Viewing posts categorised under: Currencies
Are you au fait with Exchange Rates?
By Occitanie - Topics: Currencies, France, Occitanie
This article is published on: 9th October 2020
Welcome to the sixth edition of our newsletter ‘Spectrum in Occitanie, Finance in Focus’.
The Covid-19 pandemic is still dominating our thoughts and lives and will probably continue to do so for some time yet. Life must go on though, and we need to make sure that we are looking after our finances, as well as ourselves and our loved ones. Today we are going to take a slightly deeper than usual look at something that we might take for granted – exchange rates.
As a reminder, we are Rob Hesketh, Philip Oxley, Sue Regan and Derek Winsland. Together we form Spectrum’s team in the Occitanie, formerly of course the Languedoc Roussillon and Midi Pyrenees.
What is an exchange rate?
Ok, let’s start with the easy questions. It will get tougher as we go on. Obviously, the exchange rate is the rate at which one currency can be exchanged for another. Currently the rate at which holders of sterling can buy euros is 1.1100. Or is it 1.1000? or maybe 1.0925? It might even be less than 1 if you buy it at the wrong place. Then again, 0.9010 might be a very good rate. How can that possibly be right? How can 0.9010 be better than 1.1000? The answer lies in the fact that there are always two versions of every exchange rate.
We Brits tend to take the view that sterling is more important to us than any other currency, so we always want to know how much of any given currency we can get for £1. The rest of the world however are prone to taking a different view, so if you ask a French bank for the rate to convert sterling to euros you will get a rate that reflects how many pounds you can get for one euro. Confused? I do not blame you. To keep things simple, I recommend that when you see a rate expressed in that way, all you need to do is divide it into one. Thus 1/.9010 = 1.1099
Why so many different rates?
Well, obviously the rate can keep on changing every minute. The law of supply and demand applies here, but there are also many different rates at the same time. That is because volume plays a huge part. An exchange rate is a compromise between two parties, one of whom wants to sell, and the other to buy. Basically, if you are an international bank dealing in hundreds of millions of pounds per deal, you are going to get a very good rate; in fact, the best there is. Players (to many it is in fact a game) can either make a price or request a price. If the latter, they will never say to the market ‘I want to buy euros’. They will always ask for a two-way price, the idea being that the bank being asked for the rate does not know which side of the deal the other bank wants. The spread between the two prices may be a little as 3 basis points. That’s the fourth decimal point to you and me, so the rate quoted might be 1.1000 to 1.1003. The quoting bank sells euros at 1.1000 and buys them at 1.1003. Those three basis points represent the market spread, or profit margin on the deal. Still with me? If you are it will come as no surprise that the profit margin gets wider and wider as the amount you are dealing in gets smaller and smaller. At exactly the same time as a big bank is dealing at 1.1000, you might find that the rate you get for your €500 will be more like 1.0700, and if you go to a kiosk at an airport and ask for €500 cash for your weekend away in Paris, you might well get less than 1:1, so you would end up spending more than £500.
Why should I be wary of exchange rates?
Quite simply because if you do not give them due care and attention, they can cost you a lot of money.
The indisputable fact is that whilst most of us arrive in France (or any other new home abroad for that matter) declaring that wild horses wouldn’t drag us back to the UK, or if they did we’d be in a box, the fact is that many of us end up back where we came from. We might hate the idea, but the facts are there. That means that there are four general phases that we will go through where exchange rates are going to have great bearing on our lives. Firstly the initial move phase, where we need to have enough euros to move here and buy property; secondly the sustenance phase, where we need to invest lump sums or exchange regular income such as pensions based in sterling; thirdly dealing with possible influxes of capital through inheritance or UK property sales, and fourthly the reversal of all of the above if we decide to go back.
What is exchange rate risk?
Best think of this as ‘‘damned if you do and damned if you don’t’’. If I do a currency deal, would I be better off waiting for a better rate?
If I don’t do it now, will it be worse when I have to do it?
Often, the answer is yes to both questions.
The aim should always be to eliminate exchange rate risk, but it is a lot harder to do that than it seems. Yes, if you sell your property in the UK and move to France, you are going to need to convert a sizeable part of the proceeds into euro to buy a property here, but what if there is a good chunk of money left over? What if you were fortunate enough to get £800k for your des-res in Surrey, and managed to find the ideal pied-a-terre in the Aude for €300k? That leaves you with a decision to make about the £530k or so that you have left. Is the answer that you are going to live in euroland so your money should be in euro? – Yes. Is the answer that eventually you may want to go back to the UK so your reserves should stay in sterling? – Yes. Is the answer that the current exchange rate is terrible, and you should at least wait and see what happens? – Yes. So, which ‘Yes’ is the right one? You can have the same conversation about your pension funds if you are looking to consolidate them outside of UK jurisdiction (and political meddling). You can also have that same conversation when or if you decide to sell a second property that is currently let out, or Mum’s house which she left to you.
What is the answer?
Quite simply, the answer is planning; serious discussion with your partner/family about what the future will bring, and where it will be, and then serious discussion with your financial adviser (that’s us by the way) about how to manage the resulting risk. The inescapable fact is that no-one can accurately forecast exchange rate movements. In much the same way that financial/economic projections by experts are notoriously unreliable, so too are those made by F/X forecasters, but do you really want to convert all your assets into euro at 1.10 only to find that in fifteen years’ time you want to relocate to the UK and the rate is 1.50? In case you don’t have a calculator handy, that would result in an f/x loss of over £140k in the above scenario. What you really need is someone to help you decide where your future requirements will lie, not what the exchange rate will be when it happens.
