WINTER
2017 WORLD ECONOMIC AND MARKET OUTLOOK Graham O’Neill
EIR PRICE HIKE MARGINALISES OLDER, LOYAL, VULNERABLE CUSTOMERS 20,000 CONSUMERS URGED TO SWITCH AND SAVE ENERGY PROVIDERS MANAGE YOUR CHRISTMAS FINANCES IN 5 SIMPLE STEPS PARENTAL LEAVE: GETTING TO THE HEART OF EQUALITY
TABLE OF CONTENTS World Economic and Market Outlook - Graham O’Neill
3
Business Briefs
12
20,000 Consumers Urged to Switch and Save Energy Providers
14
Eir Price Hike Marginalises Older, Loyal, Vulnerable Customers
15
Manage Your Christmas Finances In 5 Simple Steps
16
Parental Leave: Getting To The Heart of Equality
17
Legal Briefs
18
Meet The Team
19
Range of Services
20
Welcome to the final newsletter for 2017.
It is hard to believe another year is almost over but we hope it was a good one for you. This issue, as always, has a variety of articles which we hope will be of interest to you and your business. In this edition, Graham O’Neill has prepared the most recent World Economic Outlook and Market Update. If you require any more information on this or have any queries, please do not hesitate to get in touch and one of our highly experienced team will be happy to assist you.
Dervilla and Sarah.
October
2017
WORLD ECONOMIC & MARKET OUTLOOK Graham O’Neill - DIRECTOR AT INDEPENDENT RESEARCH CONSULTANCY LIMITED
Overview: • Summer months passed without major market mishap • Euro strength major standout feature • Third longest US economic expansion has seen muted inflationary pressures • Extreme shock of GFC has shaped untypical recovery • Debt, demographics, devices & distortions driving low inflation era • Global growth while synchronised remains subdued by previous periods • Elongation of already extended cycle strong possibility • Rebound in Chinese economy helping entire Asian region • Party Congress will announce further reform measures • President Xi wants to go down in history as China’s Great Rejuvenator • Asian markets seen first year of positives earnings expectations since 2010 • Indian economy suffered from demonetisation & GST but huge long-term potential remains • ASEAN markets lagged but offer interesting contrarian opportunities • Fixed interest markets offer limited value at best with credit still relatively attractive • Equity valuations high, interest rates remain low & monetary policy accommodative • Investors need to be both pragmatic & also mindful of potential risks • Continuation of economic cycle could see equities make further gains
3
Disinflationary Forces
Previous financial crises have seen high unemployment rates for up to five years and even today unemployment in peripheral European countries remains significantly above its 2007 levels. Whilst a strong recovery has occurred in the States the labour participation rate remains low and underemployment may be occurring. Even in Japan today where vacancies to job applicants is at a record high, it should be noted that the type of jobs on offer are generally low paying service ones, whilst those in well paid office employment continue to see a shortage of alternative opportunities. Another feature of financial downturns was that economies where there was greater wage flexibility have rebounded faster and in Europe Ireland has definitely benefitted from the willingness of the population to reset levels of disposable income, with that economy now the fastest growing in developed Europe.
The summer months passed without major event for markets, with perhaps one of the stand out features being the strength of the Euro versus the US currency. Thus the long bull market which started in 2009 post the Financial Crisis has continued. One of the remarkable things about this economic recovery is the lack of inflationary pressure with what can be termed as the 4D’s bearing down on inflation. These are debt, demographics, devices and distortions.
Extreme Shock One of the difficulties for economists and market strategists post the Financial Crisis is that when analysing extreme shocks such as the GFC, standard macroeconomic models may struggle to accurately predict the future. The GFC was caused by a build up of leverage and resulted in a banking crisis, rather than a more typical economic downturn where central banks tighten monetary policy to squeeze inflation from the system. The crisis hit many parts of the economy, not just equity prices, including housing, unemployment, government revenues and debt. Carmen Reinhart and Kenneth Rogoff in their study of financial crises “This Time is Different” clearly articulated that the economic consequences of a financially induced recession will typically be much longer lasting than a more normal downturn and rarely result in a ‘V’ shaped recovery for economies. However equity markets, as discounters of future events, have often shown much sharper recoveries than have occurred in the real economy and this time has been no different.
Tepid Recovery A factor behind the tepid rebound in economic growth in post crisis periods has been the lack of credit available in the economy during the initial stages of the upswing. This occurred despite efforts by central banks through zero interest rate policies and then QE to encourage lending and in the case of Europe needed specific measures by ECB President Draghi to improve the flow of credit throughout the peripheral countries. Recessions surrounding financial crises are unusually long compared to normal recessions and an unusual feature in this post recovery period has been both the length of the upturn and the modest nature of the recovery. Governments are limited in their attempts to accelerate growth and end austerity, through initially higher debt servicing costs and a worsening in their fiscal position. Even today, roughly ten years after the credit crunch first surfaced in the United States, governments around the world are in many cases looking to repair their balance sheets. This has limited the amount of ‘handouts’ through either increased fiscal spending or lower taxes that have accompanied the recovery period.
The aftermath of the banking crisis has typically been associated with profound declines in output and employment. This output gap and continued slack in the labour market will no doubt have been a contributing factor to the lack of inflationary pressures globally, but especially in the developed world. Government debt has increased significantly around the globe and a study by McKinsey has shown that globally debt is actually higher than it was in 2007. In the initial period after a crisis government finances come under tremendous stress due to a collapse in tax revenues and in economies where there are stabilisers in place, a huge increase in transfer payments to those who have suffered from the loss of job or income.
The GFC was different from other post World War 2 financially led downturns as these in general had been country specific. Thus there had been localised banking crises in Spain in 1977, Norway in 1987, Finland in 1991, Sweden in 1991 and Japan in 1992. This time round the crisis was global. Factors behind the stabilisation of the global economy was the fiscal response by China, together with the steps taken by the US Federal Reserve under Ben Bernanke, whose academic work included very detailed analysis and understanding of the 1930’s Depression. Central banks around the world have been much more willing to embrace unorthodox policy to ensure a deflationary spiral was not entered into by the global economy.
Another factor from a financial crisis is that many countries can suffer a spike in the interest burden on debt and this was demonstrated in peripheral Europe and some emerging economies. In 1990 Japan reacted to its downturn through counter cyclical fiscal policy, significantly increasing debt in that country and, whilst this occurred to a limited degree in the West, it was perhaps most evident in the response by China to the economic downturn. The GFC by its magnitude is best compared to severe systemic financial crisis, although the response taken by central banks has not been typical of the past. Whilst housing markets around the world have started on a recovery trend, in the initial phases of the post crisis period they lagged the rapid bounce from the troughs enjoyed by equities as inventory needed to be cleared.
4
Distortions
There is also the impact of devices and the rapid pace of technological change is proving disinflationary. Workers have not only had to contend with a globalised labour market and the ability of multinationals to rapidly move production elsewhere, but the threat of devices in the form of robotics replacing jobs has also helped to put a lid on wage demands. Devices and disruption are having a significant influence on the commercial world today and in almost all cases have been disinflationary rather than inflationary.
This takes in one of the Ds – distortions, where central banks have moved from cutting interest rates to zero, to implementing QE and even negative interest rates in many countries. Even now, nearly 10 years on in the recovery period, QE is still being implemented in many countries and of the major economies only the US has embarked on a rate tightening path as yet. Even in the States current levels of interest rates by historic standards would appear highly stimulative, despite unemployment having fallen to pre crisis levels.
