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As the coronavirus continues to dominate the news, Brewin Dolphin’s Head of Research Guy Foster looks at what the outbreak could mean for the markets in the coming weeks and months.

Stock markets have been sent sharply lower by news that the coronavirus is continuing to spread outside mainland China, with clusters now in Italy and Spain in addition to an uptick in cases in Iran and South Korea.

More encouragingly, reports suggest that the number of cases is stabilising in the Chinese province of Hubei, where the virus was first discovered.

Even so, as the virus spreads to other parts of the world, risk assets are being sold off, and investors are heading into perceived safe havens such as gold and government bonds.

Why have markets taken so long to react?

There have in fact already been several sell-offs following the intensification of the virus in mid-January, but the market largely shrugged off any concerns – broadly due to the fact that events had been very well contained, with over 90% of cases restricted to China.

We believe that investors initially saw this outbreak as a temporary anomaly, with efforts to restrict its spread, such as factory closures and disruptions to supply chains, weighing on growth in the first half of 2020. But that deferred activity gave investors something to look forward to in the second half of the year, as economies were expected to rebound.

However, news that the virus has spread in a meaningful way outside of China to Italy and South Korea is forcing a reappraisal of that expectation. Now, the worry for investors is that tougher quarantine measures outside China to prevent or slow the spread of the virus make it increasingly difficult for companies to maintain normal production levels. This in turn will hit sales and profits.

We have already seen companies such as Apple warn that their next quarter’s trading periods will be impacted because of broken supply chains and closed factories, and this will only get worse if the virus spreads further. Such disruption will have an effect across sectors, making its cumulative impact difficult to predict.

It seems clear that this outbreak has further to run and investors should therefore brace for more volatility in stock markets as investors react to more bad news.

This volatility is quite the opposite of the circumstances that have preceded previous downturns. These have tended to be driven by a slowdown in consumer demand. In this instance, however, companies are being restricted from selling their goods and services that consumers still want to buy. So, while growth is being “deferred” rather than destroyed, weakness in share markets will likely be a temporary phenomenon.

Where it becomes a bigger issue is if the economic pause lasts longer than expected, forcing companies to cut back on staff because then it creates classic recessionary conditions, where demand begins to shrink faster than supply. That doesn’t seem like a sensible practice unless the spread of the virus accelerates once more.

What should investors do?

Worrying as this outbreak is, we are urging clients not to allow fear to govern their decisions. We have been in similar territory before in terms of health scares, and there are lessons to be learned from previous outbreaks such as SARS, Ebola, MERS and Zika.

Given its Chinese origins, the SARS outbreak in 2003 is the best comparison, although circumstances are very different today. Back in 2003, China’s share of global GDP was just 4%. Today it is almost 16%, so there is more at stake.

Share market valuations around the world are also higher, and we are at a later stage of a more mature economic cycle.

Nevertheless, history has shown it is better to ride out near-term volatility and wait for markets to recover in the medium term.

Without downplaying the human tragedy or the looming economic fallout, we suspect the current crisis will share some similarities with the SARS outbreak.

It is worth noting that Asia ex Japan equities bottomed out in 2003 shortly after the rate of change in total SARS cases definitively began to move lower.

In just the same way, earlier this month, we saw equity markets rally on the back of data showing that the rate of new coronavirus cases in China had slowed.

Equities remain in demand

However, equities were vulnerable to any new bad news, and that came with reports of the virus spreading into Europe. Ironically, that will mean the prospect of higher returns on cash or bonds becomes an even dimmer prospect – market interest rates now suggest that investors believe it is highly likely interest rates will be cut in the US and UK this year, meaning continued demand for equities, which offer the prospect for higher returns.

So, we are encouraging investors to focus on the medium term. It is important to remember that consumption has not disappeared – it has merely been postponed. And if the outbreak is contained relatively quickly, this delaying of economic activity can give markets a significant boost a little further down the line because it will lead to a surge in activity in forthcoming quarters, as economies recover.

Countries are taking extraordinary steps to contain the virus and pharmaceutical companies around the world are working towards a vaccine at a record pace, with reports that human testing could begin in April.

For equities to begin rallying anew, however, investors will need to see evidence that the rate of growth of new coronavirus cases outside of China is being quickly contained.

The value of investments can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.

We all want to get the most out of our money, and investing can be an excellent way to help it grow over the long term, but tax can eat into your hard-earned returns. Luckily, there are tax-efficient investment options that can cut the tax bill and boost your assets.

If you’re looking for a solution, these seven tax-efficient investments are worth considering.

1. Stocks and Shares ISA

ISAs (Individual Savings Accounts) are the most common way to save and invest with tax efficiency in mind. In fact, there are around 10.8 million Adult ISAs in the UK.

If you choose a Stocks and Shares ISA, your money is invested to generate returns. The good news is that investments held in an ISA are free from Income Tax and Capital Gains Tax. Each tax year, you can place up to £20,000 into ISAs, choosing either to deposit this in a single account or spread it across several.

