The NASDAQ hits 6,000

The market most associated with US technology shares reached a new high in April.

You may be old enough to remember that the end of the 20th century was marked by a surge in the value of technology shares in the United States. Many of these were traded on the NASDAQ market, which became synonymous with the “tech boom”. The main NASDAQ Composite Index peaked on 10 March 2000 at 5,132.52, having been a little under 1,500 in October 1998.

That meteoric rise was followed by an equally dramatic reversal: the “tech boom” turned into a “tech bust”. The experience was traumatic for those investors who joined the ride late in 1999 and reinforced the NASDAQ’s reputation as being not a place for widows and orphans to invest their money. The March 2000 peak survived as an all-time high for over 15 years, before being overtaken in summer 2015. By early 2016, the NASDAQ had fallen back below 4,500, driven by fears about China. These proved short-lived and last month, the index breached the 6,000 level for the first time.

Inevitably, the arrival of a new round-number all-time high – at a time when other US stock markets are generally reaching new peaks – has brought back memories of what happened in 2000. However, the NASDAQ of 2017 is very different to its 2000 version. At the turn of the century, the NASDAQ market was dominated by technology and software companies. Now, the NASDAQ constituents are much more broadly spread with, for example, media and retail playing a significant role. The market is also much cheaper than it was 17 years ago in terms of the common yardstick of the ratio of price to earnings (P/E ratio). At its peak, the NASDAQ was trading on a P/E of over 70, whereas now it is less than half that level.

While the difference between 2000 and 2017 are no guarantee that the NASDAQ will not head back down to 1,500, they are a reminder that looking at the index number alone, especially over an extended period, can be misleading.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

A round-up of Budget non-starters

The Spring Budget has become a victim of the snap election.

Philip Hammond has not had much luck with what he said would be his first and last Spring Budget. His proposal to increase Class 4 national insurance contributions from April 2018 survived only a week before being dropped. Then when the Finance Bill was published in March, he won the dubious accolade of producing the longest ever Bill, at 722 pages. Just over a month later, the early election forced him to cull over half the Bill’s contents so that he could push a slim-line consensus version through before Parliament shut up shop.

As a result, several important changes that were pending have now disappeared. For example:

  • The reduction in the money purchase annual allowance from £10,000 to £4,000 from 6 April 2017. This could have created problems for people who phase their retirement, both drawing pension benefits and contributing to a pension.
  • The cut in the dividend allowance from £5,000 to £2,000 from 6 April 2018.
  • The introduction of making tax digital. This was due to begin for traders with income above the VAT threshold level from 6 April 2018, with others starting one year later.
  • The pension advice allowance. There was to have been a new tax exemption from 6 April 2017 for up to £500 per tax year for employee pension advice, paid for by an employer. The old, more restricted £150 allowance now remains in place.
  • The property and trading allowance of £1,000 each from 2017/18. These new allowances were aimed at keeping small amounts of trading income and property income out of tax.

It seems likely that most of the “lost” legislation will re-emerge in a summer Finance Bill after the election, if the pollsters are right and the Conservatives are returned to power. However, the start date for some measures, such as the money purchase annual allowance cut, may be pushed back to 2018/19 because of the delay in reaching the statute book. Others may be overtaken by fresh proposals, as a new May government would not be constrained by pledges in the 2015 manifesto.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

China: fourth time lucky?

One of the major index providers is reviewing the constituents of its important global market indices.

Which country can boast the world’s second largest stock market and third largest fixed interest market?

You might be tempted to say Japan, but while you would be in the right part of the world, you would have chosen the wrong country. The second biggest share market and third biggest bond market both belong to China. However, to date, China’s internal markets have not figured in the main investment indices. There have been various reasons for these exclusions, but the main one has been capital controls. China still restricts flow of its currency and has recently tightened its rules to limit back door export of its currency, the Renminbi.