The Fed
The response of central bankers to the crisis is likely to have been a significant factor behind the duration of this post crisis recovery period. Reinhart and Rogoff argue that standard measures of the duration of recessions are not suitable for capturing the type of decline that occurs during a deep financial crisis. Their analysis showed that the recovery period generally had growth that was modest in the aftermath as the financial system re-set. The slack in the global economy whilst resulting in a recovery which is subdued when looking at typical post recession periods, may due to the moderating influences it imposes on inflationary pressures result in a longer period of economic recovery than has been typical in post World War 2 economic cycles.
Most post World War 2 economic recoveries ended with some form of inflationary pressures and policy tightening by central banks. Today even where rates are rising the extent of these is modest and in the States expectations of future interest rate rises have been pulled back when looking at the Fed dots chart of median projections of the Fed funds rate two years hence. With many Feb Board members due to retire or being up for re-election US President Donald Trump has the ability to politicise the Fed and cynics might argue an indebted property developer is unlikely to appoint monetary hawks. Whilst a lack of rate rises could be positive for markets in the short term, any attempt to politicise the Fed could have disastrous longer term consequences for the global economy as President Nixon demonstrated in the 1970s when a sustained build-up of inflationary pressures led to the appointment of Paul Volcker to the Federal Reserve.
Disinflationary Backdrop Other parts of four Ds are at work here. Debt has increased at the government level, which not only limited post Financial Crisis fiscal responses to the downturn, but has also meant that government giveaways even in pre-election periods have not occurred. High debt levels will continue to limit fiscal response and levels of public spending in many developed economies. Central bank distortions have enabled equity markets to deliver a ‘V’ shaped recovery to investors, which whilst not untypical of post crisis market periods, has certainly been sharper than heretofore. Post the GFC the response by central banks around the world has been of greater magnitude and longer duration than in previous post crisis periods, and this has also influenced the type of market recovery with growth stocks, which benefit from a lowering of the long term discount rate, significantly outperforming value. The subdued nature of the recovery and continued slack in an increasingly globalised labour market has no doubt reduced the power of labour when it comes to collective bargaining. As a result company margins continue to sit at record levels, as is profit share as a percentage of GDP. This has helped justify markets trading at above average levels of valuation. Whilst initially there were fears that QE would prove inflationary, it can equally be argued that its impact is disinflationary, as by allowing zombie companies to survive oversupply has continued in many industries reinforcing a muted inflationary backdrop.
Economic Cycle Without a typical catalyst for an economic downturn and central banks globally remaining on a pro growth track, the current economic cycle has the potential to continue for a number of years yet, especially ironically if the recovery remains subdued. This is allowing equity markets to enjoy a continued ‘goldilocks’ environment where growth is neither too hot to result in a withdrawal of liquidity, nor too cold to not allow some form of growth in company profits. Current levels of interest rates have resulted in safe assets still looking relatively unattractive and whilst valuation measures in most developed markets remain at above average levels, equity market momentum remains strong.
There are also other long term secular drivers of low inflation. Demographics in the West, where retiring baby boomers have a propensity to save rather than spend, have contributed to what economists such as Martin Wolf of the FT refer to as a savings glut, which has helped drive down real interest rates. The demographic effects of ageing can be seen looking at Japan over the past two decades and it should also be borne in mind that ageing populations are generally more tolerant of disinflationary environments as high inflation can rapidly erode their real wealth.
5
Wage Growth
US Inflation
Although the US is now in its 9th year of economic recovery, one that has had less fits and starts than has occurred in Europe, wage growth in the overall US economy remains miserly despite unemployment being at historic low levels. This has led to huge debate amongst economists as to whether the Phillips curve has broken down, as in previous cycles tighter labour markets have spurred an acceleration of wage growth eventually feeding into inflation. The most recent monthly data from the Bureau of Labour Statistics reported average hourly earnings rose by little more than 0.1% and for the 12 month period by only 2.5%. In contrast the most recent reporting of profits by S&P 500 companies shows a growth rate of just over 15% year on year.
The lack of inflationary pressures has confounded central bankers globally with the US Federal Reserve being no exception. Despite an economic recovery which in terms of duration is the third longest in record, core inflation as measured by the PCE deflator shows no signs of hitting the targeted 2% level. As a result of this at the most recent Fed meeting, whilst rates look likely to rise again in 2017, expectations for interest rates two years forward were trimmed further. It has now been 25 years since the Fed’s favoured measure of inflation – personal consumption expenditures excluding food and energy – last rose above 3%. In the year to July it was just 1.4% and wage growth remains well below its pre-crisis pace at just 2.5% nationally, although of course there are regional and industry variations.
There are other factors that need to be considered. Profits are earned internationally by US companies whereas the wage numbers are domestic. Although labour market participation rates in the States remain low, a strengthening labour market has drawn more people into the workforce. However, it does appear clear globally that the bargaining power of employers has increased and that of workers decreased. This in part explains the rise of populist politicians and electorates turning against establishment policies. This first surfaced in the form of Brexit, but then the election of Donald Trump and the recent rejection of a Conservative majority as the Tories became the pro establishment Party of the UK and the resulting rise of Jeremy Corbyn.
The Fed has admitted to being surprised that inflation has not picked up in line with its models. One of the challenges of low inflation is to avoid asset price bubbles and this is likely a factor in encouraging the Fed to increase rates at all. The age of the Internet has resulted in shoppers having price transparency and more disruption could come through AI (artificial intelligence) which could transform some industries. The technology companies through network effects have benefitted from industry concentration and this is typically consistent with a rise in profit margins. Further factors dampening wage growth would include lower labour force mobility and higher levels of job insecurity. If wage growth continues to be extremely muted the absence of inflationary pressures will result in interest rates remaining at historically low levels with, as a result, the elongation of an already extended economic cycle.
The labour movement globally has suffered with a decline in Union membership. Not only have workers had to cope with globalisation and the increased ease with which multinationals can relocated facilities to cheaper cost locations, but increasingly technology is allowing scope for the use of capital to replace labour. Technology has also allowed employers the scope to replace domestic workers with ones located across the globe, as the ease of cheap and rapid communication has allowed offshoring for service sector workers, as well as manufacturing. A further feature of the post crisis recovery period is that more companies now seem to have monopoly powers and companies are not engaged in fierce price competition. Old school economic theory stated that in free markets perfect competition existed, with as a result over time excess returns being eroded. This is why many value orientated mean reversion strategies worked, as few companies could earn excess levels of return over longer time periods. This no longer seems to be the case and not only are some companies seeing periods where excess returns have been maintained or even increased, other businesses have been disrupted by new technologies with their past levels of profitability looking increasingly unlikely to mean revert. In the US and the UK unions have seen a significant decline in membership, which has gone hand in hand with the fall in the relative position of labour in general and for manual workers in particular. In time this may lead to a further political backlash and arguably in the UK has resulted in a surge of support for Labour leader Jeremy Corbyn.
6
Economic Data
FOCUS ON ASIA
Economic data over the summer has remained broadly positive. In the US, although there have been fluctuations the recovery remains intact with no pickup in inflationary pressures despite a strong labour market. Next year the US should benefit from some form of Republican tax cuts, although the full details of this are unlikely to emerge for a while yet. This and the prospect of some form of fiscal spending on infrastructure, suggests a US recession in 2018 is extremely unlikely. In Europe the economic recovery has gathered pace, and encouragingly has been led by peripheral rather than core countries. Thus Europe is now seeing a broad based economic recovery, with as yet still muted inflationary pressures encouraging ECB Chief Draghi to indicate rates will remain on hold for some time, even as QE is ended. The UK has seen a more muted economic picture with growth now slipping below G7 averages as Brexit uncertainty has hit investment and the London housing market. Some parts of the UK economy are benefitting from the lower currency and while growth has slowed, and in all likelihood is below what would have occurred had there been a Remain vote, it remains positive. A modest tightening of monetary policy by the Bank of England removing the emergency rate cut of the summer last year is unlikely to have any real impact on economic prospects. More important for the UK will be the Brexit negotiations where the prospects of a two year transition period should give some confidence to business.
