5 May 2009
Addressing investors at a Wealth Management Forum in Central Birmingham, Jeremy Beckwith, Chief Investment Officer at
Kleinwort Benson, one of the UK’s most renowned and respected private banking and wealth management groups, warned that the greatest fear now for the UK economy and for UK investors is that we enter a ’deflationary debt spiral’. He reassured concerned investors, going on to set out the Company’s investment route map.
Budget outlook
Commenting upon the implications of Darling’s Budget for the UK economy Beckwith said, "The actual numbers for the appalling state of the UK’s public finances are truly astonishing. The expected Government budget deficit for the financial year just begun is £175bn (£2,870 for every man, woman and child in the country), representing over 12% of GDP, and those numbers improve only slowly as time goes on." He believes that budget deficits should be taken with "a large pinch of salt" referring to the assumptions used for economic growth from 2010 onwards as "massively heroic (3.5% per annum from 2011 as far as the eye can see!)". He observed that it was intuitively unlikely that the UK would grow faster than the rest of the developed world over the next few years and forecast the UK not getting back to budget balance until as far out as 2018.
He observed that the world economy had entered "an unprecedented and sharp global recession", and commenting upon the bailing out of the Banks, monetary easing measures and the fiscal stimuli employed by Governments all around the world, he posed the question whether Governments would do too much, suggesting that "the real long-term threat may not be deflation, but inflation." With little real wage growth expected in the years to come and such "an amazing squeeze on public spending as tough or even tougher than even Mrs Thatcher tried to impose in the early 1980s" as well as no further scope for easing fiscal policy, Beckwith sees continued Quantitative Easing as the only way forward - warning ultimately of potential inflationary problems.
Despite the seemingly gloomy market outlook, Beckwith highlighted the fact that
UK
equities had experienced seven consecutive down quarters, an all-time record, arguing that "we are due a good rally." He advised investors that they could expect to see lower volatility - last year volatility was both abnormally high and abnormally sustained –
and said that i
n general terms, bear markets happen faster than bull markets, as confidence disappears faster than it builds up. "The low for equities", he argued "was either last month or will be later this year, depending on the severity of the recession." This he argued
"
is a great time to be a longer term investor in risky assets. The supply of risky assets is very high, the demand for risky assets is very low and so the price of risky assets is very low."
Investors seeking nominal income, however, he continued, have little choice but to take "substantially more risk in their portfolios" as cash and government bond yields will for some considerable time be below inflation. He remarked that "the implications for markets of large budget deficits are no different than they were before the Budget, although they are now more public. The Government has made it very clear that it will not tolerate a Depression, which ultimately puts a floor under equity prices at lower levels as higher inflation leads to higher nominal GDP and higher nominal profits."
Natalie Merrens, Head of Product Advisory at Kleinwort Benson went on to outline to the investors at the Wealth Management Forum the areas in which Kleinwort Benson saw opportunities to preserve and grow wealth.
"Today", said Merrens, "Cash is King, but sometime soon... cash will be trash." Predicting that
the return on cash will fall to near zero in the months ahead, Merrens encouraged investors to keep an open mind. Kleinwort Benson has been looking to exploit market volatility with an increasing number of clients looking for products that offer a high, cash-like return whilst providing a high level of capital protection in the current low interest rate environment, and other clients who believe equities are attractive at current levels and who would like geared exposure. For those with an appetite for greater risk, Kleinwort Benson has been evaluating the newly emerging opportunities in US Residential Mortgaged Backed Securities, but as Natalie Merrens explained to those assembled, "you do not need to go near sub-prime as the opportunity even in prime is significant."
The Wealth Forums have proved so popular with clients based in the South of the country that Kleinwort Benson felt it was important to take the expertise to all of its clients’ doorsteps, with recent presentations in Leeds, Manchester and Scotland. Graham Lucas, Head of the Birmingham office, stressed the importance of hosting such an event for local clients, saying "This was the first Wealth Management Forum we have held in the West Midlands and clients appreciated having access to the expertise of Jeremy and Natalie at such a critical time in the market cycle. As the recession continues to take hold in the economy and investors become increasingly concerned with how best to preserve their wealth, this Forum is the perfect environment for them to learn more about our views on the economy, seek out advice from our investment experts and hear more about the ways in which we indentify investment opportunities. It has been a hugely successful initiative and one we plan to do again in the future."
- ENDS -
Journalists wishing to speak with Jeremy Beckwith or Natalie Merrens should contact:
Kleinwort Benson
Rachel Butler +44 (0) 20 3207 7239
+44 (0) 7957 427066
Carly Connelly +44 (0) 7506 716718 +44 (0) 20 3207 7053
Phoenix
Financial PR:
Sarah Scott +44 (0) 20 7947 2857 +44 (0) 7775 698172
Gordon Puckey +44 (0) 20 7947 2857 +44 (0) 7799 767468
Notes to Editors:
About Kleinwort Benson
Kleinwort Benson is one of the most historic names in UK banking with roots dating back to the 1850s. Kleinwort Benson is the brand name of Kleinwort Benson Private Bank Limited (established in 1962 from the merger of Kleinwort Sons & Co and Robert Benson & Co) and its subsidiaries. It is registered in England at 30 Gresham Street, London, EC2V 7PG. Registration number 2056420. It is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. It operates throughout the UK from a principal office in London and branches in Birmingham, Edinburgh, Cambridge, Leeds Manchester, and Newbury.
Kleinwort Benson is also the brand name of Kleinwort Benson Channel Islands Holdings Limited and its subsidiaries. It is registered in Guernsey at
Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 3BG
. Registration number
24786
. It operates in the Channel Islands through its principal subsidiaries which are regulated by the Jersey Financial Services Commission and the Guernsey Financial Services Commission.
Kleinwort Benson is a member of Commerzbank Group AG.
This information is issued by Kleinwort Benson for the information of the addressee only. Kleinwort Benson as issuer shall not be liable for any loss or damage arising as a result of failure to update information, transmission errors or communications breakdown. Past performance cannot be taken as a guide to future returns and, in particular, investors may not get back the amount originally invested. The references to tax are based on Kleinwort Benson’s understanding of the current law and UK Revenue and Custom treatment, which can change under future legislation.