Even funding a house purchase needs planning. In France it can take months before you can finally pay for and move into your new home. The exchange rate can move a long way in that time, and strangely, it usually moves against you! There is a way to eliminate that risk though, and it is called a Forward Contract. If you have a set date for your final payment, your financial adviser may well suggest that you speak to a good Foreign Exchange company who will be able to fix a rate for you, valid for that date, so that you know exactly how much your villa in the sun is going to cost you in sterling terms. These are legal contracts though, and you will have to accept that rate even if the market goes up. What you are doing is buying peace of mind against it going down, which could make your purchase uncomfortably more expensive.
Another product that may be useful to you is the Limit Order. If for example you decided to buy land abroad, and have a property built on it, you might well find yourself needing to make stage payments to your builder. If the rate goes up during this process you will be happy, but if it goes down markedly…?? You can place an order for a set period with your F/X company to buy a set amount at a chosen higher or lower rate. So, you might decide that you want to buy your euro at 1.25 if it gets there, but also if it starts going down, you don’t want to get a rate any lower than 1.05. This is basically a ‘take profit’ and ‘stop loss’ strategy combined, but you can just do one side of it if you choose to.
Part of our service to you is to monitor these companies and make a suitable introduction to you.
Our responsibilities don’t end there though…
We will discuss with you the choices you have regarding the investment of any left-over lump sums. Those discussions should leave you in no doubt that cash left uninvested is a loss-leader. Leaving your surplus cash invested in the UK in non-French tax compliant instruments such as ISAs is not the answer.
In France, the clear leader in terms of tax efficiency for capital gains, income and succession taxes is Assurance Vie, but you can make all those mistakes listed above by investing in the wrong policy. Flexibility is the key, along with portability.
What if we could offer you an Assurance Vie
that could start life in sterling?
Then change into Euro if the exchange rate moved up, and back again if it went down.
What if you could invest in both sterling and euro in the same policy?
And what if that policy could simply change into an ordinary investment bond if you went back to the UK, fully compliant with UK tax law?
We’d love to hear from you with any comments and/or questions, as well as suggestions as to future topics for discussion. Please feel free to pass this on to any friends or contacts who you think might find it interesting.
Political shock in the UK
By Gareth Horsfall - Topics: Currencies, Italy, sterling, UK General Elections, United Kingdom
This article is published on: 13th December 2019
Dear Readers of my articles
I am writing you a very short email today after what appears to be somewhat of a political shock in the UK. I will refrain from further comment until I have had time to let things sink in and I can discuss possible financial consequences in a rational manner.
However, where one loses another gains, as the saying goes, and one of the fortunate consequences of this vote in the UK is that it will bring, I think, short termed optimism and bear favourably on pounds sterling. I doubt this will continue as the reality of leaving the EU strikes home once again, and let’s not forget that a NO Deal scenario is now a real possibility again.
My point is that as I write this GBP: EUR has bounced to 1:21. If you have money in GBP and you need to convert to EUR you might be staring at a very favourable rate. I am not making any assumptions on where it will go during the course of the day, weeks ahead or even months, but compared to the last few years the exchange rate is quite attractive for sterling conversion to euro.
It was predicted that this would happen after a Tory majority win, so take advantage where you can.
Enjoy the day ahead as news comes in and we start to find out what the future holds for UK politics.
Sterling after Brexit
By Gareth Horsfall - Topics: BREXIT, Currencies, Elections, Italy, UK General Elections
This article is published on: 3rd December 2019
In this article I want to look at what has happened to sterling since Brexit and the outlook. In 2015, when the world seemed a lot more secure, GBP v EUR was trading over 1.40 and life seemed good. Anyone holding GBP based assets and incomes would find that their money went a long way. Today it is trading at 1.17.
With all this confusion it inevitably causes some uncertainty. This seed of uncertainty has shown itself nowhere better than in the continued daily swings of GBP v EUR.
It has been a while since my last E-zine. I am sure that it won’t go unnoticed that this E-zine is coinciding with the UK general election on December 12th. At the present time the Conservatives are polling for a small majority, but it would seem to be anyone’s guess as to the ultimate result.
A RECENT HISTORY OF STERLING
Around the start of 2016, after the Brexit fuse had been lit, sterling started to fall as the Leave campaign gained ground and the markets reacted nervously to a potential Leave outcome.
Immediately after the Referendum, June 24th 2016, when the result was announced, GBP fell the most against a world basket of currencies since the introduction of free floating currencies in 1970. On June 24th 2016 it had it’s largest ever one day fall of 13%. To put this into context, when George Soros famously ‘broke the Bank of England’, and made billions by betting against sterling in 1992, resulting in its subsequent ejection from the exchange rate mechanism, sterling only fell by 4.3%. In 2009 at the height of the financial crisis sterling lost 16% but over an 11 trading day period between 8-23 September 2009. The Brexit effect was huge.
I remember calling some currency brokers in the City of London early in the morning of June 24th 2016 and asking what was happening on the trading floor. The only responses I got were “fortunes have been made this morning!” and “it’s chaos over here”.
