Scottish Independence

So today the SNP released its white paper laying out its plans for an independent Scotland. With Scots due to vote in less than a year, the race is now on to persuade voters.

Economically, the SNP has traditionally pointed out that most oil and gas reserves in the North Sea would belong to an independent Scotland. These resources are finite though, and if Iranian oil comes back to the market after this nuclear deal, prices will fall and the Scots oil and gas reserves will support them even less. 

Another problem is that really important things like Scottish EU membership or whether Scotland keeps the pound won't be negotiated until after the election. These issues will really affect the Scottish economy, so I don't see how Scots can decide without that sort of information.

Scotland also spends more per person on health and education than the rest of us south of the border, independence would mean the loss of tax revenue from the the UK. The Treasury estimates that Scottish taxes would have to be raised by £1000 per head to support their current systems. 

Also, as Scotland has banks like RBS and HBOS (part of the UK's Lloyds), it seems very unlikely to me that the Scottish economy could have bailed out banks of that size. It's crazy for Scotland to have a banking sector that big. The UK as a whole currently has a banking sector almost 5 times the size of GDP. Were Scotland to go independent, its banking sector would be more than 12.5 times bigger than its economy. Think of the banking crisis that destroyed Cyprus' economy in March. Pretty bad? Cyprus' banking sector was 700% of GDP. That's more than 500% smaller compared to the banks the Scottish economy would have. Crazy, eh?

Here's the last thing I'm going to say. I live within 1 hour of the border (on the English side, of course!). As it is, the UK is in danger of losing what global presence it has left, especially in Europe, which is becoming more and more dominated by the Eurozone. Independence would destroy this for Scotland and the UK. Together, the UK with Scotland part of it, we still have a bit of influence. Apart, it looks to me that we'll lose European control to the French and Germans, Scotland will lose loads of tax revenue, we'll lose loads of oil, gas and other resources we need. We'll all look a lot more miserable.

Now's the time to invest in equities

I'm not wrong. 

Provided you pick semi-decent stocks or even an index-tracking ETF, I think things look pretty good for the next few years. 

Firstly, both retail investors and big institutions are keen to get back to the boom years. The signs of recovery we've seen in the past few months have started a general upwards trend in stock prices. Investors are keen to see return on share values back to what they were before the crisis, and this (possibly prematurely enthusiastic) return to shares is pushing up prices with every new bit of good news we get. If you look at this chart, you can see this year's re-found love for the FTSE, and that the bigger drops have been pretty short lived.

Secondly, if the markets were to take a significant dip, we could see companies lose their new confidence and curb what small growth we are currently experiencing. The BoE & Fed don't want that, so would extend their forward guidance on interest rates or QE, relieving leveraged investors, increasing market liquidity and pushing stock prices right back up again.

And finally, the most obvious reason, the economy does seem to be recovering at the moment, which is good for all business and should improve their valuations - and thus share prices. Yep, that's the most basic and yet a reason we sometimes overlook.

So ... get buying those equities! 

(Not official financial advice - I'm 15, remember)

Fulfillment by Amazon (FBA) - the solution for selling new products?

So far when running my Amazon business I've resisted the almost constant persuasion by Amazon to ship my stock off to their warehouse so they can dispatch it for me. That's all FBA basically is, and I'm still reluctant to hand over any more of my control to Amazon than I have to. Plus, with a lot of the things I sell that I've not sold before, I haven't got much of a clue about how long they'll take to sell. So I was also wary of storage fees. And I became increasingly cynical about Amazon's "FBA" scheme. What's in it for them? What kind of scam are they using to get my money?

Well, I'm still not sure but my iron resolve has crumbled a bit. As we speak I have a box of books ready to be posted off to a Scottish warehouse on Monday. Here's why. I bought a load of books from thebookpeople and some of them didn't have listings on Amazon. Woohoo! No competition. When there's no other sellers though, I'm always a bit put off as a buyer. I'd much rather buy from a listing where Amazon is at least offering to sell (even if I don't actually buy it from them). It gives a sense of security I think, that Amazon sell or dispatch a product themselves. So after I'd made the new listing, I decided to try out FBA. FBA also allows buyers to use Super Saver or Prime delivery, which could be important in the run up to Christmas when people need gifts fast.

