By William Mills
Readers have expressed worry over the Stock Market, and indeed the Chinese markets have fallen dramatically overnight which combined with a slowdown in US housing starts have increased fears of a global slowdown.
Yet, even here, the three main Chinese markets are still well above their January 2015 levels. Until they fall below them I don’t think it can be called a rout, rather a correction due to Government interference. After all the Chinese both as individual speculators and Government regulators are inexperienced.
In London I feel the market will not move much because there is money pouring in from the institutions every day and until interest rates go up there is nowhere to put it other than the Stock Exchange or leave in current accounts.
The only other inflation hedge is in chattels such as pictures, furniture, and etc.
I feel that one subject which hasn’t been explained clearly is the pension fund revolution. Workers have paid regular amounts into pension funds for since WWII.
Up until last year when someone reached retirement age they were told that they couldn’t take their pension in cash. So even though it sounded great being told one had a pension pot of several million the disappointed pensioner discovered they could not actually cash it in.
Instead one had to purchase an annuity with one’s pension pot. So one’s £2 million of lifetime’s savings got exchanged for a salary of perhaps only £30,000.This paid after tax equates to £2,000 per month which the pension fund had to actually pay out.
Which is a lot less than having to find £2 million. Also the annuity is only paid for life so when the pensioner dies is the Pension Fund’s gain and the family’s loss.
Now that Osborne has allowed pensioners to take their pension pot in cash, the full £2 million from our earlier example, is now payable forcing the Pension Funds to sell shares in order to provide the money.
To prevent a stock market rout and inflationary consumer spending the authorities need the money back. By increasing interest rates it will attract money back to the banks from newly realised pension pots.
However this in turn may increase pressure on stock market sales as savings rates increase.
So the best share sectors to benefit from a flood of pension money are;
1. Travel. Many newly retired want to see all the places they dreamt of. So airline shares are favourites here.
2. For later retirement health care and sheltered housing providers.
3. The best inflation beater must be antiques. We have an aging population which tends to appreciate antiquities more than younger generations. But pensioners are more fearful of cash shortages than working age people so a ready market in medium value antiques must prosper.
Therefore shares of local auction houses specialising in quick cash sales must prosper.
Views are the author’s own and are not a recommendation to trade in specific shares.