Roll on 2019 and as you will see from the charts below, since 2017, after the drop, sterling has traded within a range of values and has only experienced a ‘relative’ peak around the middle of this year.
STERLING CHART 2015 TO 2019
STERLING CHART 2017 TO 2019
WHAT DOES THE FUTURE HOLD FOR GBP V EUR?
In my travels around Italy to talk to clients this is the most asked question. Since the highs of 2015, there has been an approximate 20% loss in the value of your GBP assets and incomes. For anyone living on a fixed income, i.e. pensions or living from assets, this is starting to have an effect. In the past year the number of clients asking to top up their income from their assets has increased. This withdrawal effect represents a net reduction in your overall asset base, when that money might have been spent on future medical needs, inheritance for children, or just for future living costs.
Therefore, it is no surprise to me that I am asked frequently for my opinion on the matter, and additionally whether you should be thinking about converting assets into euro, to hedge against further falls.
I have been speaking to asset managers in London and currency specialists over the last year about this subject to try and get a feel for the ‘word on the street’. I can tell you that the theme has always been the same and nearly all asset managers say the same thing. Sterling is desperately undervalued if we measure it against the fundamentals such as productivity of the economy, GDP v debt etc. Very simply, this means that when compared against all measures, sterling should be trading quite a bit higher against the Euro. The uncertainty surrounding Brexit is depressing the value more than anything else, rather than the actual event itself.
The rational thinking is that the currency markets, at this point in time: 3 years after the vote, are desperate for an outcome, whether that be a deal or remain (we cannot exclude no-deal, but for now it appears to have been put to rest). If we are to assume that the Conservatives win a majority (no matter how small) then there could be a bounce in sterling in anticipation that Boris Johnson’s deal is likely to be passed in parliament and provide the certainty that the financial markets are desperately searching for. The deal being passed ‘could’ create conditions for ‘another rimbalzo’ in the price of sterling. My guess is that it would bounce quickly after any decision was taken, although these are only educated guesses.
You may now be thinking, ‘how much would it likely rise?’. Well, if I knew that then I would be a very rich man indeed. In all honesty, no one can say for sure. I am not a betting man but I wouldn’t be looking to place any sizeable bets on it even if I were.
I remember that at The Spectrum IFA Group annual conference in January this year in Portugal, we had a speaker, David Coombes from Rathbones Asset Managers. He gave his outlook for sterling based on the 2 parameters he had set for the fund he manages. In the event of no deal he had GBP/EUR at 0.9 and in the event of a return to remain he placed GBP/EUR at 1.4. He went on to say that for any scenario in between you can pick your own point.
Going further in my own assessment of things, I personally think that if a deal is passed, or remain wins (in my dreams), then sterling is going to rise, but by how much I wouldn’t like to say. However, we must remember that ‘getting Brexit done’ is a illusion in itself. Passing a deal in parliament is only the start. The UK then has to formally leave the EU and start negotiating trade deals around the world. Some will likely fall in place very quickly, Canada, Australia, South Africa, maybe even the USA, but the deal with the EU and important future trade deals with India, China etc will likely take years and may not be as good as Brexiteers might hope for.
To give you an example of how difficult these trade deal negotiations might be, let’s take the example of Switzerland versus China and their trade deal which they struck in 2013. Everyone is aware of the rapid growth of the Chinese economy and how almost every nation in the world would like to strike a free trade deal with China to access the billions of growing middle class individuals and a rapidly growing consumerist economy. Switzerland is one of very few countries outside the Asia Pacific region to do so. However, Switzerland had to make some large sacrifices to get that deal, mainly that the Chinese negotiated FULL and free access to the Swiss economy for a period of 10 years during which time Switzerland would have only very LIMITED access to certain sections of the Chinese economy. The Swiss deemed this to be a good deal! It just goes to prove that deal making around the world is not going to be as easy as the Leave campaign would like us to believe.
Any protracted deal making phase may well be a negative effect for sterling and after any initial bounce on the back of some certainty, you might see sterling enter a volatile period once again, certainly as the unravelling from the EU also takes effect. I don’t buy into Project Fear and think that the UK will find its way in the world outside the EU, but like any divorce it will get messy for some time. The question is for how long and what impact will this have on the currency.
In summary, if you have money in sterling and ask me for advice, I will say that you should not convert it into euro right now. I will caveat that with the fact that neither I nor the best currency expert in the world can tell you what will happen, but it is a reasonable assumption that sterling will rise when the next steps of Brexit are resolved one way or the other. What happens after that is anyone’s guess. If you need to convert to euro then I would suggest doing so in tranches, or holding on until after Dec 12th to see what happens. Then pick your time, keep an eye on the rate and convert on the peaks.
(I am adding this note after having completed this E-zine. Our rep from Currencies Direct, our preferred currency exchange partner, called me about 5 minutes after completing this text and we had a chat about GBP expected movements in relation to the elections. She said that they are thinking that GBP v EUR could bounce to the mid 1.20’s if Boris Johnson wins the election with a majority. This is not a prediction, merely a hypothesis!)