I must say I've not become a huge FBA fan yet, even if I can now see it's uses in some circumstances. The process is OK, the instructions aren't full of jargon and I've just about managed to get through it. The one off-putting thing though is that Amazon asks for a tracking number before you mark the shipment is complete. I guess that's alright if you use UPS (which Amazon recommends) but I want to post these books off as soon as possible so I'm using good old Royal Mail, meaning I don't get a tracking number until I post it off. So I've had to mark the shipment as completed already, but the parcel is still in my bedroom. I suppose that's alright, I don't suppose Amazon will mind if the books take a little longer, I just think its wrong and has made me paranoid that I've done something wrong and those books will mysteriously disappear into the postal system or Amazon's warehouse. I'm sure that won't happen. I just don't like it. Anyway, I'll keep you posted.

Investing in the Singapore Straits Times Index (FSSTI)

Here's my view for investing in the Straits Times Index (Unfortunately named STI)

Singapore Economy & Equity Investment

Name	Singapore
Population (2012)	5.4million
Currency	Singapore Dollar (SGD)
2012 GDP	US $331.9 billion
2012 GDP Growth	1.3%
IMF GDP Growth Prediction for 2014	3.4%  (3.5% predicted for 2013)
Unemployment	1.9% (2012)
Inflation	4.6% (2012)
Budget Deficit/Surplus	+2% GDP (2012)
Currency Rate	SGD/USD 0.81
IMF CPI Growth Prediction for 2014	2.3%  (2.7% for 2013)
Main Sectors of Economy	Services 73%, Industry 26% (E.g. Consumer electronics, pharma, petroleum refining)
Main Exports	Machinery & Equipment Pharmaceuticals Refined Petroleum
Main Export Partners	Malaysia 12.2% Hong Kong 10.9% China 10.7% Indonesia 10.5%
Main Imports	Machinery & Equipment Mineral Fuels Foodstuffs
Main Import Partners	Malaysia 10.6% China 10.3% USA 10.2%
Main Stock Exchange	FSSTI
Market Cap	US $830.78 million
Market Performance YTD	+21.38%

Singaporean Exports

• The Singaporean economy is one of the most open and least corrupt free market economies in the world.

·         Singapore’s sovereign wealth fund holds majority stakes in several of the country’s largest companies, including Singapore Airline, SingTel, ST Engineering & MediaCorp

·         Singapore is also a regional hub for wealth management and financial services

·         Singapore has tightened immigration controls recently with aims to reduce downward pressure on low level wages and increase wage equality. By doing this however, it risks losing its competitive manufacturing advantage which contributes about a quarter of GDP.

·         MAS doesn’t use a base interest rate as monetary policy, instead it intervenes in the SGX markets, giving it less power to regulate inflation and exchange rates.

·         The Singapore Dollar is one threat to the economy. MAS can’t regulate it closely and steady strengthening in the currency markets in the last decade has led to high inflation due to the local cost of living rising and pushing up wages.

·         A further challenge for the economy is the price of petroleum veruses Middle Eastern crude oil. A proportionate divergence in futures prices or lessening demand would be damaging to the economy, for example caused by discovery of new large Australian reserves.

·         The 5 biggest companies on the FSSTI are: Singapore Telecom (SGX:Z74)  - telecoms; Jardine Strategic Holdings (SGX:J37) – Stock Holding; Jardine Matheson Holdings (SGX:J36) – Conglomerate; DBS Group Holdings (SGX:D05) – Banking; Oversea-Chinese Banking Corp (SGX:O39) - Banking

·         The STI is part operated by Singapore Press Holdings; Singapore Exchange and the FTSE Group. It has historically been more volatile than the FTSE percentage wise.

ETFs

·         SPDR Straits Times Index ETF (STTF SP) closely tracks STI and has achieved a 10.2% return in the last 10 years.

·         Nikko AM Singapore STI ETF (DBSSTI:SP) also invests in STI according to each stock’s weighting in the index.

My Outlook

Singapore is in a good position to take advantage of continuing growth in the East. As the potential for disruptions to Middle Eastern crude apparently recede, Singapore is well placed to exploit a rise in petroleum demand as prices continue to level. While Singapore tries to reduce cheap foreign labour, I expect consumer product manufacturing will gradually lose its prominence to be replaced by financial services, but this should be gradual, not necessarily negative, and shouldn’t severely affect performance of the FSSTI in the next 12 months. The FSSTI is also weighted quite widely over several sectors so exposure to any one sector isn’t too high. I expect SGD to hold value over the next 12 months without much increase or decrease as a decade of strengthening peters out, so the value of stocks in Sterling shouldn’t be affected too much. With relatively high IMF growth predictions, I would be bullish an ETF closely tracking FSSTI, the most positive for any of the four economies I've posted about.