Chinese Economy China is an example of an economy where huge swings in sentiment occur. Last year, 2016, was one of major concern about both debt levels and the effect of over investment on future growth. People worry about the growth model of China with some fearing it can only be supported by high levels of debt. 2016 was also a period when there was concern about capital outflows and the Chinese currency the RMB was weak. Over the course of last year, and to an even greater extent in 2017, sentiment first stabilised and then improved driven by an upturn in the economy. China has undergone an adjustment over 4-5 years in which nominal GDP growth slowed significantly, in fact halving. This had a very negative effect on corporate profitability as nominal GDP is in effect a company’s top line. Now nominal growth has in fact improved and so have commodity prices. Corporate capex had fallen quite substantially due to excess capacity, but this too is now picking up in some instances. For the Chinese stock market core earnings are improving and economic data such as PMI Indices, both for manufacturing and services, together with industrial production, have all been reasonably strong and indicating expansion for a number of months, although of course there are short term fluctuations.
The economic recovery has continued in Japan with Premier Abe now seeking a new mandate from the populous. Inflation, although modestly picking up remains below the central banks’ 2% target. Whilst the jobs market has tightened significantly this is generally occurring in lower paid service sector jobs and is a reason why wage growth in the country remains subdued. The recent Tankan survey painted a positive picture of company prospects. The emerging world has been a bright spot this year with the rebound in the Chinese economy helping companies throughout the region and also commodity exporters across the world. For example, Brazil, which has been through a recessionary period, has recently seen upgrades to economic forecasts for 2018 and 2019 with the country expected to return to positive growth. For corporates in China, and in fact Asia in general the halving of the nominal GDP growth rate in China from 15% to 7-8%, which is in effect a company’s top line made operating conditions difficult. Nominal GDP in China has since picked up and this is a significant factor behind the increase in earnings expectations for the region, where in marked contrast to each of the last five years analyst’s expectations from January have been upgraded. This year Asia should see profits growth in the region of 20% and as long as the global economic upswing continues a further rise of around 10% is forecast for 2018. Positive earnings expectations globally are a factor behind the continued bull run in equities despite in some cases extended valuation levels.
In China SOE earnings have shown a pickup, partly benefitting from the reform agenda the government has put in place. However, the upturn in both the Chinese economy and the global cyclical upturn with a return to synchronised growth in the world, has aided a strong profits recovery. Within the SOE sector China is trying to eliminate the less efficient and highly polluting firms by imposing production limits. With a better external environment in the US and Europe exports have been stronger and are now positive for growth. The currency has benefitted from the fall in the US$ which has helped the RMB find a floor. In fact recent measures by the monetary authorities in China suggest they had felt the currency had been too strong and a slight easing of capital controls allowed the RMB to pull back a little. One important point to note about China is that it has a closed financial system. As a result concerns last year about capital outflows were in reality overstated as China can control these. Whilst longer term the issue of high debt is not easy to solve, it is unlikely to lead to financial crisis as the Chinese economy is very different from the West. Most of the debt is domestically denominated and owned and China as a country does not have huge US currency borrowings. Even corporate China has converted a lot of US$ debt to RMB debt. While individual household debt has grown over the last decade, so have asset prices which have risen by around 5-6x. Even SOEs have some good assets.
7
Party Congress
End of Deflation
The 19th Communist Party Congress has been brought forward to start in the middle of October around a month earlier than the previous sitting five years ago. The Politburo Standing Committee (PBSC) could well see a reduction in its numbers, making power more centralised. President Xi will use this Congress to reinforce his role, with power in China more centralised than at any time for decades. As a result it is unlikely that this Party Congress, unlike the one 10 years ago, will see the likely next leader emerge.
The end of PPI deflation in China has provided a much more supportive operating environment for companies, not just in that country, but also the entire region with Korea, Taiwan and Indonesia all benefiting in different ways from the higher levels of growth in China. This is why earnings expectations have picked up so much in Asia. The region had been held back over the last five years by a lack of earnings growth and continual disappointments in terms of downgrades to expectations that were present at the start of every year. Valuations for Asian markets are around their long term averages in absolute terms in contrast to markets in the West which trade at more expensive levels relative to history.
In 2010 the Party had announced its objective of doubling GDP by 2020 and after strong growth this can now be achieved with GDP growth of only around 6% p.a. over the rest of the decade. China will continue to try and elevate the value add of its industrial production with increasingly higher value products made in China by 2025. This might include semi conductors and more automation as China looks to move up the value chain. China is looking to have companies that are able to complete globally, in for example, electronic vehicles by 2025. The Congress should also see announcements on the continuation of the SOE reform programme and possibly land reforms in rural China to improve agricultural productivity. Urbanisation will continue but probably in a more orderly manner.
China recognises it needs to transition the economy to get beyond the middle income levels and achieve its objective of developed nation status by 2050. The Chinese leadership have historically taken a gradualist approach and appear to be doing this within the financial system where reform is occurring on a piecemeal and gradualist basis. Deposit and lending rates have now been deregulated for a number of years. As a result money is at the proper price when a company is borrowing. The capital account is now back under control again and China has no large foreign liabilities. President Xi is well aware of the threats to the economy from the debt build-up and has described solving this as the ‘priority of priorities’. More action can be expected after the Party Congress.
In the Western Press much has been made of more Party involvement in companies with Articles of Association now being formally amended. Historically there have always been Party Committees within any large company, either SOE or private and this remains a Communist State. President Xi is now looking to formalise these committee arrangements with more control in strategic industries such as telecoms, energy and materials. However, Xi also recognises the importance of SOE reform and the Party is the significant owner of these businesses and itself wants to receive high dividends. There may well be more in the way of public/private partnerships, with an example the recent moves to revitalise China Unicom when a number of fast growing Internet businesses, including Tencent and Alibaba were invited to join the shareholder register. Xi continues to have the objective of restoring credibility for the Party and wants to be known as the ‘Great Rejuvenator’. Hence the crackdown on corruption which has helped recapture the moral agenda will continue.
Asian Earnings Perhaps the most significant factor behind the outperformance of Asian markets this year has been the increase to consensus earnings expectations. These started the year with forecasts of around +10-12% which have now increased to around 2122% with a further 10% earnings growth expected in 2018. To date the bulk of upwards revisions have been fairly narrow in IT, Energy and Material names. With the synchronised global upturn it can be reasonably expected that the earnings recovery will broaden out next year.
China is now entering a new era with stronger Party control and a different business model than purely relying on cheap exports due to an undervalued currency. As long as the Chinese economy continues to grow, Xi knows that the Communist Party is unlikely to face the problem of social unrest. Economic growth is vital to the continuation of a reform agenda. With the growth rate in the country improving it is easier for China to take some risks as regards the reform agenda. With the working age population peaking in 2014, a shrinking workforce makes it easier to implement job losses in certain sectors and industries.
