Receive free updates of personal finance advice and commentary
We will send you a MyFT Daily Summary email with the latest news on personal finance advice and commentary each morning.
UK savers invest £ 31.3 billion in their retreats in the year until April 2020, according to figures released this week.
This was an increase from £ 27.9 billion the year before, according to HM Revenue & Customs. Some 9.4 million people have contributed to their personal pensions – with an average annual contribution of around £ 3,300.
Add up all the tax breaks that come with it, and the net cost to the state coffers was over £ 22 billion. This last figure is essential – it not only represents the immediate tax relief you get when you contribute, but the capital gains tax and dividend taxes you never have to pay when your money is. protected in a pension.
The good news is that the majority of new funds come from our excellent auto-enrollment program – and 65% of contributions are paid by employers (so most people actually get paid a little more than they think).
This is all on top of real money – money in the retirement accounts of real people looking for a home. The problem – and most obvious – is that with most seemingly expensive markets and inflationary construction, good homes are hard to come by.
One way to look at this, perhaps the only one, is to think as long as possible. With valuation risk and interest rate risk (central banks might find that the effect of the supply crisis on prices means they have no choice but to increase rate) overlooking everything, we have to assume that there will be a bad correction (maybe a crash) at some point soon enough and we just have to buy the investments that we think will be least hampered by such a disruption in 10 years.
One thing to look at in this context is how a market is valued – the UK is still way too cheap (I know you’re fed up with me telling you this).
Another is the extent to which its internal dynamics and growth could make any fuss over short-term valuations a decade ridiculous – much like those of us who have worried about the price of Google and Amazon. a decade ago now look very silly indeed.
And so in India. Just a few months ago, the news from India seemed utterly appalling. The news was jam-packed with stories of uncontrolled Covid infections and overflowing hospitals. But, after peaking at an unpleasant peak in early May, cases dropped rapidly and the vaccination program picked up steam (the labor force is expected to be terminated early next year).
What about the stock market? The Sensex index of major Indian stocks has more than doubled from lows in March last year, is up 22% year-to-date and hit 60,000 for the first time last week.
There are a lot of things here. The first thing to say is that all of the long term structural reasons to be interested in the Indian market, the ones you already know, remain in place. It has a rapidly growing and increasingly well-off middle class (around 50 million people today and heading to well over 400 million), a very young and educated population (you can’t say those two things to about many countries) and wages are relatively low. to those in much of the rest of the emerging world – a third of that in China, for example.
India also has a reformist government – the country now consistently ranks among the top 10 countries in the World Bank rankings. Ease of Doing Business Rankings. In the shorter term, there is, according to Chris Wood of Jefferies, “growing evidence of a new residential real estate cycle” underway after a seven-year slowdown: affordability remains at historically attractive levels and sales increased.
The Julius Baer Report on the Global Way of Life places Mumbai at number 22 in its livable cities index, calling it a “vibrant and diverse financial center” where residential real estate costs half the world average and “the only really expensive items are cars”.
However, there are two new things to watch out for in India. The first is its technological revolution. Open-minded young Indians tend to be early adopters, according to David Cornell of India Capital Growth and the rollout of the world’s largest 4G network combined with lockdowns, low-cost data and widespread use of smartphones ( 1.1 billion users) have significantly accelerated the advent of e-commerce. and digital banking. In India, 99% of all online activity takes place on phones.
This transformation is not yet reflected on the stock market: the digital and technology sector only represents 1% of market capitalization compared to 30% in the United States. It’s about to change. There is, says Mike Gilligan of Killik & Co, a “wave of IPOs coming in.” In other words, the unicorns are coming.
The second change in India, partly accelerated by the pandemic, is a growing realization that the country is not China. The past few years have alerted multinationals to their over-reliance on Chinese industry in times of political tension. They need to diversify and what better place to do that than cheap English speaking India, with its well established chemical, electrical and pharmaceutical manufacturing base?
Investors might have a similar sentiment: Following a series of anti-market crackdowns in China, they seem to want to shift some of their exposure to emerging markets as well – and where better than digital experts and fast-growing investors. Friendly India?
None of this is cheap: the average price / earnings ratio across the Sensex is just over 30 times. But with incomes at what Wood calls an “inflection point†on the rise and a possible tech boom ahead, that number should look rather better soon – and perhaps a distant memory when you just received your pension. .
Indian economy
Read the latest reports and comment here
There are some good trusts in the area. You can start with the Pacific Horizon Trust managed by Baillie Gifford. This is not only focused on India, but there is surely a message in the fact that it invested in three new Indian companies before the IPO (10% of the company’s assets can currently be invested in private companies) in the last fiscal year for July and increasing the share of the portfolio held in India from 7% to 29% in the same year, while the Chinese exposure increased from 41% to 27%.
Long-term manager Ewan Markson-Brown recently resigned (you can find him at Crux Asset Management where he will be launching a similar fund but within a smaller management company) but the portfolio has remained in good shape.
Another option is the India Capital Growth Fund, which invests only in mid and small cap companies. The performance has been good recently and you can buy it at an 8% discount from its net asset value. It sounds like good value: the board has made sure that investors who wish to redeem their holdings do so at a 6% discount at the end of the year). Finally, there is the Ashoka Indian Equity Trust which is again focusing on medium and small businesses. It has a performance fee (I don’t like these) but it certainly deserves it – stocks are up 34% this year alone.
Merryn Somerset Webb is the managing editor of MoneyWeek. Opinions are personal. [email protected]. Twitter: @MerrynSW