Amazon Christmas Selling

Well, hopefully any Amazon sellers wanting to sell toys over Christmas reached their minimum order number by October 31st, and maybe my tips were useful in some way. If they weren't, oh well, it's all a matter of personal preference. If you want to sell over Christmas, you should definitely be buying stock right now if you haven't already. I mean today!! November has begun, and the further on we get, the more sales you're missing if you haven't got your stock yet! So, anyway, just to say good luck with that. If you use Royal Mail, I noticed today that the Post Office now has leaflets about Christmas mailing deadlines and also the extra new dimensions for small parcel sizes. I'd pick some up next time you're in to get ready for the busy period.

Investing in the Netherlands AEX

The third economy in the EFA I've investigated is The Netherlands:

The Netherlands Economy & Equity Investment

Name	The Netherlands (Part of the Kingdom of The Netherlands)
Population (2012)	16.79 million
Currency	Euro (EUR)
2012 GDP	US $709.5 billion
2012 GDP Growth	-0.5% (real)
IMF GDP Growth Prediction for 2014	0.3%  (-1.1% predicted for 2013)
Unemployment	8.7% (July 2013)
Inflation	3.2% (June 2013 YOY)
Budget Deficit/Surplus	Positive €24.3 billion (2012)
Currency Rate	EUR/USD 1.38
IMF CPI Growth Prediction for 2014	2.9%  (1.3% for 2013)
Main Sectors of Economy	Service 73.2%, Industry 24.1% (Exports of goods & services accounted for 78% of GDP in 2012)
Main Exports	Machinery & equipment, chemicals, fuel, foodstuffs
Main Export Partners	Germany   26.3% Belgium   14.1% France   8.8%
Main Imports	Machinery & transport equipment, fuels, chemicals, foodstuffs
Main Import Partners	Germany   13.9% China   12.0% Belgium   8.4%
Main Stock Exchange	AEX
Market Cap	€594.7 billion (2011 CIA database)
Market Performance YTD	11.7%

Netherlands Exports

·         Although only 2% of the population is employed in agriculture; The Netherlands are the second largest agricultural exporter in the whole world, after the USA

·         The Nethelands’ economy is currently in recession. In July consumer spending was down 2.2% from 12 months before, and corporate investment down 9.4%. Unemployment has risen steadily since the financial crisis

·         As the Netherlands relies heavily on foreign trade, it’s GDP is also tied to the strength of the Euro, which it doesn’t have much control over.

·         Inflation did decrease in September to 2.4%, down from 2.8% in August, although Dutch inflation levels have been substantially above the Eurozone average for some time.

·         The Netherlands does have some notably big companies such as Royal Dutch Shell; the largest company in the world.

·         The 5 biggest Dutch public companies are: Royal Dutch Shell (RDSA:AEX) –Oil exploration, production & refining; ING Groep (INGA) – Financial; European Aeronautic Defence and Space Company (EADS) – Everything it says in the name; Lyondell Bassell Industries – Chemicals; Aegon – Financials

·         The AEX is operated by NYSE Euronext, created in the last decade by Dutch Exchange, French Exchange, LIFFE & NYSE mergers and acquirements. It experienced drop in 2008 along with other countries and has been more historically volatile than the FTSE, partly because of its size & links to other indexes operated by NYSE Euronext.  

·         AEX has enjoyed a 16.69% increase in the year to date

ETFs

·         iShares AEX UCITS ETF (IAEX) is a physical ETF that tracks the AEX as closely as possible. It offers exposure to the 25 most traded stocks on the AEX

·         SPDR AEX Index ETF also buys physical stocks on the AEX in a proportionate weighting to their percentage of the index.