India The Indian economy has put in mixed performance in 2017. The fourth quarter of last year saw the unexpected shock of demonetisation which actually occurred the day of the US Presidential election. This had a short term impact on both the consumer and property in the fourth quarter. However since then support for consumer spending in the rural sector has improved. This year the introduction of the GST (nationwide sales tax) is likely to be a long term positive, although there has been shorter term disruption in some sectors and industries. It should help companies operating across different states with less bureaucracy over the medium term. India continues to have excellent long term potential and is one major economy that could deliver growth of at least 6-7% on a compound basis. With inflation falling interest rates can decline further.
8
Indonesia
In China, the recovery has been helped by the speed of innovation. Yum China, which owns the KFC brand in the country is the fifth largest restaurant group, but now has a third of its customers using Alipay rather than traditional credit cards or cash. It is calculated that in China 3bn hours a day are spent on mobile Internet devices, which has trebled in the last 2.5 years. Furthermore, around 50% of this time is spent on Tencent platforms.
This year the ASEAN markets and economies have been laggards in the region, although delivering strong returns in absolute terms. Indonesia is one of the largest markets and the economy has suffered as consumption has been weak. The political situation has become less stable with the jailing of Chinese Christian Governor of Jakarta Ahok for alleged blasphemy. This has unsettled some prominent members of the business community who are predominantly Chinese in origin. On the plus side there has been a pickup in infrastructure spending and with an election due in 2019 next year looks more promising for economic growth. The country continues to have excellent demographics and remains both an economy and stock market of strong long term potential. Indonesia continues to have one of the best long term consumption stories in the region and over time is likely to catch up with its more developed neighbours.
Fast nominal growth rates can provide a favourable tailwind for businesses. The reverse of this occurred in China during its slowdown. In India real GDP growth in the 6-7% range, combined with CPI of 3-4% means there is a minimum of around 10% nominal growth per annum and this can be further multiplied by good companies with operating leverage. As a result it was not terribly surprising Unilever chief Polman could promise to double sales in India in seven years. This will happen if the company merely keeps in step with the nominal growth rate. One negative for the Indian economy is the extent of non-performing loans in public sector banks. Even this cloud has a silver lining as the private sector banks are able to take around 70% of the new loans market, which when combined with ROEs of around 20% and growth rates at a similar level, mean book values can double in four years time.
Longer-Term Growth Drivers Looking at longer term investment horizons China and India will both be key to global growth. Despite this, as yet both are still a small percentage of the MSCI Global Index. By many forecasts China and India will account for 40% of the global growth in GDP to 2030. These two countries already account for one third of the world’s population. The growth dynamic of these countries means that capital will both be needed and thrown off. Both countries are likely to be the chief driver of global growth over the next decade. In some ways India today looks very much like China 15 years ago in terms of population of around 1.2bn, urbanisation which is around 33% in India today and was 35% in China then and a median age of population, currently around 28 in India and this was just under 30 in China 15 years ago. Both countries also had small manufacturing export sectors.
In China President Xi wants to go down in history as the ‘Great Rejuvenator’ and recognises to achieve this he will need to clean up the financial system. Changes have occurred at high levels with the regulator in charge of both the securities industry and insurance sector both being replaced. Xi recognises that property debt, local government debt, SOE debt and shadow banking all need to be dealt with. This could result in a slowdown in growth post the Congress, depending how fast and hard the leadership in China want to push the reform agenda.
Stock Markets Asian markets do have a cyclical element and have been aided by the synchronised upturn in global economic activity. After many years of earnings disappointments prospects now look much brighter and these markets do have some level of valuation support as unlike in the developed world they are not trading above long term averages. Outside of an unexpected shock to global growth or a return to extreme US$ strength, Asian markets look well placed to continue a period of outperformance after a five year period when returns disappointed investors. The Asian region looks well placed to benefit from higher levels of fund flows over the next 12 months.
Demographics in India are excellent, with the country having a third of the global population in the 20-40 year age group. This should prove a useful tailwind to growth as long as the new entrants to the labour force can find jobs. In contrast China has now seen its working age population peak and as a result is increasing automation. One interesting fact is that manufacturing has declined in India as a percentage of the workforce for 15 years so an export driven growth model may not work in that country. To be successful Indian growth will need to be more focused on domestic demand and productivity gains. India will benefit from the recently introduced GST but will need to see a continued crackdown on corruption which looks likely under Modi. To reform countries generally need a strong leader, as Thatcher in the UK proved, and so Modi looks vital to the reform progress in India. Despite the mixed success of demonetisation, which actually in the short term hurt the poor, Modi and his Party the BJP remain popular, with the reform programme leading to electoral success. The next general election is due in 2019 and a strong BJP win will pave the way for further reform from 2020 on. Clearly the political risk to the reform process would be if more populist policies emerged.
9
FIXED INTEREST MARKETS Government bond markets had performed surprisingly well in the period until the end of August, but during September renewed efforts by the Trump administration to put in a programme of tax reform with cuts to corporate tax rates resulted in renewed optimism about a lift to the US growth rate. Furthermore, whilst the recent Fed meeting led to a pull back in expectations of rate rises two years down the line, market participants felt the probability of a further rate rise in December had increased affecting the short end of the curve. After the strong run in government bond markets year to date there was a back up in yields globally of up to 25bp in some fixed interest markets in the 10 year area. Government bonds today appear priced for a continuation of a low inflation regime in perpetuity. While it can be argued that both equities and government bonds would both suffer if there was a significant pickup in short term interest rates, government bonds appear more vulnerable than equities to modest levels of monetary tightening in the global economy. This is especially true if the tightening occurs through a continuation of the synchronised global recovery we are seeing today, rather than a significant pickup in inflationary pressures. In other words, if rates rise for positive reasons because economic growth and by extension company profitability is strong, government bonds at today’s prices could be vulnerable to a modest set back. The main argument for holding government bonds is that they have on most, but not all occasions, provided a strong hedge against equity market weakness in investor portfolios. A pickup in inflation, however, leading to the belief that monetary tightening would hit the economic cycle, would leave both asset classes vulnerable. Government bonds still offer investors a negative real yield in core markets, but whilst offering little value look unlikely to see a major selloff in the short term. Moving to credit both investment grade and high yield debt are suited by a low growth extended economic cycle. Thus whilst spreads have tightened for yield hungry investors there is still a significant pickup available over government bonds. In investment grade in particular default rates are likely to remain very low and even in high yield the ability of companies to refinance remains strong, which will keep defaults below historical averages. High yield in particular would be vulnerable to any setback to global growth. In this market stock picking is vital, so investors should ensure funds selected have access to a strong corporate credit research team. Fixed interest continues to provide diversification in an investor portfolio, at a time when many asset classes have become increasingly correlated. It would be extremely risky to move to a portfolio holding just equities as unexpected events could happen and in an era of heightened geopolitical tensions exogenous shocks are always possible. As a result some fixed interest holdings should be maintained in a diversified and balanced portfolio with strategic bond funds continuing to offer investors a spread of fixed interest assets with the ability to react quickly to any changes in macro economic conditions.
10
SUMMARY The strong run of equity markets has continued in the third quarter as investors have become more convinced about the substance of a synchronised global recovery. Whilst the speed of the upturn is moderate by previous standards for reasons discussed earlier, when looking at it in terms of synchronisation it is one of the strongest that has occurred in the global economy in the post crisis period. As a result of this global pickup in growth some of the previous laggard markets have recovered including both Europe and the Asia Pacific region. As a result there are not really any areas of the world where equities trade at cheap levels in absolute terms by historical standards. This is clearly some sort of negative as historically valuation has proved one of the best forms of risk control for investors.