Now, for the fourth time in as many years, MSCI, the leading emerging markets index provider, is consulting on whether and how to include mainland Chinese shares in its emerging markets indices. Chinese shares listed away from the mainland, e.g. in Hong Kong, already account for 27% of the MSCI Emerging Market Index. MSCI’s latest proposal is to include only mainland Chinese shares accessible from Hong Kong, initially with a very small weighting. Ultimately, China could account for around 40% of the MSCI Emerging Market Index – hence the decision to start slowly.

Press reports suggest that this time around China will be added to the MSCI indices when the decision is made in June. The world’s largest investment manager, BlackRock, is in favour of China’s inclusion, which adds to the likelihood it will happen.

If you want to increase your exposure to the world’s second largest stock market, there are a variety of options available which we would be happy to discuss.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstance.

Probate fees changes – an election casualty few will mourn

The election has put a stop to planned increases in probate fees for England and Wales.

Once a general election is called, there is usually a period known in parliamentary jargon as a ‘wash up’, during which outstanding legislation is passed, modified and passed or simply killed off, all in a matter of days. Unsurprisingly it is the more controversial proposals which generally get buried, as the timescale requires cooperation from the opposition to rush law onto the statute book.

Theresa May’s decision to call an election at seven weeks’ notice meant that all the outstanding legislation – including a 762-page Finance Bill – had to be dealt with in the space of a fortnight. One of the pieces of legislation which was dropped was “The Non-Contentious Probate Fees Order 2017”. It had reached the draft regulation stage, at which point it was proving to be anything but non-contentious.

The order would have restructured probate fees in England and Wales, moving them from a flat fee of up to £215 to a variable fee that started at £300 for estates valued at between £50,000 and £300,000 to a £20,000 fee for estates worth over £2,000,000.

The higher fees prompted the inevitable ‘new death tax’ headlines and one committee of MPs questioned their legality, arguing that the revised charges “appear…to have the hallmarks of taxes rather than fees”. Rather than face a battle for which it did not have time (nor probably the political appetite), the Ministry of Justice abandoned the legislation. It is unclear whether it will return after the election.

While the probate fee increase has disappeared, at least for the time being, the legislation introducing the new residence nil rate band came into force from April. If you have not yet reviewed your estate planning in the light of its introduction, now is the time to do so.

 The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

State pensions: not quite what was advertised

Most people reaching state pension age today are receiving less than the new state pension.  

A Freedom of Information (FoI) request from the Sunday Times revealed an interesting fact about the new state pension, which started life just over a year ago on 6 April 2016. The newspaper asked how many people who had reached state pension age (SPA) since that date had received at least the new state pension (originally £155.65 a week, now £159.55).

The response from the Department for Work and Pensions (DWP) was that between 6 April 2016 and 31 August 2016 – so roughly in the first five months – 41% of people reaching their SPA (65 for men, about 62 and a half for women) had pensions at least equal to the new state pension. Or, to put it another way, 59% got less than the headline ‘single-tier’ amount which the government so heavily promoted.

It was always the case that what was promoted as a ‘flat rate’ pension was going to produce anything but that for many people, with the numbers receiving less than the full amount gradually declining as the new scheme matured. According to the DWP’s own calculations, by 2020 slightly under half of new state pensioners will receive less than the full rate, while by 2030 that proportion shrinks to just under 20%.

This was well-known to pension experts, but not made clear in much of the information supplied to the public. The House of Commons Work and Pensions Select Committee, in its report on “Communication of the new state pension” said that the potential shortfalls had “…not been made sufficiently clear in government communications that…focused on the full flat rate of £155.65”.

If you want to see what you are currently projected to receive when you reach state pension age (which, don’t forget, may be changing again from 2027), then the starting point is the government website https://www.gov.uk/check-state-pension. Even if you are entitled to the full amount (or more), it is worth putting that figure into context: for a 35-hour week, the newly increased National Living Wage provides £262.50, almost

Even if you are entitled to the full amount (or more), it is worth putting that figure into context: for a 35-hour week, the newly increased National Living Wage provides £262.50, almost two-thirds more than the full flat rate state pension. Which means you may want to review your non-state private pension provision…

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.