My Outlook on The Netherlands Investment

The Netherlands has been in recession since mid-2012 and has been experiencing a steady increase in unemployment. Although the Netherlands is very export orientated, its main export partners are in the Eurozone, so a strengthening Euro would be beneficial by increasing the purchasing power of the Netherlands and decreasing the cost of imports in real terms. Continuing cuts in government spending and the deleveraging of households will continue to dampen growth & with the currently stronger Euro against the Dollar curbing foreign investment, The Netherlands economy is in danger of stagnating. In regards to an AEX tracking ETF, I would be very slightly bullish as Europe gradually recovers, but I don’t think growth would outpace inflation by very much in the next year.

Investing in the Swedish OMXS30

Here is the second EFA economy I investigated; Sweden. Here it is:

Swedish Economy & Equity Investment

Name	Sweden
Population (2012)	9.5million
Currency	Krona (SEK)
2012 GDP	US $552 billion
2012 GDP Growth	0.8%
IMF GDP Growth Prediction for 2014	2.3%  (1.1% predicted for 2013)
Unemployment	8.0% (August 2013)
Inflation	0.8% 2012 average (ranging from 1.92% to -0.11%)
Budget Deficit/Surplus	Positive €865 million (+0.2% GDP)
Currency Rate	SEK/USD 0.16
IMF CPI Growth Prediction for 2014	2.2%  (1.2% for 2013)
Main Sectors of Economy	Services 70.9%, Industry 27% (Car manufacture, timber, iron ore, telecoms, pharma) - Exports of goods & services account for 50% of GDP
Main Exports	Vehicles & Machinery Paper and Paper products Iron and Steel products
Main Export Partners	Norway 10.4% Germany 10.3% UK 8.1%
Main Imports	Machinery Petroleum & products Chemicals
Main Import Partners	Germany 17.4% Denmark 8.5% Norway 8.4%
Main Stock Exchange	Stockholm Stock Exchange (OMXS30)
Market Cap	US $470.1 billion (2011 – not certain)
Market Performance YTD	+21.38%

Swedish Exports

·         The Swedish economy is structurally very stable. The economy is also quite diverse. However, it’s vulnerable to problems in Europe, the majority of exports and financial lending go to within the continent. It’s largest export partners are Germany and Norway, making up over 1/5 of exports, and these economies are prosperous & relatively stable. Another Euro

·         Sweden also collects the highest tax revenue as a percentage of GDP in the world, there are fears that this could put off future foreign investment and curb consumer spending.

·         As Europe comes out of recession & growth picks up, Sweden is in a good position to gain from increased exports.

·         Another risk is that the strong Krona makes Swedish goods & services less attractive to other countries. For example; in Q1 2013, Sweden ran a surplus of SEK 19.4 billion. However on closer look, this is only because the value of imports decreased by 11% from the year before, while the value of exports still decreased by 10% from the year before. This is particularly bad for Sweden who relies heavily on exports. The Swedish Riksbank has chosen kept the repo rate at 1.0% this month, with two of the board members voting to decrease the rate, so they are trying to encourage spending & maybe competitively devalue the Krona slightly.

·         The 5 biggest companies on the OMXS30 are: Nordea Bank (NDA-SEK.ST) – Banking; Volvo Corporation (VOLV-B.ST)- Car Manufacturing;  Ericsson Telephone Company (ERIC-B.ST)- Telecoms; Skandinaviska Enskilda Banken (SEB-A.ST) – Banking; Svenska Handelsbanken (SHB-B.ST) – Banking

·         The OMXS30 is operated by NASDAQ & experienced drop in 2008 along with other countries, but had experienced less of bubble growth, so didn’t fall anywhere near as much as the FTSE. The OMXS30 generally has had a less pronounced boom & bust cycle.

ETFs

XACT OMXS30 is an ETF that tracks the index. It has performed well in the past year and spreads exposure to individual shares relatively evenly.

Swedbank Robur OMXS30 ETF also tracks the index as closely as possible, with holdings spread over different sectors. It has achieved 26.76% return in the last 12 months.

Sweden has a structurally good economy and is quite stable. As Europe picks up, Swedish exports (which make up 50% GDP) are set to gain. Although a strong Krona could dampen this, Riksbank is showing signs that it is prepared to competitively weaken Krona to help exports. One factor of the current economy is low inflation or even deflation,(inflation only averaged 0.8% because of a hike in petroleum VAT causing 1.92% inflation temporarily) As inflation in Europe averages higher, Sweden will become more competitive in the next 12 months. The OMXS30 has gained 21% YTD and I would expect an ETF tracking it to gain in the next 12 months, although that is rather at the Krona’s mercy.