When managing money there is a need for pragmatism and at times to accept that when markets have momentum it can be dangerous to stand against the herd. As John Maynard Keynes noted markets can remain irrational longer than investors can remain solvent. Notwithstanding this there is a need to be aware of potential risks and invest with an eye to the downside. One way to achieve this is to avoid both highly cyclical and highly leveraged businesses, which would be most susceptible to a slowdown in the growth rate or pickup in interest rates. When valuations are at current levels there is little margin of safety if a negative event such as an exogenous shock caused by geopolitical risk were to occur. A continuation of this extended economic cycle is likely to provide a positive backdrop to equity markets, but in an era of high valuations investors need to tread somewhat cautiously and continue to hold a diversified portfolio, rather than trying to achieve success through a highly concentrated portfolio relying on a favourable macro environment continuing. Thus there continues to be a place in portfolios for well managed strategic bond funds where managers have strong instincts for changes in the macro outlook. Absolute return also has its place, although in a zero interest rate environment returns from this type of approach is likely to be muted, unless a fund is taking high levels of market risk. In an extended economic cycle the equity bull market has potential to continue further, but investors need to be aware that with valuation levels in some markets extended, potential downside risk is larger than when market valuations are depressed. Utilising managers with strong asset class or stock selection skills should allow investors a qualitative aspect of risk control that will prove important as and when a downturn does occur.
Absolute levels of equity valuation need to be viewed in the context of an environment where monetary policy globally remains accommodative. Of the major central banks only the Fed has moved to a tightening role and even here rate rises have been modest when compared to previous cycles. With inflation and particularly wage inflation remaining muted, there is no pressure on central banks to tighten aggressively. Furthermore, central bankers today understand the fragility of the economic recovery in a world where debt levels overall remain high. The major central banks all seem committed to maintaining pro growth policies which is a positive backdrop for equity markets. In previous eras investors could buy businesses that were strong growers on late teens multiples, but across the world this has now risen to 25x PE which equates to a 4% earnings yield which is still significantly higher than bonds so in a low rate environment is not that unreasonable. Where investors have been able to see growth they have been prepared to pay up and this has resulted in a huge divergence between growth and value. In particular mean reversion investing has not worked, with some industries structurally challenged by disruption and devices and even over the longer term profits in these sectors may not return to previous levels.
Markets can continue to benefit from the synchronised global recovery for a while yet, especially in an environment where monetary policy overall looks likely to remain accommodative. To date neither the ECB nor the Bank of Japan have demonstrated any desire for premature monetary tightening. The end of dollar hegemony has proved supportive to both emerging markets and Asia in particular and this latter region is likely to provide the engine to global growth over the next decade. Equities continue to be in a sweet spot enjoying a ‘goldilocks scenario’ of growth neither too hot nor cold, something we have described in previous Outlooks as the “Best of Both”. In bull markets slightly extended valuation levels can always run further, but investors should always be aware that gains in excess of earnings growth, for an extended period make markets riskier.
While it has always been dangerous in the past to say this time is different, there have been some changes to the economic cycle and as noted in the July Outlook the US market has traded at a higher level of valuation (PE ratios both absolute and cyclically adjusted) than in the period prior to 1996. Whilst some level of mean reversion in terms of valuation could occur over time, it is unlikely to be rapid and if the era of low inflation and low rates continues to persist, investors could benefit from an extremely extended economic cycle.
Graham is an investment researcher of international note and has been working in this area for over 20 years. He began his career in the stock broking industry before becoming an institutional fund manager where he practiced both in Ireland and the UK where he worked in senior roles with a number of institutions including Royal Life holdings, Guardian Royal Exchange and Abbey Life.
GRAHAM O’ NEILL
Director at Independent Research Consultancy Limited
Throughout his career, he has managed multi-million Euro funds and developed innovative investment fund concepts. Seeing the need for non biased, critical analysis of the investment industry, Graham began work as an independent investment researcher in 1992 and since then, principally, he has provided services to financial institutions. Graham is also a director of RSM Group, a leading UK investment research company. Through his research process, Graham filters through the broad range of Irish and International investment fund managers for those investment managers who consistently perform best. He conducts in the region of 150 teleconference meetings and on site interviews with asset managers in UK, Europe, China, Hong Kong, Singapore and Australia. Following on from these meetings, Graham produces detailed research notes.
11
BUSINESS BRIEFS IRELAND TO JOIN EUROPEAN SPACE RESEARCH ORGANISATION
as data analytics, software and photonics”, according to Minister for Training, Skills, Innovation, Research and Development, John Halligan. Membership will ensure Irish companies can compete for ESO contracts to develop innovative products and services, and enhance research opportunities for third-level institutions, he said. The announcement came after a long campaign from the astrophysics community in Ireland, said Dr Sheila Gilheany, policy adviser for the Institute of Physics in Ireland. The Department is also to receive €15 million to allow access to new product opportunities from European Space Agency contracts and to help secure research and development funding from the EU Horizon 2020 programme.
Ireland will join the European Southern Observatory (ESO) in 2018 following an increased capital budget allocation from The Department of Business, Enterprise and Innovation. Created in the early in 1960s the ESO, is a 16-nation intergovernmental research organisation for groundbased astronomy with headquarters in Munich, providing astronomers with state-of-the-art research facilities and access to the southern sky – its observatories are located in northern Chile. The benefits of membership will be significant including “the creation of advanced enterprise skills in areas such
HONG KONG- DUBLIN ROUTE TO STRENGTHEN IRISH LINKS TO ASIA
marketplace has struck a chord with business leaders. Mr Murray said the new route would solidify the growing relationship and will hugely assist in expanding trade and creating jobs. He believes it is only a matter of time before other routes are added, particularly to the main business hubs in China. Dublin Chamber Chief Executive, Mary Rose Burke said the route provides an opportunity for businesses to diversify in an increasing era of uncertainty. She commented that huge opportunities exist in Hong Kong for Irish businesses and the country provides a gateway to the lucrative Chinese market. Furthermore, strong synergies exist between the two countries enabling the sharing of knowledge and skills necessary to drive twoway trade and investment links in areas such as fintech, education, technology, tourism and food and beverages.
A new direct route between Dublin and Hong Kong will “dramatically” strengthen an already burgeoning business relationship between Ireland and Asia, according to business and political figures. Cathay Pacific announced it will operate a new direct Dublin-Hong Kong service four times per week from June. The year-round service will be Dublin Airport’s first direct route to the Asia-Pacific region. Trade between Ireland and Asia has been strengthening at a rapid rate, according to Irish economic think-tank Asia Matters. The organisation has increased its membership by almost 70% over the last 18 months, with Executive Director Martin Murray saying the growing business links and exchanges between Ireland and the Asian
IRISH WORKERS ARE MOST ‘OVERQUALIFIED’ IN EUROPE
decade or so, according to some projections. By contrast, countries such as Germany have much lower rates of school-leavers progressing to university, with many opting for traineeships and apprenticeships which have much higher status than at home. Tony Fahey, Professor Emeritus at UCD, who quoted the figures in a presentation to the annual conference of Education and Training Boards Ireland said they highlighted the challenge of matching education levels to skills needs. However, he said the issue was complex in that people who may be labelled as overeducated for their current role may yet benefit in the future. There has been a dramatic fall-off in the numbers taking part in apprenticeships or training, a pattern which coincided with the economic downturn. There are ambitious Government plans to increase numbers taking up further education options over the coming decade, with a series of “white collar” apprenticeships launched recently in areas such as insurance and financial services.