Thoughts on the British Pound
By Gareth Horsfall - Topics: Currencies, Euro, sterling
This article is published on: 18th October 2017
Using long term macroeconomic data, sterling looks to be significantly undervalued versus the euro (see graph). Without Brexit, we could be looking at, what we call, an ‘equilibrium’ value of around 1.50 euros to the pound, taking into account economic fundamentals only (relative prices, relative productivity and relative expected savings).
Assuming Brexit, we’re working on the basis of circa €1.3 to £1 – but it could take a number of years to get there!
Productivity is a key driver of our data used in this calculation – particularly productivity in the tradable goods sectors. This is likely to suffer after Brexit due to non-tariff barriers to trade (think complying with overseas regulation and customs regimes). That said productivity growth in Europe has been weak, and is unlikely to surge ahead while the UK economy recalibrates, somewhat limiting the damage to the equilibrium rate. If the European project revives around a new Macron/Merkel nexus, then further gains from integration may lower the equilibrium rate a little further via improving Eurozone productivity.
Although the long-run economic value of the pound would shift lower in a ‘hard Brexit’ scenario (i.e. no special deal), primarily due to the impact on productivity, the actual exchange rate is so far below the economic equilibrium value that we expect the pound to rise on a long-term basis in any scenario. It is really just a question of speed.
Unfortunately, such long-term analysis does not help us forecast currencies on a 6-12 month view, and the newspaper headlines generated by ongoing Brexit negotiations could well drive exchange rate volatility.
Until June, the EUR/GBP exchange rate over the last couple of years has closely tracked changes in relative interest rate expectations (i.e. what the market thinks interest rates will be in Europe in 3 years’ time relative to what they think they will be in the UK). This lends some shorter-term support to the pound, and indeed could favour sterling further if the run of strong data in the Eurozone starts to decline.
You may be aware that at The Spectrum IFA Group we refer our clients to Currencies Direct in the UK for foreign exchange transactions.
I had a recent conversation with them about the number of new entrants into their market space and the availability of competitor firms and how it was affecting their business model. However, they informed me that they have some of the most competitive foreign exchange rates on the market, because of their size, and they are happy to discuss beating rates offered by existing long terms providers and also the newer online only entrants into this market place.
If you are making transfers through an existing service or want/need to start then let me know on firstname.lastname@example.org and I can introduce you to their representatives to discuss their competitive rates.
As my grandma used to say to me:
“IF YOU LOOK AFTER THE PENNIES THE POUNDS WILL LOOK AFTER THEMSELVES”
By Gareth Horsfall - Topics: Currencies, currency fluctuations, Italy, sterling
This article is published on: 17th October 2017
This week I want to dedicate my Ezine to the currency of living abroad.
How many people do you know in your home town or in your home country that worry about currency fluctuations? Have you ever heard anyone worry about the EUR v GBP or EUR v USD level at any one time? Maybe they look once a year when they are going on holiday and leave the post office with a smile on their face or have a sullen expression depending on the exchange rate. But for the rest of the year?
It’s not so simple for the life of the straniera/o!
Almost everyone I know is concerned to some extent about the exchange rate. Whether it is someone who is building a house and watches the exchange rate drop (you know who you are!) or people living on fixed pension incomes. I also include myself in the exchange rate trap since part of my earnings are in GBP. I understand your pain.
Of course, these are the simple aspects of currency re/devaluation and to some extent we can budget and plan for its eventuality and prepare ourselves. But what about when multiple currencies are at play in our investment portfolios. There it can create even more unusual effects.
The following comments (slightly modified by myself for easier understanding) come from Robert Walker at Rathbones Asset managers who wrote a piece about the interplay of currencies in a managed portfolio of assets. I thought it might interest you.
CURRENCIES AT WORK
With a portfolio approach that is global in nature, currency volatility is playing an important role in the reported returns to clients on a quarter-by-quarter basis. The last two years have seen substantial US dollar, British Pound and Euro volatility as confidence in the respective economic regions ebbs and flows. This has a profound effect on how the overseas assets’ performance are reported in the investor’s base currency, based on their individual circumstances.
The US dollar has been a safe haven in times of increased economic uncertainty. In the first few months of Donald Trump’s presidency, the US dollar strengthened on the presumption that tax cuts would stimulate the economy. This has subsequently reversed, as the realisation of many false or premature promises has taken hold.
The British pound has seen its value fall significantly against the US dollar and euro due to Brexit uncertainty. Until the exact path of Brexit and the economic ramifications of this are known, it is likely that the pound will remain weak. There will be many twists and turns along the way until March 2019, not least with the Conservative’s General Election result and subsequent reliance on the Democratic Unionist Party. The current status quo is very vulnerable to further turmoil and the weakness of sterling is a by-product of this.
At the turn of 2017, markets were focussing on the possibility of anti-establishment vote in both The Netherlands and France. At the time, both countries had parties with anti-European Union policies in opinion poll ascendency and thus the consensus was to remain underweight in the Eurozone. Since that time, the euro has undergone a substantial recovery of over 14% against the US dollar as political risk subsided and economic confidence in the Eurozone improved. Against sterling, it is up over 7% this year in addition to the weakness after Brexit of 2016. Both of these currency movements have had the impact of weakening the value of US and UK assets for euro investors.
