We are getting closer to Christmas
and financial markets will be looking to no fewer than four central banks in the coming week,
to see just how generous they are feeling when it comes to providing support to the
economy and providing the bountiful, cheap liquidity which some commentators argue
is helping asset prices from shares to bonds to gold to bitcoin to horseflesh to keep levitating.
In order, we have:
• The US Federal Reserve on Wednesday 16 December • The Bank of England and the Swiss
National Bank on the 17th • And the Bank of Japan on the 18th
I’m sure most of you will be more interested in the Bank of England than the rest. At the last
meeting in November, the Monetary Policy Committee (or MPC) voted 9-0 to keep interest rates
unchanged at 0.1% and to increase Quantitative Easing by £150 billion to £895 billion.
The Old Lady of Threadneedle Street seems to be backing away from the prospect of negative
interest rates – in effect, charging savers to keep their money in the bank – although the MPC
seems split on the possible economic benefits of the proposed vaccines for COVID-19.
Governor Andrew Bailey, for example, seems more optimistic than fellow committee member
Michael Saunders. In addition, there is still Brexit to contemplate,
as the Transition period ends on 1 January, to confirm the UK’s departure from the European
Union, while inflation continues to run below the stipulated 2% target.
The Bank of England therefore has much to consider and the other central banks face similar issues,
at least in terms of how their economies are being affected by the pandemic
and how they continue to miss their own inflation targets, too.
Not one of the Fed, Swiss National Bank or Bank of Japan seem in any hurry to raise interest rates:
In addition, all three continue to run Quantitative Easing schemes,
with even the Fed’s balance sheet starting to expand again.
• In dollar terms they have increased by $7.8 trillion in 2020 alone – it took the
same five central banks from October 2008 to March 2017 to add that amount in the wake of
the financial crisis, or eight-and-half years to do what they have done in eleven months
• In percentage terms that is a 50% jump
Some argue this is necessary to help governments fund the huge increase in debt that has resulted
from the support schemes provided to combat the pandemic and the recession.
Some will argue such money creation will only back-up the assertion from French writer and
philosopher Voltaire that “Fiat currency always returns to its intrinsic value –
zero,” adding that this may be why gold, bitcoin and other perceived currencies or stores of value
have done well in 2020. You will have you own preferred view and I shall leave that to you
– in this case, quite literally, you pays your money and you makes your choice.
Corporate news flow will be relatively quiet this week,
not least as no FTSE 100 firms are scheduled to provide any results or trading updates,
but a handful of mid- and small-caps are due to update their shareholders. Names which may
be worthy of note include the following, although some of these dates are still subject to change:
• Hollywood Bowl on Monday 14th December
• Chemring and SSP on the 15th
• Dixons Carphone and Petrofac on the 16th
• And Watches of Switzerland on Thursday 17th December
But the company which could just cause the biggest fuss in the week ahead is Shaftesbury.
The Real Estate Investment Trust, or REIT,
is due to release its full-year results on Tuesday 15th December.
Shaftesbury is a commercial property landlord and just one short year ago, you would have said that
it owned an enviable array of assets in London, including chunks of Chinatown, Soho, Fitzrovia
and Covent Garden. However, shares in the FTSE 250 company are down 40% over the past year,
much worse than the 8% drop in the FTSE All-Share over the same period,
thanks to the pandemic and concerns that the even once the virus has been fended off,
office workers, consumers and tourists may not come back in quite the same numbers.
Those fears are reflected in how Shaftesbury’s shares trade, as I record this, at a 35%
discount to their last stated net asset value (or NAV) per share figure of 878p.
That is investors’ way of saying they the value of Shaftesbury’s buildings
and assets is going to fall and that rents might do the same.
• So the first number that analysts will
look toward is NAV. It was 982p a share a year ago and 878p by March:
• The next key number is rental income, which reached a record £117 million in fiscal 2019.
In the first half rents received dropped by just 3% year-on-year
but that was to March before the pandemic and lockdowns really hit. September’s trading update
revealed for the second half that 41% of rents due for the six months to 30 September 2020 collected,
10% were expected to be subject to deferred collection arrangements, 23%
were being waived and 26% remained outstanding at 11 September 2020.
• Analysts will the look to the vacancy rate, which rose from 3.2% to 4.8% in the first half
and had then, according to that September update, jumped to 9.7% by the end of August.
• Attention will then switch to the balance sheet. At the first-half stage,
Shaftesbury’s net debt position of £937 million,
for a loan-to-value ratio of 27%, was pretty modest, but the company has since raised just
under £300 million from shareholders in a deal priced at 400p a share in October.
Key investors Norges and fellow London-listed REIT Capital & Counties (CAPC) both participated.
• The final point of interest will be the dividend. Shaftesbury cut its interim dividend
from 8.7p a share to zero, although some analysts suggest a small final payment may be made.
I hope that you and your families are all in good health and good spirits during these
difficult times. Thank you for listening and I look forward to talking to you again next week.