Irish workers are the most overqualified in the European Union for the jobs they are working, according to latest research. About one in three workers are at least one educational level above the international norm for the jobs they are in. This is the highest rate in the EU and almost twice the level of countries such as France, Sweden and Finland. The findings, based on research carried out by the Economic and Social Research Institute (ESRI) between 2000 and 2011, are likely to spark a debate over whether we are sending too many students to third-level. Ireland has one of the highest proportions of young people in Europe progressing on to higher education, with about 60% of all school-leavers attending universities or institutes of technology. This figure is projected to increase to 70% over the next
12
OVER 80% OF SMES FALL VICTIM TO CYBER CRIME
types of attacks revealed in the report include experienced computer related crime, excluding ‘Spam’ or Phishing’ emails (30% of firms affected), virus infections (62% - up from 42%) and theft of company data (5%). Of those who experienced a computer related incident, ‘Spam’ is the most prevalent issue at 74%, an increase from 67% in 2016. However, there has been a reduction in the numbers of hardware thefts, down from 11% in 2016 to 3% in 2017. The ISME CEO, Niall McDonnell warned that businesses must become more aware of the threats posed by cyberattacks and take the appropriate preventative measures, such as changing computer passwords. The ISME has put forward several recommendations in combatting e-crime both for businesses and the Government including the establishment of a ‘Cyber Security Information Sharing Partnership’, similar to the UK’s system, which allows for the sharing of cyber threat information and the establishment of a central body to deal with cybercrime.
The majority of small to medium Irish businesses have fallen victim to cyber crime - and would like to see a central body set up to prevent and tackle these incidents. However, some 20% of these firms don’t change their password. Over the last twelve months, some 81% of SMEs have reported an e-crime attack on their firm and 98% have called for the establishment of a national cyber crime group. The figures were revealed in the latest e-crime report from the Irish Small and Medium Enterprise Association (ISME), which has been released recently. Although the number of firms stating they were subject to an attack has fallen slightly compared with last year’s figure of 82%, ISME said the issue of cyber-attacks and online computer related incidents has increased over the last decade. Details of the
weeks to October 8th consumers spent more than €2.37bn on groceries across the five main players. Recent CSO figures showed the annual inflation rate eased to 0.2% in September from a four-month high of 0.4% in August; adding that food prices fell due to lower prices across a range of products including soft drinks, vegetables, bread and cereals. An upsurge in the purchase of branded goods (as opposed to own label goods) was also noted in the latest Kantar figures. Kantar CEO, David Berry commented that in the run up to Christmas, a time when shoppers usually turn back to brands - it is likely that this trend will continue.
GROCERY SPENDING RISES DESPITE TIGHTER PRICES Shoppers have continued to spend more at supermarket tills even with an easing in price reductions, new figures show. Latest data from consumer insights agency Kantar Worldpanel covering the 12 weeks to early October show an easing in standard grocery price deflation, with prices falling 0.1% in the period compared to a 0.4% fall in the preceding quarter. Nevertheless, shopper spending continued to rise with a 2.1% year-on-year increase noted for the period. In the 12
IRISH RETAILERS WHO ARE UNABLE TO ACCEPT NEW PAYMENT METHODS RISK MISSING OUT ON SALES
The study explains the difference by showing that card costs are, for certain merchants, fundamentally fixed, whereas the cost of handling cash has more variable elements. For example, back office administration accounts for 25% of the cost of cash, with the physical volume handled represents the other 75%. As the volume of cash accepted increases, greater resources are needed for counting, checking and controls during the day and for banking purposes. Furthermore, the research showed that the times that businesses spent counting cash transactions was on average 94 minutes a day, versus totalling card transactions which was 28 minutes per day. Visa says these figures reflect the efficiencies that cards can deliver for a business. As a result, business owners could save anywhere between €5,000 and €6,000 per year on cash handling costs. Commenting on the research findings, Country Manager at Visa Ireland, Philip Konopik said that despite consumers embracing electronic payments, Irish retailers unable to accept new payment methods risk missing out on sales and incurring excessive costs. Furthermore, new digital till systems are more efficient and automated, providing businesses with immediate data and insights into their business together with reducing costs by providing accounting and inventory control.
Irish small businesses are at risk of falling behind international peers in their adoption of digital payments technology, according to new research commissioned by Visa. The research shows that Irish SMEs could individually save between €5,000 and €6,000 per year on cash handling costs by increasing the amount of electronic payments they process. It is estimated that Irish consumers now spend more by card than cash, with shoppers spending an average of €10,465 on cards per capita each year, compared to €5,388 in cash. Contactless payments are one of the key drivers behind this trend with the technology now accounting for one in three of all face-to-face Visa transactions in Ireland. Visa commissioned research to investigate the hidden costs of cash in terms of back office and security costs and better understand how they compare to card transactions. The research established that for the businesses involved in the study it is cheaper to accept €1 as a card payment rather than cash, with cash handling costing 2.5 cents per Euro of sales compared to 1.6 cents for a card transaction.
13
20,000 CONSUMERS URGED TO SWITCH AND SAVE ENERGY PROVIDERS Thousands of consumers have been encouraged to switch energy providers. Within days of expected energy price increases, a new campaign was launched to encourage consumers to switch energy and insurance providers to save on costs. This happened as a new energy provider Just Energy entered the market, which became the tenth Irish energy supplier.
Oliver Tattan, co-founder of One Big Switch hopes to help consumers save up to €300 a year by switching from standard gas and electricity to discounted offerings. In the last year, only 14% of consumers switched to a different energy provider. According to Tattan, a survey commissioned by Aviva found that approximately 1 million adults in Ireland the second-most expensive country in the EU - are facing financial difficulty.
From the beginning of November, SSE Airtricity customers will pay 5.6% more per unit of electricity. That means that the average consumer will pay €50 more per year for electricity. Bord Gáis Energy customers will pay 5.9% more per unit of electricity and 3.4% more per unit of gas as of November. As such, the average consumer will pay €57 more per year for electricity and €25 for gas.
Although Ireland’s economy has recovered somewhat, average earnings are increasing much slower than they did when employment was last as high as it is now. That means that we still have to save where possible, and saving on energy is a great way to do it. As such, Tattan and the One Big Switch campaign encourages people to shop around and hopes to create awareness around switching and unlocking offers that might help the Irish population.
Experts have warned consumers to expect more price increases, after the last three years, in which we paid record-low wholesale prices, and we’ve even seen some minor price cuts. In addition to the increases above, the levy on electricity bills - the Public Service Obligation (PSO) levy - also went up to €104,50 a year, which is a €25 increase.
Currently, One Big Switch has approximately 100, 000 members who use their combined buying power to negotiate discount offers on household bills.
The One Big Switch campaign hopes to entice thousands of people to join, in order to help negotiate reductions in energy as well as home and motor insurance for members through the power of combined buying power. The aim is to entice 20,000 members to join at onebigswitch.ie.
According to Eoin Clarke from Switcher.ie, Just Energy offers competitive gas deals which could help the average gas customer save as much as €147 compared to standard gas tariffs.
14
Eir Price Hike Marginalises Older, Loyal and Vulnerable Customers A year after its last price hike, telecoms giant Eir announced another price hike, which will affect their long-standing customers for the third consecutive year. Only those who recently signed up for a package will be able to escape the newly increased rates, while older people will be charged higher tariffs.