THE INTERPLAY OF CURRENCIES
Performance of globally diversified portfolios has been affected by each of these currency movements. For example, had a US investor bought euro assets at the start of 2017 the translated value would be increased by 14% due to the currency effect alone, but a euro investor who bought US assets at the start of the year would be seeing a translated loss of over 12%. Investors in sterling will have seen the value of overseas assets increase markedly during the Brexit process as the pound has weakened significantly, but euro investors with sterling exposure have seen a corresponding fall.
Over the long-term, we would expect the impact of shorter term currency movements to average out. For the pound particularly. (See comments about the Pound in the right hand column).
When managing portfolios in euros, sterling and US dollars, we ordinarily have a degree of country of residence bias to a client’s base currency. However, this is dependent on a client’s unique circumstances. Our portfolios are globally diversified, where we are trying to gain exposure to a portfolio of high-quality global assets in order to reduce risk to any one particular economic region. Indeed, currency analysis can be somewhat circular, as the underlying investments in each region are typically multi-nationals that have a global spread of currencies. This can mean that an individual portfolio may deviate against a certain measure or benchmark over the short-term, but which is most likely a temporary effect, but we feel that the spread of global investments will reward clients well over time, rather than focusing on fast changing and unpredictable currency movements.
Almost all investment professionals admit that forecasting future direction of currencies is a thankless task, as currencies are largely influenced by future unknown events which are, by definition, unpredictable.
As with most investments, volatility can also be driven by speculative investors such as hedge funds. Hedging currency risk, i.e. eliminating the currency impact on returns and focussing on the underlying return, is sometimes considered by investors. This can add to certainty but also more cost. In many cases, due to the inherent unpredictability of currency markets, hedging not only detracts from returns, due to the increased costs, but often proves to be the wrong action in hindsight.
If you want to review your portfolio returns over the last year/s with an eye on the impact of currency fluctuations and how this might affect your income and expected returns then you can contact me on email@example.com or call me on 3336492356
Potential Catalan Issues
By Chris Burke - Topics: Banking, Barcelona, Catalonia, Currencies, Elections, Investments, Spain
This article is published on: 5th October 2017
It seems Catalonia and Spain are continuing their loggerheads and head jutting, but what most people are starting to consider are their OWN assets and issues being a resident here, particularly if you are not Catalan. I have received many emails this week from worried clients and contacts, about having their money here and what they can/shouldn’t do.
See below my 5 TOP FINANCE TIPS for the current predicament and indeed some of the areas we help people with.
Spain’s stock market has taken a severe hit this week, with two of the Catalan banks, Banco Sabadell and Caixabank down 6.3% and 6.7% respectively. Indeed today Banco Sabadell is holding an emergency meeting, Thursday the 5th October, to approve relocating their headquarters out of Catalonia.
Therefore, as an emergency communication to my clients and contacts I thought it would be useful to know what you should be thinking about and the main questions that have arisen this week:
1. Personal Money in banks
Any money in a bank, unless used to live on a day by day, is devaluing in real terms. If Spain reacts to Catalonia declaring independence, we have no idea what might happen. In the last crisis, banks made it difficult to move and even limited the money you could take from your bank account. If you have ‘excess funds’ in accounts in banks, you may want to consider other options so you still have full control of your money and no worries.
2. Business Bank Accounts
If your business account is with a Catalan bank, but you have a personal one that is not, you CAN move money into this. However, you have to be careful and follow these guidelines:
‘In order to avoid problems with the consideration of dividends it would be preferable to do a loan agreement between you and your company and to file a form through la Generalitat, in order to demonstrate the date of the loan and the content of the agreement. There is no stamp duty to be applied and it is not necessary to go to a Notary, but it is better to have this document done, just in case, if in the future somebody asks about this amount.
Source: Silvia Gabarro, GM Tax.
Anyone with sterling Money will have felt the pain of the currency weakening since the Brexit vote. Analysts have been saying for months that this is very undervalued, and built on worries about the UK leaving the EU. However, there are still fundamental issues within the EU, including the real major problems of the Italian banks, the fragile Spanish economy and a few members who are heavily in debt and unlikely to ever be able to repay this. Now we also have the Catalan Independence problems coming to a head within Spain, this could be compounded. Then in May next year we have the Italian elections which could be interesting to say the least.
Therefore, it could be argued before the Euro weakens any further, a good time to transfer money into sterling from Euros.
Many Catalan/Spanish banks whose client’s money is invested have more of an emphasis on their own funds or Spanish funds, than a non Spanish bank/investment would. We call this being more ‘Spanish Centric’. If the Spanish stocks are booming then this is fine, however if not the case this could be very dangerous to your investments, whether personal or corporate.
The larger the stock market, the closer correlation (it does the same as) to other large stock markets. Therefore, if your money is invested with a truly global bank/investment firm you will not put your money so much at risk to this.
Believe or not, some businesses and people are relocating due to the current predicament, and some companies share prices have even gone up by 20% on revealing this news to the press!
You may or may not want to consider this, or be in a position to, but your personal and corporate finances do not need to worry if you have them set up correctly. Companies’ savings and your personal money can be with a ‘Portable bank/institution’ that acts like a balloon. Wherever you go, you pull your balloon along with you happily. Then, when you want to access some of the money, you let some ‘air’ (money) out and adhere to the local rules of where you are. No need to open up bank accounts in different countries, or go through the extensive administration. Just tell us you want your money and after some due diligence you shall receive it, wherever you are and knowing the process is legal and compliant.