One of the benefits of Stocks and Shares ISAs is that you control how much investment risk you take, allowing you to match it to your risk profile. There are plenty of ISA products on the market to choose from too.

2. Pensions

If you’re looking to invest for the long term, a pension may be suitable. As tax-efficient investments go, pensions can help you get the most out of your savings.

The returns pension investments generate aren’t taxed; instead, withdrawals are taxed once you use a pension to create an income. You also benefit from tax relief paid at the highest level of income tax you pay. It can help your contributions add up, particularly when you consider compounding. The amount you put into a pension and still receive tax relief on is usually limited to either £40,000 or your annual earnings each tax year. However, if you earn more than £150,000 annually you may be affected by the tapered annual allowance, which can be as low as £10,000.

Of course, you need to keep in mind that your pension won’t be accessible until you reach pension age. If you have other plans for your investments or need to access them sooner, other options may be able more suitable.

3. Dividend-paying shares

After you’ve reached your ISA allowance, choosing shares in companies that you intend to hold long term which pay annual dividends can be a tax-efficient investment. Each tax year you don’t have to pay tax on those that fall into your dividend allowance. For the 2019/20 tax year, this is £2,000.

4. Venture Capital Trusts

Venture Capital Trusts (VCTs) are listed companies that are run by a fund manager that invests in companies. Typically, they will invest in smaller companies that are not quoted on stock exchanges. This gives you an opportunity to invest in companies that have the potential to experience fast growth, but it also comes with additional risk that means they’re not suitable for all investors.

So, why are VCTs tax-efficient investments? You can claim the amount invested in newly issued VCTs on a tax bill at 30%. So, if you invest £10,000 in VCTs, you can offset £3,000 against your tax. However, you can’t claim more than the amount of your tax bill. You must also hold the investment for five years.

5. Enterprise Investment Scheme

If you’re interested in investing in early-stage companies, choosing ones that qualify for the Enterprise Investment Scheme (EIS) can help you get the most out of your money. Like VCTs, EIS companies have rapid growth ambitions but investing in early-stage companies is considered highly risky compared to mainstream investments, as there’s a greater chance they’ll fail. You should consider if high risk investments match your risk profile before proceeding.

Each year you can invest £1 million in EIS companies and take advantage of 30% income tax relief. They become even more tax-efficient if you hold the investments for three years. At this point, they become free from capital gains tax and inheritance tax. This can make it an attractive way to reduce your tax liability over the long term.

However, you should carefully consider the risk. Investing in an EIS fund, rather than a single company, can help spread the risk but there is still a relatively high chance investment values will fall.

6. Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) is similar to the EIS but you invest in companies at an even earlier stage of development. This means the potential returns and risk are even higher as the company must be no more than two years old. As a result, they’re not suitable for mainstream investors but can be useful for sophisticated investors that have made use of other allowances.

The higher risk means as a tax-efficient investment, the benefits are greater. You can receive 50% income tax relief when taking advantage of the SEIS, which can be received the same year the investment is made. Once again, returns will be exempt from capital gains tax and inheritance tax. The amount you can invest whilst receiving tax relief is lower, at just £100,000 per year.

7. AIM shares

If you’re worried about the impact of inheritance tax on your legacy, AIM shares can help mitigate the bill. AIM is the London Stock Exchange’s international markets for smaller growing companies. It includes a range of businesses, from start-ups to firms that are backed by a VCT looking to raise capital growth.

AIM shares make it on to the tax-efficient investments list because they qualify for business property relief. This means, once they’ve been held for two years, they are exempt from inheritance tax. This can make them useful for planning long-term wealth and how you’ll pass your estate on to loved ones.

Again, AIM shares are considered high risk and they’re not suitable for everyone.

If you’d like to discuss tax-efficient investments in relation to your circumstances, please get in touch. We’re here to help you build an investment portfolio that suits your aspirations and risk profile.

Please note: Articles on the website are offered only for general information and educational purposes. They are not offered as and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

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.

High risk investments, such as those in Venture Capital Trusts, the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and AIM Shares, are not suitable to all investors. Your investments should align with your risk profile.

At Blue Wealth, we continually seek to improve our professional standards and we are pleased to announce that we have met the criteria to adopt the Personal Finance Society’s ‘Pension Transfer Gold Standard’.

What is the Pension Transfer Gold Standard?

The Pensions Advice Taskforce, a representative industry body set up by the Personal Financial Society, has established a voluntary code of good conduct for Safeguarded and Defined Benefit Pension Transfers advice – the ‘Gold Standard’.

It is designed to help clients make informed decisions and find firms that will adhere to the high professional standards when giving Pension Transfer advice.

Why Blue have adopted the Pension Transfer Gold Standard

As a regulated financial planning firm, we are already required to follow the Financial Conduct Authority rules and adhere to some core principles, two of which are especially significant when it comes to complex pensions advice like pension transfers:

A firm must pay due regard to the interests of its customers and treat them fairly.

