures flattered the UK, which delivered 0.3% quarterly growth, courtesy of the construction and services sectors.
Others were less eager to flatter. The EU opened proceedings against the UK after the government failed to nominate a new commissioner as per its mandate; and a coalition of 15 UK trade partners (including the US, India and Australia) made a case at the World Trade Organization for compensation from the UK due to the trade uncertainty caused by the Brexit referendum and its aftermath.
The UK prime minister and leader of the opposition, however, were focused on spending, and on arguments about spending. Under their election pledges, the Conservatives would raise public spending from 2% to 3% of GDP, while Labour would raise it to 4%. Neither level of public spending has been seen since the 1970s, but the plans did not rattle investors, and bond yields remained low.
“The bond market is offering a once-in-a-generation opportunity for a big fiscal expansion,” said Mark Dowding, chief investment officer at BlueBay Asset Management.
Yet where there is a will, there may not, on this occasion, be a way. Indeed, many economists are arguing that achieving even the more modest government spending targets of recent years has failed – and that low unemployment makes it all the more difficult to begin major new infrastructure projects, since the latter require significant numbers of workers.
Yet for all the focus on spending plans, Brexit may yet swing this election, and is already pushing the Tories to focus on the North of England and Labour on much of the South. Furthermore, last week Nigel Farage confirmed he would not stand Brexit Party candidates against Tory incumbents, but he will run candidates against Labour.
This week should see the publication of the main political parties’ manifestos ahead of the general election on 12 December. It’s difficult to imagine a weary UK public is waiting with bated breath to find out what they say.
However, while we don’t yet know the detail, the expected radical nature of Labour’s plans will require significant funding, and so could incorporate materially higher taxation on both individuals and businesses. The Conservatives have also made some high spending commitments which will place big demands on public funds. In short, we shouldn’t expect many tax giveaways.
A Conservative victory would signal less change in tax policy, although a Tory chancellor might be keen to revisit the high cost to the Exchequer of pensions tax relief; something that the pre-occupation with Brexit has prevented them from doing. Inheritance Tax (IHT) changes proposed by the Office for Tax Simplification could also well be reviewed.
A Labour win could see change on all tax fronts, especially Income Tax, Capital Gains Tax, Corporation Tax and Inheritance Tax.
With such uncertainty, and such big spending plans, the message for individuals planning their finances is a familiar but important one: make use of all tax reliefs and exemptions available now, if you have the means and if it is appropriate to do so.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.
In The Picture
Sophie Norman, Investment Analyst, asked Tye Bousada of EdgePoint Wealth Management, co-manager of the St. James’s Place Global Equity fund, how some of the major market themes of the day affect his investment decisions: ESG (environmental, social and governance factors); the weak performance of value stocks in recent years; and the interest rate plans of the Federal Reserve.
The Last Word
Not only will you have our support, but we thank you because we, too, have a lot of our sculptures abroad, and we try as hard as we can to ensure these things are returned to their homeland.
Xi Jinping, Chinese president, offers his support to the Greek prime minister’s push to see the Parthenon Marbles returned to Greece from the British Museum
Bluebay, EdgePoint and First State Stewart Asia are fund managers for St. James’s Place.
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