Brexit, US Election & Exchange Rates
By Spectrum IFA - Topics: BREXIT, Currencies, France, sterling, Uncategorised
This article is published on: 7th November 2016
There are so many things that I could write about this month and it’s difficult to choose one above the others. So a quick summary of what’s topical might help.
What an interesting conundrum that the UK government is faced with now! Actually not just the government, but the MPs who personally wanted to remain in – or leave – the EU, before the Referendum took place, but represent constituencies that voted in a different way to those MPs personally want.
Will MPs put their personal feeling aside and vote according to what their constituents want? Would this effectively change the result of the Referendum. At the very least, MPs should ensure that their constituents are provided with sufficient information on all of the issues that can arise if the UK leaves the EU. Constituents can then make an informed decision, if given the opportunity to express their opinion to their MP.
It’s interesting that the Court’s decision was based on the argument that the government cannot use executive powers to trigger Article 50 of the Lisbon Treaty because it would effectively mean overturning an act of Parliament. However, Parliament is sovereign – it can create laws and only Parliament can take these away, not the government. The interesting word here is “sovereign” because this is exactly what the Brexitiers want to get back from the EU.
It’s well known that Theresa May still wants to push forward with triggering Article 50 by the end of March 2017. However, unless the government wins its appeal against the Court’s decision, she may not get her wish.
Despite the ‘certainty’ in law of the Court’s decision, the result creates more uncertainty at this point, as to whether or not Article 50 will ever be invoked. This is likely to continue to create pressure on Sterling (more on this below), and market volatility, until such time as when the process has either been completed or dropped altogether.
On the bright side, if MPs are to debate the terms of what the UK should negotiate from its withdrawal from the EU, before Article 50 is invoked, perhaps we may have some idea of what the outcome of a Brexit may look like. However, it’s a ‘catch 22 situation’, as the EU will not negotiate terms with the UK until Article 50 is invoked and so there is no guarantee that the UK will get what it wants – whatever the outcome of the Parliamentary debates.
So Brexit may not now mean Brexit, but at the very least, it may be further away than we thought.
US Presidential Election
I am writing this article a few days before the election. It seems that both candidates may have skeletons in their closet – Clinton with her emails and Trump with his tax returns. During the last few days, Trump went ahead in the polls and now Clinton has pipped ahead again. In reality, the polls are too close to call and the last time that I wrote that was just before the EU Referendum. Look what happened there!
Markets are beginning to price in the possibility of a Trump win. If it becomes a reality, there is likely to be a large sell-off in US equities (and it can’t be ruled out that this may ripple through to other markets). This is contrary to what would usually happen after a Republican victory, but then, Trump has contrarian views to those of the normal Republican policies.
However, as markets begin to reflect on positive tax changes and the looser regulatory environment that Trump supports, we might see a V-shaped turn, perhaps a repeat of what happened after the Brexit vote.
If the odds continue to move against Clinton in the final days approaching the election, the markets are likely to move further downwards. However, if the outcome is a Clinton win, then it could bring with it a bounce back in markets.
Longer-term market views of a Clinton win are positive, but not so for a Trump win. There is a high possibility that his anti-trade policies with the rest of the world would cause a large slowdown in growth. Unlike the UK that wishes to close its borders to immigrants, but still wants to trade with the world, Trump seems to be determined to curtail imports through a variety of policies, all of which are within the power of a president, with or without the support of Congress. As a result, a Trump trade-led recession could even tip Europe back into full-blown recession, which would likely precipitate a serious European banking crisis, something which is already a concern. Additionally, the effect on emerging markets could be very negative.
By the time you read this article, we may know the results, or will do shortly after. In the meantime, I am very much hoping that the American people do the right thing on the day.
Sterling Exchange Rate
Can it get worse? Well yes, it can and yes, I think it will. I would not be surprised to see Sterling reach parity with the Euro and lately, I have started to think that it could go even lower. Unfortunately, the downward pressure on Sterling is likely to continue until Brexit is over
If you are retired and receiving UK pensions, then you will be feeling the difference. Even with the little bounce back after the Court’s decision, Sterling has still fallen around 16% since the day following the EU Referendum and around 25% over the last year – so in other words, that’s 25% reduction in your pension income. If you also have investment income in Sterling, this means that your capital has to earn 25% more than it did a year ago, just to maintain the same rate of return relative to Euro. Even worse, your Sterling capital has lost 25% of its value in Euro terms.
Sterling is undervalued and there is no doubt that it will eventually rise from the ashes. But when and what do people do in the meantime?
If you are using a bank to transfer Sterling to Euros, you are likely to be receiving a very poor rate of exchange. Hence, it is worth looking at using a forex company for your currency transfers, as the exchange rate that the companies offer is usually higher than the banks. If you do not already have an account with a forex company and you would like to know more about this, please contact me. Even if you already have an account, it can be worth shopping around and we can refer you to a reputable company.
If you are lucky enough to have some capital in Euros already, it might be worthwhile using this, in lieu of your normal Sterling source of income, or at least for part of your income needs. However, everyone’s situation is different and so it is very important to take advice before doing this to make sure that your longer-term objectives are not put at risk.
