Cashing in
Stockpiling
The amount of cash being held by investors globally has neared a 15-year high, according to the monthly fund manager survey compiled by Bank of America Merrill Lynch. The asset allocation decision shows reticence among investors to fully commit to markets as the uncertainty surrounding the UK’s exit from the EU weighs on confidence. EU disintegration was the biggest tail risk perceived by those surveyed. A bond market crash and a Republican election victory in the US followed. Such high levels of cash have only been seen in the immediate aftermath of the Brexit vote, in autumn 2001 and in the wake of the 9/11 terror attacks.
Passive crunch
Investors switch
The world’s largest asset manager, BlackRock, reported that third-quarter revenue was down on the previous year as its clients continued to favour cheaper, passive investment strategies over actively managed funds. While assets under management rose by 5 per cent quarter on quarter from $4.89 trillion to $5.1 trillion, revenues rose just 1 per cent to $2.8bn. But sales dropped 3 per cent compared with the third quarter of 2015.
More pounding
Goldman's prediction
The drop in sterling might be causing all sorts of issues – including the price of Marmite – but Goldman Sachs is predicting we haven’t hit the bottom yet for sterling. It still thinks the currency is roughly 10 per cent overvalued on a trade-weighted basis. It said its ‘fair value’ models did not account for “structural breaks of the kind the referendum and the rising odds of a hard Brexit clearly represent”. This means the bank’s $1.20 forecast for the pound faces being pushed further towards parity with the greenback, although the bank notes that Brexit uncertainty makes modelling this more difficult than usual.
Turnaround Tesco
Every little helps
The rejuvenation of Tesco under new chief Dave Lewis seems to be continuing, judging by figures released by data provider Kantar Worldpanel. The agency said Tesco managed to grow sales for the first time since March 2015 in the 12 weeks to 9 October. Sales rose 1.3 per cent versus a comparable 12-week period last year. Not only that, but the grocer grew its market share to 28.2 per cent, the first year-on-year market share gain since 2011. Iceland, Co-op and Waitrose also won market share, but discounters Aldi and Lidl’s combined market share remained flat month on month.
Credit worry
China growth
The world’s second-largest economy grew at an annual rate of 6.7 per cent in the third quarter, but fears remain about China’s corporate debt levels and inflated property markets. Some analysts believe the country’s strong growth is a by-product of an unwieldy expansion in credit, particularly that linked to real estate and state-backed infrastructure. China’s National Bureau of Statistics also expressed a hint of bearishness, saying the economy was “still in a critical period of transformation” as it moves towards being a service economy rather than one fuelled by infrastructure spending.
Foundations knocked
Regional chief arrested
Housebuilder Barratt Developments suspended London director Alastair Baird this week after the Metropolitan Police arrested him along with one former Barratt London employee. The arrests follow a referral in April 2016 by Barratt to the Met of initial findings of an internal investigation that started in August 2015. The probe related to “possible misconduct” in awarding and managing certain material and subcontract supply contracts in the London region. The investigation also led to civil legal action against an employee who was dismissed in February.
SVG deal battle
HarbourVest wins
The short, sharp battle for control of London-listed private equity group SVG Capital has ended with Boston-based HarbourVest securing a win. The group’s offer values SVG’s investment portfolio at roughly £807m – a 0.6 per cent premium according to SVG. HarbourVest had to fend off rival bids, the main one being from Goldman Sachs and Canada Pension Plan Investment Board. Fund managers Pomona Capital and Pantheon Ventures also sought to buy 50 per cent of the portfolio. Following the sale, SVG said it expects to return more than £1.1bn through a series of tender offers, after which it will be wound up.
While the UK’s unemployment rate remained at an 11-year low of 4.9 per cent in the three months to end-August, the news on wages isn’t so rosy. Wage growth remained weak at 2.3 per cent for the same period, which is a worry given data released this week showed a strong uptick in inflation (see news spotlight on page 11).
Living standards have started to recover in the past two years in spite of wage growth being roughly half what it was before the financial crisis, because inflation has been so low. But if pay doesn’t pick up, consumer spending could be hit if the price of goods rises. Economists’ forecasts, collated monthly by the Treasury, predict real pay will start falling in the final quarter of 2017 because of higher inflation and weaker pay settlements.