A firm must pay due regard to the information needs of its clients and communicated information to them in a way which is clear, fair and not misleading.

By adopting the Pension Transfer Gold Standard, you can expect Blue Wealth to exceed these requirements in our dealings with you and go the extra mile, so you know you are in good hands. Specifically, we will:

Help you understand the implications of a transfers, so you can decide whether taking advice is appropriate before you take it and incur any costs in doing so.

Ensure that the advice supports your overall wellbeing in the context of your stated objectives, needs and wants.

Use appropriately qualified technical skills to advise on whether to transfer and what to transfer into in order that you have the best chance of meeting your objectives.

Only recommend mainstream investments from regulated investment companies (unless you are an expert investor).

Be fully transparent and take necessary steps to ensure that you understand all the costs involved.

Draw your attention to any Conflicts of Interest in giving pension transfer advice and how these are managed in your best interests.

Share with you our experience and the outcomes of advising people on transfers.

The Pension Transfer Gold Standard is based around nine Principles designed to deliver advice that adheres to high professional standards. Our responsibility is to ensure our clients can be confident they are dealing with a firm that adheres to these high principles and standards.

You can learn more about the principles we adhere to and the Pension Transfer Gold Standard by reading the consumer guide here.

If you would like to know more about the Gold Standard and how it relates to your and the service we provide, please do not hesitate to contact us.

When you think of financial planning, pensions and savings will spring to mind. But, whilst often overlooked, protection should be a core part of your financial plan.

Before we look at the benefits of financial protection, what exactly is it? The term refers to a range of insurance policies that pay out under certain circumstances. They aim to give you peace of mind and financial security.

Which protection products are right for you will depend on your circumstances and priorities. Among the most common types of policies are:

Life insurance: Life insurance would pay out a lump sum on your death and, in some cases, if you’re diagnosed with a terminal illness. It can provide some financial relief for loved ones during a difficult time. If your income is essential for your family’s lifestyle, it can provide some certainty. You’re able to set the level of cover to meet your needs, for example, ensuring there is enough to pay off the mortgage.

Critical illness: This policy would also pay out a lump sum on the diagnosis of certain illnesses that the policy covers. Some policies are more comprehensive than others. The money can help you adjust to the diagnosis and give you some time to come to terms with it. Among the most common reasons to make a claim are diagnoses of cancer, heart attack, stroke and multiple sclerosis.

Income protection: If you’re unable to work for an extended period of time, an income protection policy will make regular monthly payments. Often the payments will continue until you’re able to go back to work or retire. It can help you meet financial commitments if you become ill or involved in an accident. Typically, it’ll pay out a percentage of your usual salary.

The premium paid for financial protection varies between providers. Your lifestyle and health will also have an impact. You must keep up with repayments for the policy to remain valid.

Placing your financial security at risk

People could be putting their financial security at risk by not considering how they’d cope if income stopped or their situation changed. According to a report from Royal London, just 27% of consumers are confident they have sufficient cover. The research also found:

• 56% of aspiring young adults would last less than three months on their savings if they couldn’t work. But, just 17% say they’re likely to buy income protection in the next five years.
• Only one in five (22%) high-income households currently have critical illness cover. Many wrongly believe it’s too expensive.

Why is financial protection important?

1. It provides peace of mind

When planning, it’s normal for ‘what-if scenarios’ to pop up. What would happen if you were to become too ill to work? Could your loved ones cope financially without your income?

The right financial protection can give you peace of mind. You know that you have something to fall back on if necessary. Taking out an appropriate policy can keep you on track financially even when things go off course. It’s a step that can ease fears and let you focus on what’s important to you.

2. It acts as a safety net when things don’t go to plan

Even the best-laid plans can go off course. When something unexpected happens, it can leave you financially vulnerable. Whilst it’s always a good idea to have an emergency fund and other provisions, financial protection acts as a safety net too.

If losing your income for an extended period of time means you’d struggle to keep up financially, protection can be the cash injection you need. Hopefully, it’ll mean you don’t have to worry about paying for the essentials, such as your mortgage or rent, at a difficult time.

3. It can give you time to get back on your feet

If you’re unable to work due to illness, it can be tempting to go back as soon as possible for financial reasons. But it could harm your recovery. Income protection or critical illness cover can give you some breathing space. It means you’re able to get back on your feet first and figure out if adjustments need to be made.

If you access financial protection, it may be the case that an accident or illness will have a long-term impact. Having a policy to fall back on means you don’t have to rush into making a decision.

4. It can protect what’s most important to you

What are you most concerned about should something happen? For some, it’ll be keeping up with mortgage payments if you were unable to work. For others, a key worry will be what would happen to their family without them. Financial protection can provide confidence that what is important to you will be protected.

Making protection part of your financial plan

With appropriate protection in place, you’re in a position to start planning other areas. Financial protection can give you confidence that you can remain on track even if the unexpected happens. If you’d like to talk about your protection, please get in touch. We’re here to help you build a safety net that matches your concerns and goals.

Please note: Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.