It is at times like this that people need financial advice, more than ever. Hence, if you would like to have a confidential discussion about your situation, or any other aspect of retirement or inheritance planning, you can contact me by e-mail at firstname.lastname@example.org or by telephone on 04 68 20 30 17 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an adviser is available immediately for an initial discussion.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of pensions, investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.
Can you make decent profits without a degree of market risk?
By Rob Hesketh - Topics: Currencies, France, Investment Risk, Investments, Uncategorised
This article is published on: 22nd October 2015
My article last month focussed on types of risk that that can present danger to the unwary investor. My top two risk types were Institutional Risk and Market Risk, but I concentrated mainly on my third risk factor – Foreign Exchange, largely because of my previous experience in this field. I was quite surprised by the interest the article produced, partly because the people who commented weren’t really ‘grabbed’ by F/X risk; but rather more interested in the other two categories. Can the modern investor really fall foul of institutional risk? Is anyone really daft enough to think that you can have decent profits or returns without taking on some degree of market risk? Unfortunately, the answer to both those last two questions is yes. I thought you might be entertained if I gave you some examples that hopefully won’t ring too many bells from your own experiences…
In 2009 I met a very interesting lady who was referred to me by a colleague in Spain, not that that is particularly relevant, but I did end up wondering if she’d had too much sun. All I knew before I met her was that she was due to receive a large sum shortly, and she wanted some investment advice. I spent ninety minutes with her, most of which was taken up with a battle of hope over reality. This unfortunate lady had been investing for a number of years with an organisation called The Liberty Wealth Club, and was 100% confident that she would be receiving a pay-out of $150,000 from the club in a matter of weeks. The more I listened, the more appalled I became, for this was truly a forerunner of a ‘Ponzi’ scam, labelled and outlawed in the UK as a Multi-Level Marketing scheme. Nothing I could say to her would make her listen. In the end, I told her that I would be delighted to help her invest her funds when they arrived, and we agreed to meet again on that basis. I never heard from her again.
A year or so later I took on a new client with a much more understandable problem. He had bought an apartment in Spain ‘off-plan’, with a view to selling it on before completion, at a healthy profit. As far as I’m aware, to this day he is still the legal owner of this apartment, although he returned the keys and stopped paying the mortgage years ago. It is a nightmare waiting to revisit him.
Another client with a similar problem bought a flat in Budapest, again unbuilt and ‘off plan’. The amount invested was sizeable, and it took four years for a brick to be laid. In desperation he eventually managed to sell it at a 60% loss.
Undeterred, this same client, before I met him I might add, then decided to invest in a forestry scheme designed to give him a regular income payment for the rest of his life. Unfortunately a drought seems to have interfered badly enough for the income to have dried up (sorry) completely.
Recently I have come across a mind-boggling concept called GCR – Global Currency Reset. Please, please, do not let anyone persuade you to invest any of your hard earned cash building up reserves in currencies such as the Iraqi Dinar or the Vietnamese Dong in the expectation that they will soon be revalued overnight and make your fortune. Believe me, this is not going to happen.
Sane people make these totally irrational investment decisions, albeit whilst temporality on the throes of some form of dangerous mental instability, as it is the only justification I can think of. Please do not be tempted to join this group of dramatic under-achievers. Sound financial advice may seem boring; much along the lines of ‘single digit gains’ and ‘realistic investment profiles’. Sound financial advice will however always save you from the nightmares that can result from your own flights of fancy, should you be that way inclined. And believe me, some of you are.
What are the main financial risks as an expat in France?
By Rob Hesketh - Topics: Currencies, France, Inflation, Investment Risk, Retirement, Uncategorised, wealth management
This article is published on: 29th September 2015
Age and wealth are often linked. One increases inexorably in a linear fashion, and the other tends also to increase over time, but always in a non-linear way. Following this traditional route, we tend to become more affluent as we get older, barring financial mishaps and accidents of course. This may have something to do with the notion that as we get older we become wiser. That may well also be true up to a point, but then it can occasionally go horribly wrong. Leaving that unfortunate possibility to one side, how can we expats best contribute to our own financial well-being?
All a bit deep that, but here is what I’m getting at. If I were to attempt to present a snapshot of my average client to you, it would be of a couple in their late 50’s to early 60’s who have retired early after successful careers and family building, based either on employment or their own business. Avid Francophiles, they are now ‘living the dream’ funded by the fruits of their former labours. All is well in their world; or at least that is how it appears on the surface. Underneath though, there are concerns, and these concerns are common to all of us. Age and money.
I think very few of us actually like getting older; I certainly don’t. It is becoming more and more difficult to ignore those ‘milestone’ anniversaries. I think of them more as millstones these days. As I suspect is the case with many of us, I tend these days to look my accumulated ‘wealth’ (cough), and wonder if it will last me out. I think it will, and I certainly hope it will, but I’m pragmatic enough to realise that it isn’t a ‘gimme’ (in Solheim cup parlance).
So then I start to look at the variables. What can possibly go wrong? What can I do to defend myself against the risks? What are the risks? I am after all a financial adviser; all this should come naturally to me. To an extent it does, but knowing what is out there doesn’t mean that you necessarily know how to beat it. It does help though. Here is my top three on my list of risks to worry about:
Institutional Risk – Basically this means that you put all of your money under the floorboards in the attic, but next year your house burns down, floorboards and all.