Packages affected will include business and voice customers voice services, broadband bundles and standalone broadband. That means that approximately 500,000 customers will be paying increased rates, of up to €84 per year, based on monthly fees alone. New higher rates will be phased in starting with monthly charges increasing from between €3-€7, and call costs increasing by 33%. There will also be an increase in call rates that fall outside of voice plan allowances. An Eir spokesman confirmed that new customers will not be affected by the increased rates, and neither will mobile users and New Fibre To The Home (FTTH) customers. Michael Kilcoyne, the Consumers Association’s Deputy Chairman, accused the telecom giant of singling out vulnerable, older customers, as this hike will not affect consumers who recently switched to Eir but rather those who are less likely to switch to a different provider, many of whom are older customers who are already vulnerable due to the loss of their telephone allowance. He called on the company to reconsider this hike, and urged them to offer a loyalty discount instead. A spokesperson for Eir denied that the price hike exploited older, loyal customers, and insisted that the company’s triple and quad-play pricing remained the best value on the market for TV and mobile bundles. There is a silver lining though, as in a letter to their customers, Eir gave clients the opportunity to opt out of contracts early. Switcher.ie’s Eoin Clarke said that price increases were becoming an annual occurrence in the TV and broadband market, despite the fact that ComReg has ranked Ireland as one of the most expensive Western countries in terms of broadband pricing. Last year, thousands of homeowners using Eir saw broadband and call costs increasing, with some prices reaching almost €100 a year. The most recent price hike from Eir follows increased phone, TV and broadband prices from Virgin, Sky and Vodafone.
15
MANAGE YOUR CHRISTMAS FINANCES IN 5 SIMPLE STEPS
1
PLANS AND PRIORITIES
Planning and prioritising can help you get through the year-end without blowing all your savings. By adding a little extra to your weekly shop in the weeks leading up to Christmas spreads out the additional expense of the season. But remember, you have to meet all your household bills and monthly commitments before you start buying gifts. That way, you will start the new year on a clean slate, rather than with with the pressure of financial obligations.
2
STAY ON BUDGET
One of the major obstacles of year-end financial management, is the fact that we all get caught up in the festive cheer, which limits our resistance to the little things we want to buy. The best way to avoid being caught up in the moment and spend money you later regret, is to create a budget and stick to it. Budget an amount of spending per person and visually keep track of your spending to help avoid impulse buying. Knowing how much you have spent is the best way to deter you from overspending.
3
SHOP AROUND
You can save a lot of money by doing your research and shopping around for the best deals before you splurge. Try to avoid trawling through shops around Christmas time, as you will be tempted to buy whatever you see first in order to ‘get it done’ so that you can escape from the crowds. Instead, visit price comparison sites to help you find better deals and trim time off your shopping trips. Two good sites on which to research your options, include shopmania.ie and compareireland.ie.
The end of each year with all the celebrations and Christmas shopping can place significant strain on your finances. It’s easy to spend a little extra here and indulge in a luxury there, and before you know it, it can be hard to make ends meet. We’d like to help you avoid over-indulging and feeling that horrible pinch of postChristmas spending remorse once the new year rolls around. Here are our five top tips for managing your Christmas finances.
Sometimes, you may be lucky to get a good deal online, which will save you from spending time in the crowded shops and provided you don’t browse the ‘deals’ pages, should prevent impulse buying.
4
SPREAD OUT THE SPENDING
By buying small food items over the course of the next few weeks, you will not feel the grocery bill as much as you would during Christmas week. Be sure to use all your loyalty cards whenever you shop, as that will help you earn some nice coupons and vouchers when the new new year rolls around.
5
AVOID CREDIT
As much as possible, avoid using credit cards for Christmas spending. Cash will help you manage your finances more effectively, and it will be easier to avoid purchases you cannot afford. Additionally, there won’t be a nasty credit card bill waiting for you in January. Spending cash rather than credit cards usually helps prevent overspending. Avoid withdrawing cash from your credit card, because the fees and interest rates are high. It will also have a negative impact on your ability to obtain a mortgage in future, as lenders frown upon that habit.
16
Parental Leave:
GETTING TO THE HEART OF EQUALITY A recent study by Hays Ireland, entitled Hays Ireland’s Gender Diversity Report 2017, has highlighted an inequality with regards to parental leave and perceived entitlements. More than fifty percent of employees do not feel that fathers in their organisation make use of their full allocation of parental leave and most of them feel that fathers are concerned about the negative impact it would have on their finances if they were to take their full leave entitlement. A sizable portion of respondents thought that fathers might be afraid that employers will question their commitment to their careers.
Yet, both men and women felt that flexible working options might harm their prospects for career advancement. Gender disparity became evident when respondents were asked whether flexible working options were career limiting for women, as 75% of women and nearly 60% of men agreed that it was. When asked if flexible working options would be career limiting for men, 64% of men and 54% of women agreed. Organisations’ approaches to gender equality seems to dissatisfy workers, which indicates some room for improvement. While every employee plays a role in working together to create a diverse and inclusive workplace, it is ultimately senior management’s responsibility to create and execute suitable programmes.
The 250 male and female respondents who were surveyed work in technical and specialist roles in Ireland. Twenty - six percent of respondents said that they view parental leave as a benefit that was exclusive to mothers. Irish employment law provides 18 weeks of parental leave per child for both fathers and mothers until the child’s eighth birthday.
Based on the findings of the survey, employees seek that guidance from their seniors. Even remote- or flexiworkers seek that ethos which allows for meaningful career advancement that lies at the core of a successfully executed diversity programme. Stereotypes that suggest that only women seek flexible working options, or that earning potential and professional development are undone by this kind of ethos.
Additionally, nearly sixty percent of employees felt that there was an equal opportunity imbalance at the organisation where they worked. Three out of four respondents felt that they are able to progress their careers and promote their skills in the workplace, while one out of three females felt that equally capable men had better career opportunities than their female counterparts.
By creating a culture of diversity and inclusion, new parents experience peace of mind, which encourages them to take the leave their families need them to take, and it ultimately makes the organisation more attractive to potential employees.
Close to 60% of men thought that their female colleagues received equal pay and rewards, while more than 80% of females disagreed.
ORGANISATIONS THAT SEEK TO IMPROVE THEIR INCLUSION AND DIVERSITY PROGRAMMES CAN USE THE FOLLOWING STEPS:
Fifty four percent of respondents agreed that prioritising inclusion programmes that help foster diversity and innovation is an important key in combating gender inequality in today’s modern workplace. Such programmes have been shown to create a more positive culture and boost morale.
1. Appoint a dedicated ‘diversity officer’ in your company. This person should take ownership of the company’s diversity programme and work as a champion to oversee its success.
Another Hays Ireland report found that 29% of individuals consider the diversity policy of a company before they apply for a job. However, 30% of male and 20% of female employees are unaware as to whether their organisation has a diversity policy. Sixty percent of respondents did agree that senior management should better communicate in order to raise awareness about diversity programmes.
2. Be sure to promote your company’s inclusion programme to your existing staff and also to new employees. 3. Ensure that employees’ fears regarding flexible working harming their prospects of career advancement are allayed. 4. Create a clear workflow for your company’s plans for professional development.
Nearly all respondents to the recent survey believe that inclusion and diversity include flexible working options, such as remote working and flexi-time. They feel that it benefits both employees and the company alike, and nearly half of them believe that it allows for women to be better presented in senior management roles.
By creating an innovative and dynamic workflow that improves morale and by removing gender inequality obstacles in the workplace, you can improve your organisation’s ability to attract and retain quality talent.
