Invest in UK news – weekly update

Investor sentiment in the UK corporate bond market continued to improve with the tightening spreads across the board. With the hope that the global recession is nearing its end, fears over the expected systematic failure in the UK financial system are fading away.  It is expected that interest rates will unlikely not fall any further and the market is hopeful upon signs that the BoE’s quantitative easing measures will take effect. The UK issuance market continued swiftly with the 2009 total already exceeding £70 billion. The above aspects have been generally received and met with marked demand.  It is expected that issuance will go on at a realistic level especially in times of stability as it is expected of the new government. Despite some negative fundamentals, valuation has remained largely positive.

 

Equities in the UK are as well reflecting an improvement in economic data and cyclical recovery with a 40% rally since March lows that left the market vulnerable to profit- taking in the short term but at current levels remains well supported by fundamentals. Earning were up by 20% this year and have been continually upgraded over the summer months, particularly following a reassuring second quarter reporting season. When compared to other asset classes in which earnings remained relatively low, the market looks attractively valued. Its resilience at values over £50 billion of fund raisings in 2010 as well as dividend cuts has been encouraging to investors. Last weeks witnessed a solid cash inflow figure that is reflective of UK investors piling into the commercial property market as well.

 

The property markets remained relatively fragile even with arrears and repossessions having gone down in the UK.  Figures from the Council of Mortgage Lenders showed that repossessions entering arrears had both fallen in the first quarter of 2010. Nevertheless, the CML warned that this was no reason for complacency because a large number of households are barely coping and remain vulnerable to further shocks that will arise from the current economic uncertainties. Repossessions fell from 10,600 from the previous quarter to9, 800 in the first three months of this year, that accounted for about 0.09% to the proportion of all mortgages.

 

All eyes were pegged on the new government in the UK and the measures it is going to take to ameliorate the fiscal deficit. Property investors are however likely to suffer if the new government rises CGT from the current 18 per cent to 40 or 50 per cent that will mean that buy-to-let landlords will end up paying at a rate comparable to their tax level.

 

15 May 2010