There are long term structural changes in the global financial markets already in progress that will continue, albeit at a slower pace, as the world’s economy slows down. Fundamentally India and China’s continued industrialisation will put upward pressure on commodities, though obviously this has been slowed at the moment. Similarly oil will continue to become more precious as it becomes more scarce, again this has slowed to the extent that some oil sources are being shut down until the price rises once again. I believe that Russia will continue to re-establish it’s position in world affairs thanks to natural resources. Indeed the dispute with the Ukraine and control of the majority of Europe’s gas supplies makes for interesting times to say the least. I would expect that the other emerging markets will continue to be depressed largely due to the lack of appetite for investment in higher risk sectors and areas.
Here in the UK I see little likelihood of a quick recovery, already the credit shocks have claimed a number of victims on the high street and elsewhere. The continued unwinding of debt will also put substantial pressure on large sections of the retail sector. I would expect there to be further causalities and that we will emerge with even more homogeneous shopping areas than is currently the case. So far we have only seen the truly terminal fold i.e. those that were struggling even in good times.
Looking at residential property, Halifax’s latest figures state that house values are back to August 2004 levels I cannot see anything other than that trend continuing, though possibly stabilising in mid to late 2009. While there are anecdotal reports of cash buyers starting to enter the market, this will only slow the decline as the majority of activity is created by leverage and in this arena supply is still being completely outstripped by demand. According to Moneyfacts, there were 1,742 residential mortgages available on 17th December 2008, compared with 6,208 on 2nd January 2008 and 11,951 on 1st July 2007. This gap would normally be filled by other institutions moving in. This is unlikely given the parlous state of financial institutions and the new capital adequacy standards being demanded of them. Unless the Government, as has been mooted, creates a “National Bank” I cannot see this situation changing in the short term. In the longer term property will become once more a low risk, low return investment. We may even move to a more European model where rental rather than ownership is the norm, this will require a major cultural shift, but needs must…
Meanwhile commercial property will be similarly affected as the global slowdown bites. Indeed long term trends for decentralisation of businesses make me wary of the Commercial Property market both in general and in the long term. Finally as interest rates continue to drop I cannot see that holding cash will provide reasonable returns, however at least it will prevent any losses.
In summary then, a fairly bleak picture for 2009 with glimmers of hope for the longer term. If you would like to talk to a Financial Adviser, have any questions or comments e-mail me on bm@forumwealth.com.