17
LEGAL BRIEFS
Irish tax authorities were in effect restricting the ability of foreign car hire companies to provide services in the Irish market and discriminating in favour of domestic providers. The court also found the tax obligation was not proportionate to its objective - to compensate for the external and environmental effects of vehicle use. Since the duration of use for leased vehicles from a company in another member state is limited and known in advance, the court held that a less restrictive system could be used. This might consist of a registration tax proportionate to that duration. Ireland had introduced a system whereby excess tax could be refunded following an inspection of the vehicle. However, the court also ruled that by failing to refund the interest and by deducting €500 for “administration” from the refund, Ireland had failed to fulfil its obligations under EU law. While Ireland had amended its legislation on this issue at the beginning of 2016, the commission said it had not done so within the prescribed timeframe ending in April of the previous year.
VRT ON SHORT-STAY CARS INCOMPATIBLE WITH EU LAW, SAYS COURT Ireland has been found guilty of failing to comply with European law over the application of tax to cars imported for rental purposes. The European Court of Justice (ECJ) decision relates to those cars which may only be imported to Ireland for limited amounts of time. Irish law requires importers to pay the entire tax for permanent registration, regardless of the intended and actual duration of their use in the State. This approach includes cars that are hired or leased from abroad for predetermined, limited periods of time. Ireland does not face any financial sanction following the court’s ruling, although it will bear legal costs. The Luxembourg-based court ruled recently in favour of the European Commission, which had complained that
POOR BOX USED OVER 1,300 TIMES SINCE 2015
It was widely felt the decline in 2015 heralded the beginning of the end for the poor box. Legislation to scrap the poor box is in the works, but Mr Flanagan has yet to outline a clear timescale for its implementation. He said the Criminal Justice (Community Sanctions) Bill is “currently being drafted by the Office of the Parliamentary Counsel”. Mr Flanagan commented that the legislation will abolish the poor box and replace it with ‘a statutory reparation fund to provide for a fair, equitable and transparent system of reparation that will apply only to minor offences dealt with by the district court.”
The poor box continues to be widely used in the Irish courts, according to new figures showing it has been used over 1,300 times in three years. Figures published by Justice Minister Charlie Flanagan show the poor box was used 843 times in 2015, 258 times in 2016, and 223 times in the first nine months of this year. The figures come months after the Courts Service of Ireland revealed that over €1.5 million was paid into the poor box in 2016, partly reversing the stark 40% decline in 2015.
MINISTER FOR CHILDREN SIGNS CHANGES TO ADOPTION LAW
court or the Adoption Authority, as part of the process. Minister Zappone in signing the Commencement order for the the Adoption (Amendment) Act 2017 stated what a hugely significant event adoption is in the life of the child and as Minister for Children and Youth Affairs she was conscious of “providing an adoption process that is fully inclusive of everyone involved and where children’s best interests are always at the heart of decisions involving them”
Minister for Children Katherine Zappone has signed into law a number of changes to the adoption law. Some of the most wideranging include civil partners and co-habiting couples being able to jointly adopt a child for the first time. Other changes allow an older child to give their views on being adopted to a
18
Dervilla Whelan
Sarah Keane
(BBS, CTA) Managing Director
(BAAF, FCA, CTA, QFA) Director
Dervilla Whelan is the Managing Director of DLS Capital Management Ltd and also one of the founding members of DLS Partners. She was previously a taxation partner in Baker Tilly O’Hare (now part of Baker Tilly Ryan Glennon) and is a graduate of Trinity College, Dublin and the Institute of Taxation in Ireland. Her key skills include advising clients on all aspects of their financial affairs, including advising on the appropriate structures required for all types of investments and pensions. Dervilla is heavily involved in the Family Office service for our high net worth clients. Dervilla’s involvement with both DLS Capital Management Ltd. and the tax practice, DLS Partners, ensures that her clients benefit from a holistic approach to all of their financial affairs
Sarah Keane is a graduate of Dublin City University in Accounting and Finance and a Fellow of the Association of Chartered Accountants (FCA). She is also a member of the Institute of Taxation in Ireland (CTA), and the Professional Association for Financial Services in Ireland (QFA). Her key skills include advising clients on all aspects of financial planning, including retirement planning strategies, taxation and investment advice. Sarah is highly experienced in the preparation of investment financing strategies for individuals and companies. Sarah is also heavily involved in the Family Office service for our high net worth clients.
Graham O’Neill
Stephen Cahill
Graham is an investment researcher of international note and has been working in this area for over 20 years. He began his career in the stock broking industry before becoming an institutional fund manager where he practiced both in Ireland and the UK where he worked in senior roles with a number of institutions including Royal Life holdings, Guardian Royal Exchange and Abbey Life. Throughout his career, he has managed multi-million Euro funds and developed innovative investment fund concepts. Seeing the need for non biased, critical analysis of the investment industry, Graham began work as an independent investment researcher in 1992 and since then, principally, he has provided services to financial institutions. Graham is also a director of RSM Group, a leading UK investment research company.
Stephen Cahill is the Tax Manager at our Tax Practice, DLS Partners. He graduated from DIT and is a member of both the Association of Chartered Certified Accountants (ACCA) and the Irish Tax Institute. Stephen is responsible for all areas of Tax, including, VAT, PAYE, Income Tax, CGT and Corporation Tax. He also is involved in the preparation of Financial Accounts for sole traders and limited companies and assists in the preparation and review of monthly management accounts for larger corporations.
Independent Consultant
(BSc (Marketing), ACCA, CTA) Tax Manager DLS Partners
19
RANGE OF SERVICES RETIREMENT PLANNING
FINANCIAL PLANNING
•• •• •• ••
•• Financial Planning is central to our
Tax-effective funding for retirement. Income Planning for your retirement Personal Fund Threshold calculations Protecting the underlying value of your pension fund throughout retirement •• Advice on the most tax effective drawn down of your pension vehicles •• Taking transfers from Defined benefit Pension Schemes
PENSION STRUCTURE ADVICE •• Personal pensions •• Self Invested Personal Pensions •• Company/Executive pensions
- Defined Benefit Schemes - Defined Contribution Schemes •• Small Self Administered Schemes •• Personal Retirement Saving Accounts (PRSA’s) •• AVC’s
service offering
•• We compile fact finds based on client’s
personal and financial details •• We produce a Financial Plan for each client, showing their current financial position and their future financial objectives. •• The Financial Plan will encompass all areas of a client’s financial position, e.g. investments, borrowings, protection policies and pension policies •• Financial Plans are reviewed on an annual basis, taking into account any changes in a client’s personal and/or financial circumstances.
FAMILY OFFICE SERVICE •• Preparation of Quarterly Net Worth Statements
•• Preparation of a comprehensive
INVESTMENT ADVICE •• •• •• •• •• •• ••
Managed Funds Exchange Traded Funds Unit Trusts Investment Trusts Tracker Bonds Deposits Employment and Investment Incentive Schemes (EIIS) •• Structured Products •• Qualified Investment Funds (QIF) •• Renewable Energy Investments
•• •• •• ••
database which contains all information on Assets and Liabilities, thus facilitating instant access to information Centralisation of costs on all Personal & Investment Properties Appraisal of Investment Opportunities Monitoring of Investments Attend meetings relating to Investments on behalf of clients
DLS Capital Management 25 Merrion Square Dublin 2
www.dlscm.ie info@dlscm.ie
DLS Capital Management is regulated by the Central Bank of Ireland
(p) 01 6119086 ( f ) 01 6619180