Market Risk – How could putting all your money into VW shares possibly go wrong?
Exchange Rate Risk – This is where Murphy’s Law comes into play. Whatever the rate is; whatever you do will be wrong. Otherwise known as Sod’s Law.
Obviously, it is a good idea to work on avoiding these risks wherever possible. I thought long and hard before listing them in this order, but I do think that Institutional Risk stands out. After all, it can wipe you out completely. It can also be avoided completely. The other two cannot be eradicated, although some would argue about F/X risk.
Indeed there was a time when I would have argued that F/X risk can be avoided. In a former life (I’ve told you this before I know), I used to be a foreign exchange dealer in the world of international banking, before it became unfashionable. One of my jobs was to explain to corporate and private clients that F/X risk was the enemy, to be identified and eliminated at all costs; unless of course your job was to make money trading (gambling) in it.
Ten years ago I brought this dogma into my new career as an IFA in France. How long do you intend to stay in France? (forever). Where are your savings? (in the UK, in sterling)… Over the years, the subtleties started to emerge. The collapse of sterling against the Euro; the resulting exodus of thousands of UK ‘snow birds’ from Spain because their UK pensions wouldn’t support them anymore, and the growing realisation that our old enemy ‘age’ was always going to play its trump card; they all contributed to the much changed conversations that have with my clients these days. Strangely though, it is another banking term that now dominates my thinking, namely hedging. ‘Hedge your bets’. To be honest, I tend to question anyone these days who says that they will never return to the UK. Statistics show otherwise. We tend to base our current view on our current circumstances, preferring not to think about what will happen if we end up on our own. How many UK expats are there, I wonder, in French care homes?
Since the Euro came into existence the £/€ exchange rate has been as high as 1.7510 and as low as 1.0219. In anyone’s language that is an enormous range. Coincidentally we currently sit at almost exactly the half way point between those two extremes, but I don’t see that as any reason for complacency. We need to take this risk very seriously, especially if we accept the possibility that we will one day have no more use for Euros. I have a firm view on the best way to manage this risk, but I’ve run out of space in this edition. If you want to discuss it, you know where to find me.
You can’t please all of the people all of the time
By Rob Hesketh - Topics: Currencies, France, Residency, Retirement, Uncategorised
This article is published on: 11th June 2015
It’s a sad but true fact that you can’t please all of the people all of the time. While most of us dance a little jig each time the sterling pops its head over the 1.40 mark (however briefly!), others wince and reach for their calculators, working out how much less they are now worth in sterling terms. For various reasons, as we have discussed before, people decide to ‘go home’. The very fact that they describe it in those terms probably makes them all the more likely to take that decision in the first place, but the fact is that the older we get, the more compelling the argument can become to return to our roots.
There are currently two main problems for those who come to that decision today. The first is the exchange rate, and the second is the housing market. How unfair is it that many of us came to France on the back of a strong pound, then congratulated ourselves when it collapsed, only to find that when we need it to stay weak, it bounces back to bite us where it hurts? And, to compound matters, our cherished piece of French real estate turns out to be worth a fraction of our own valuation. I don’t think this is particularly a French issue though, unless we (surely not?) were persuaded to pay more than the property was worth in the first place. I learned many years ago that if you think you might want to move home at some time in the future, plan ahead. Don’t wait until you want/need to sell and bide your time. Advertise early, and wait for that elusive buyer who really wants to buy your home. Easier said than done though, I must confess, although I have in the past been successful in selling a ‘quirky’ house on this basis, and buying a much more sellable property, purely to put myself into a more flexible situation where I knew I could move quickly if I needed to. Even then some ego inflated politicians started a war and held up our move to France for quite a few months.
No, you can’t please all the people all the time, but what you can do is try to give them the best advice at all times. If you get that right, then major upheavals such as moving back ’home’ can be made less of a trial. A good example is investment advice. I estimate that currently around 5% of my clients are in the process of moving back to the UK, or are thinking about it. I know for a fact that all of them are happy that they took my advice to invest in what I class as ‘Expat Assurance Vie’ policies. I call them this because I know full well that they are designed for and aimed at the expatriate market in France. One major advantage is that they are completely portable. It is easy to convert the policy to a standard UK investment bond. You could even have stayed invested in sterling, but if you had switched to Euro, you can switch back. If the current exchange rate deters you, there is nothing to stop you going back to the UK with your investments still in Euros, to be converted when the rate goes back down (as it surely will).
In part I blame social media for this new type of expat existence. Originally, when you moved abroad, you kept in touch by mail. Good old fashioned post. If something of note happened, either abroad or in the UK, you would write to your family and tell them about it. If it was very urgent, you’d phone, but that was expensive. Nowadays little Jimmy in Tonbridge Wells starts teething and the whole world knows about it in minutes. Don’t get me wrong, I’m not a complete dinosaur when it comes to these matters. I have a Facebook page! But I don’t really know how to use it though. I’ve never found my ‘Wall’, and I’ve never enjoyed being poked. As for Twitter, I’ve never understood the rationale behind it, never mind how to use it. I thought retweeting was military code for a strategic withdrawal.
I suppose it all has its uses, but it makes the world a more volatile place. Sometimes you can just have too much information. Sometimes it’s better to let someone else take over and do ‘stuff’ for you.
Maybe a financial adviser for example…