Market Pulse
Friday, November 29, 2024
Welcome to this week's Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
Our three stories this week:
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
With the recently announced UK budget set to push up government spending by £70 billion by the end of the decade, the pressure on British taxpayers has never been greater. While Gilt issuance is projected to rise, borrowing alone cannot fund these increased expenditures. By 2027, the UK’s tax share as a percent of GDP is set to hit nearly 38%, the highest level on record.
Thanks to this trend, demand is growing for tax-advantaged strategies that allow British investors to retain more of their hard-earned wealth. One such strategy, which combines tax savings with early-stage equity investing, is the Venture Capital Trust (VCT). Between the start of the tax year in April and mid-November, VCT inflows totalled £250 million, a 27% increase from the same period last year.
The tax benefits of VCT investing can be substantial. Provided that you purchase shares at issuance and hold them for at least five years, you can claim up to 30% income tax relief on the amount invested (up to a maximum of £200k per year). In addition, dividends and capital gains on investments accumulate tax-free.
Unlike traditional investment funds, however, VCTs are only authorised to invest in smaller firms (as defined by full-time employee and asset limits). Since smaller companies are generally riskier than larger ones, VCTs aren’t suitable for every investor. If you’re looking for exposure to the UK’s startup and early-stage equity ecosystem, however, VCTs can offer a compelling tax-advantaged opportunity.
At Sidekick, we’re proud to have partnered with Puma Investments and YFM Equity Partners to offer their leading VCTs on our platform. Investors can get started today for just £3,000 and may be able to benefit from fee rebates. As demand for tax-advantaged tools grows, so too does our commitment to offer every investor the wealth-building resources they deserve.
In a scathing report published this week, a group of MPs and peers levied sharp criticisms at the Financial Conduct Authority, the UKs leading financial regulator. The report, which concludes a three-year examination and spans more than 350 pages, includes testimony from dozens of individuals with direct exposure to the FCA. In conclusion, the group found that the regulatory body “is seen as incompetent at best, dishonest at worst”.
The report comes at a time when the FCA’s regulatory model is being widely debated. Regulators have been criticised for failing to prevent or appropriately handle a string of recent scandals, including the mis-selling of financial advice to British Steel pensioners. At the same time, the Labour government has taken aim at the FCA’s overly restrictive rule book for holding back economic growth.
Perhaps most worryingly, the report documents an FCA culture institutionally opposed to change or improvement. According to current and former employees, “those who challenge a top-down ‘official line’ on any given issue are bullied and discriminated against”.
In a statement, the FCA noted that they “strongly reject” the report’s characterisation of the organisation. To their credit, the FCA is currently undertaking a £320 million “transformation programme” to address recent failures. Given the scale of the criticisms, however, more significant changes may be necessary to effectively balance the protection of British investors with policies that enable domestic growth.
The report’s suggested reforms include changing the way the FCA is funded, removing the body’s immunity from civil liability to consumers, and implementing a government supervisory council to conduct periodic reviews. Notably, the group does not advocate for “radical measures” such as stripping the FCA of wide swathes of its regulatory authority. Should proposed reforms fail to bring about effective change, however, they do leave the door open to such a possibility.
Competition amongst Europe’s domestic EV manufacturers is fierce, especially as sales momentum slows down. By far the industry’s greatest competitive threat, however, is low-priced vehicle imports from China. In 2023, the average Chinese EV imported into the EU was valued at just €25.2k, compared to a continent-wide average EV retail price of €46k.
According to a year-long investigation conducted by the European Commission, this difference isn’t merely the result of cheaper manufacturing costs in China. Instead, it’s due to massive state-level subsidies offered by the Chinese government to their domestic EV industry. These subsidies have helped Chinese firms rapidly capture market share, with the portion of Chinese-made EVs sold in the EU growing from 3% to 22% over the past three years.
Last month, the EU finalised its response with a suite of sharply higher tariffs on Chinese EV imports. On top of a flat 10% tariff, the EU has assessed additional duties on specific manufacturers, up to an extra 35.3% for Chinese-state-owned SAIC.
Despite continued negotiations between Chinese and EU officials, the most recent reports indicate that the tariffs are here to stay. So far, the EU has rejected various Chinese proposals, including setting a minimum price for any Chinese-made EVs sold on the continent.
Looking toward the future, however, it’s not clear that tariffs are the best solution for the EU’s EV problem. Major European automakers like Mercedes-Benz and BMW have been vocal critics of the tariffs, worried that a trade war could hurt their sales in China. Moreover, the European domestic EV manufacturing industry remains highly dependent on China for batteries and other critical materials.
With the US also recently ramping up tariffs on Chinese EVs, it’s clear that protectionist sentiment isn’t going away anytime soon. For policymakers, however, it is essential to monitor whether such tariffs ultimately do more harm than good – and whether any competitive reprieve is being effectively used to scale up domestic industry.
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𝘗𝘭𝘦𝘢𝘴𝘦 𝘳𝘦𝘮𝘦𝘮𝘣𝘦𝘳, 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘷𝘪𝘦𝘸𝘦𝘥 𝘢𝘴 𝘭𝘰𝘯𝘨𝘦𝘳 𝘵𝘦𝘳𝘮. 𝘠𝘰𝘶𝘳 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘪𝘴 𝘢𝘵 𝘳𝘪𝘴𝘬 - 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘤𝘢𝘯 𝘨𝘰 𝘶𝘱 𝘢𝘯𝘥 𝘥𝘰𝘸𝘯, 𝘢𝘯𝘥 𝘺𝘰𝘶 𝘮𝘢𝘺 𝘨𝘦𝘵 𝘣𝘢𝘤𝘬 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 𝘺𝘰𝘶 𝘱𝘶𝘵 𝘪𝘯.
