Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Dan Coatsworth, Investment Analyst at AJ Bell, says:
“It’s party time as the FTSE 100 has smashed through the 9,000 level. This is another big tick in what’s proving to be a momentous year for the UK stock market. It took eight years for the FTSE 100 to go from 7,000 to 8,000, yet only two years to break through 9,000. That suggests the market is shaking its unloved reputation and more investors like what’s on the menu.
“Outperforming the main US indices since January is a major achievement for the UK and the FTSE 100 going through 9,000 builds on this success. It should help to convince overseas investors that the UK market isn’t dull and boring.
“The UK stock market is full of interesting companies that are leaders in their respective fields. While the UK market lacks the kind of technology opportunities found in the US, it excels in other areas and investors are spoiled for choice in sectors such as financials, natural resources, healthcare and industrials.
“The timing is perfect as the financial regulator has announced various initiatives to potentially give the UK market another boost. The IPO process will be sped up in an effort to convince more companies to list in London. Existing quoted companies won’t have to publish detailed documents to raise more money, in most cases. The process of issuing corporate bonds to retail investors will also be simplified.
“These initiatives are a step in the right direction as long as investors can still obtain the necessary information on which to make informed decisions. With cash interest rates trending lower, there is a good chance that individuals will look at other ways to make money and investing is a natural avenue to pursue.”
Housebuilders / mortgage market
“The property market has been a priority area for successive governments and that remains the case today. The latest policies include a push to get more homes built and to relax the planning system.
“Chancellor Rachel Reeves will today go further by announcing additional initiatives to help people get on the housing ladder, including a review of FCA lending rules to recognise prospective buyers who always pay rent on time when considering if they can afford mortgage repayments.
“Shares in the housebuilding sector would normally motor on this type of news, but not today. The sector is firmly in the red after a shocking update from Barratt Redrow whose full-year results reveal home completions below expectations. It says consumers remain cautious and mortgage rates are not falling as quickly as hoped. The general tone is one of frustration and a lack of confidence in the near term, which has soured sentiment across the housebuilding sector. If one of the biggest housebuilders in the country is flagging headwinds, it doesn’t give much hope to the others.
“Getting on the housing ladder is not easy, particularly for those buying on their own without a well-paid job. Affordability is the key problem and the government might have to dig deeper into its bag of tricks to provide the necessary help to get people on the ladder.
“While further interest rate cuts are expected from the Bank of England over the next six to nine months, the pace and scale of cuts is unlikely to lead to mortgage bargains in the near term. Fundamentally, the winds are blowing in the right direction to support a recovery in the housebuilding sector. The big unknown is how long that recovery will take.”
Rio Tinto
“An internal appointment to replace Jakob Stausholm at Rio Tinto is a bit of a surprise given the change at the top seems to have been driven by an appetite for a shift in direction and a big push on acquisitions.
“An external candidate might have found affecting change a bit easier with the perspective of an outsider. The other motivation for new leadership, reportedly, was to bring in someone with more mining experience than Stausholm.
“The company’s appointment of Simon Trott makes sense in this regard given he currently heads up the iron ore business. The Australian has more than 25 years’ worth of experience across different commodities and parts of the world with the business.
“Stausholm was brought in to rehabilitate the company’s reputation after a string of scandals and made decent progress, but chair Dominic Barton is rumoured to want someone who can dial up the dealmaking and take the company into a new phase.
“The mining sector once favoured large acquisitions but a commodity price slump more than a decade ago laid bare the fact companies had paid over the odds for assets. Rio Tinto suffered a $14 billion write-down from its Alcan and Riversdale Mining deals, leading to the 2013 departure of CEO Tom Albanese.
“These acquisitions failed due to poor timing, logistical issues, and poor understanding of the geology. However, chatter about Rio rivalling BHP when it tried to complete the takeover of Anglo American last year, and talk of a merger with Glencore, suggests Rio wants to go large on M&A once again.”
Thames Water
“Cleaning up a mess as big as Thames Water is going to take ages. The wider industry must be sick of seeing the company in the headlines as it puts the reputation of the sector in the mud time after time.
“The latest update from the heavily indebted utility saw it chalk up an eyewatering £1.65 billion loss and its CEO Chris Weston talking about a turnaround lasting at least a decade.
“Thames Water has done little to earn the patience of any of its stakeholders. Its creditors seem almost certain to assume control of the business after private equity firm KKR walked away.
“For customers and regulators, the increase in pollution incidents will do little to inspire confidence despite the company arguing that it has made underlying progress which should come through in the future.”
B&M
“The market is clearly losing patience with B&M’s ability to deliver meaningful like-for-like growth. On the face of it, the company’s latest quarterly update was not a bad way for recently appointed CEO Tjeerd Jegen to kick off his tenure.
“Sales were up at a headline level and on a like-for-like basis. However, the like-for-like increase was only modest, and at least some of this could be attributed to the timing of Easter. This annual catalyst for getting shoppers through the tills fell in the first quarter this year but not last.
“There was also a concerning like-for-like decline in B&M’s fast moving consumer goods grocery channel and it faces continuing pressure on margins, particularly in its general merchandise category.
“There was no updated guidance for the full year – investors will have to wait until first-half results in November for that information – but the tenor of this announcement raises the prospect of Jegen seeking to reset expectations to provide him with the room to turn things around for the business.
“Achieving some genuine sales momentum is probably top of the market’s wish list and today’s update is a reminder that it will take time to fix the problems which led to the departure of Jegen’s predecessor, Alex Russo.”
Mansion House preview
Tom Selby, Director of Public Policy at AJ Bell, comments:
“What the country needs more than anything from the chancellor at this point in time is clarity.
“When it comes to the retail investing drive, that means ending the speculation on ISAs by setting out the key aims of the reform agenda and the options under consideration.
“If the goal is to make life easier for people to use ISAs and to switch from holding cash to investing for the long term, simplifying the landscape, starting with combining Cash and Stocks and shares ISAs into a single main product, is the obvious answer.
“The broader aim of promoting the benefits of retail investing, alongside targeted support and ISA simplification, would represent a solid foundation for the revolution the chancellor wants to see.
“Stamp duty remains a real impediment to that effort. Scrapping this for UK shares bought in ISAs would represent a simple, low-cost reform to back UK businesses, sending an important signal to investors in the process.
“In pensions, the focus is likely to turn to the adequacy review, although it is hard to imagine hiking minimum contributions – hitting employers and employees in the pocket in the short term – will be on the agenda during this Parliament. While clearly there has been huge focus on a pro-UK agenda within pensions, what savers and retirees really need from government is a bit of stability.
“If there was one thing the chancellor could do to give people confidence when planning for the future, it would be to commit to a ‘Pensions Tax Lock’ – a pledge not to alter tax relief or tax-free cash entitlements, at least for the rest of this Parliament.
“The proposal to bring pensions into IHT from April 2027 also remains problematic, with the plans likely to lead to significant delays in paying money to beneficiaries and extra costs which will ultimately be borne by savers. The Treasury still has time to step back and rethink, and the industry has devised alternative options which raise similar revenue to the Exchequer but without the administrative pain associated with IHT.”
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
