Cover of MoneyWeek magazine issue no 814, Friday 7 October 2016

Bet on Asia for big gains

5 October 2016 / Issue 814

Taken together, Asia's four fastest-growing economies are set to overtake Japan. If you're after growth, forget the West and head East, says Rupert Foster. Read this week's cover story here.

PLUS:
• Hollywood’s top divorce lawyer
• Chairman Wang’s global ambitions
• The £25m grouse moor


Not a subscriber? Sign up now

Excerpt

Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

 

That was quite a week. While I was at the MoneyWeek conference listening to some of our fabulous speakers explaining the many ways in which money isn’t what it used to be, sterling was busy proving all their points.

In the wake of Theresa May’s revelation that Brexit really does mean Brexit and her chancellor’s announcement that George Osborne’s pretend austerity is a thing of the past, the pound fell on Monday and fell again on Tuesday, breaking through 1.15 against the euro and $1.30 against the dollar along the way. It is now 15% below its pre-referendum level.

Good news? Bad news? That depends what side of it you come from. Look at the UK stockmarket and you will only see what looks like good news. By the end of Tuesday the FTSE 100, FTSE 250 and the FTSE Small Cap had all briefly hit new highs. Everyone’s pension statement looks a little better this week than it did last week. This makes sense. Around 75% of the revenues of FTSE 100 companies and 50% of the revenues of FTSE 250 companies come from abroad – so in foreign currencies.

Those revenues can now be changed into more pounds than was the case before, something that will make profits (and, crucially, dividends) look better in sterling. There’s also the hope that the revenues will rise in all currencies: a cheaper pound makes everything we export from the UK look cheaper to our customers.

The next thing to watch is inflation. I don’t want it and you don’t want it. But the Bank of England does (its inflation target is 2% and it would like prices to be rising even faster than that). The falling pound means that anything we import to the UK is instantly more expensive, something that should feed through into retail prices in time.

In normal circumstances I would say that was a bad thing. Today I wouldn’t. Why? Because it is a perfectly normal way to get inflation. And I’d rather get it that way than via the increasingly bonkers monetary policy ideas of our central bankers. A 15% fall in the pound over helicopter money, endless quantitative easing, negative interest rates and an outright ban on cash? Yes please.

On to your money. If the value of the pound in your pocket is falling, you need to make sure you are investing in such a way as to get more pounds into your pockets. At the conference we all appeared to agree that emerging markets are the right place to be long term – in this week, Rupert Foster explains why and offers some fund suggestions. Otherwise this week, I speak to Nick Greenwood about his favourite investment trusts.

He wants you to buy uranium, flats in Berlin and some Indian mid-caps. Not all of his ideas are going to work out – but they will, at least, mean you end up with a very diversified portfolio, something that means the volatility in the pound will matter to you an awful lot less than otherwise.