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There are a few things we can expect this week from what is likely to be Gordon Brown’s last Budget as Chancellor.
As the man who would be PM struggles to suggest some semblance of charisma to the electorate, he’ll likely boast about having met his fiscal rules – through cheating, of course, but what else would you expect? Another area of focus is likely to be green taxes – now that global warming is the new religion, Mr Brown no longer needs to rack his brains for more obscure stealth taxes. The magic words ‘reduce CO2 emissions’ will enable him to justify just about any new assault on our wallets he cares to make.
But there’s one thing we certainly shouldn’t expect from Prudence – any attempt to encourage us to save any more…
As you’ll have noticed from all the advertising from fund managers, it’s Isa season again. At this time of year, commentators get terribly excited about the fact that you can put £7,000 away in your Isa. But the reality is that the benefits of an Isa have been steadily hacked away at by the Chancellor every year since they were introduced.
For a start, if the tax-free allowance had grown in line with inflation from when the Isa was introduced in 1999, we would now be able to put away £8,400 a year, according to stockbroker Charles Stanley. That’s not even mentioning the fact that the dividend tax credit was also scrapped for equity Isas back in 2004, removing one of the main benefits for lower-rate taxpayers.
But let’s not complain – after all, it’s one of the few tax breaks we get, and we don’t want him to take it away from us. So onto a more important topic – how should you be making us of your £7,000 Isa allowance? Here are a few suggestions…
If you’re looking at world stock markets, you should consider Japan – Japanese stocks had a pretty poor year last year, but that followed a stellar 2005. Although the market was hit hard by the recent sell-off across global markets, the economic news coming out of the country remains broadly positive, and with the yen near multi-decade lows, there‘s every likelihood that anyone buying in now will see some decent gains from the currency appreciating, on top of whatever the market does.
You can buy into Japan through a tracker fund, such as the iShares MSCI Japan fund (EJW). Alternatively, you could look into the Japanese property market, which is finally recovering from years in the doldrums – two Aim-listed investment companies you may wish to investigate further are the Prospect Epicure J-Reit Value Fund (PEJR) and the Japanese Residential Investment Company.
Commodities are another sector to gain some exposure to. Despite fears of bubbles in stock markets, China and India aren’t going to start shrinking any time soon – there are basically too many people pushing for the standard of living we in the West take for granted. That means demand for commodities, both metals and foodstuffs, such as grain, will stay high.
You can buy directly into individual commodities from gold to nickel to lean hogs through London Stock Exchange-listed securities known as Exchange-Traded Commodities – for more, see ETF Securities. However, individual commodities can be volatile and for most investors, the best way to get exposure to higher base metal prices is through a mining major, like BHP Billiton (BTL) or Rio Tinto (RIO); while for softs you might want to consider an agricultural stock, like US-listed farm machinery manufacturer Deere & Co (DE). And while you’re at it, you may want to pick up one of the UK’s oil majors – both BP (BP) and Shell (RSDB) look inexpensive at the moment, especially given that oil remains around $60 a barrel.
And then there’s good old hard currency. Having cash to hand is always a good idea, and at times of uncertainty, there’s certainly no harm in having a little more than usual tucked away. A cash Isa is the perfect place to store your money, with recent interest rate hikes meaning there are some attractive rates around.
If you can be bothered with the hassle, Alliance & Leicester offers a healthy 7% interest rate on its cash Isa up until May 2008, but you do have to open a current account with the group and there are other catches, such as the rate drops to 0.25% below the Bank of England base rate after the guarantee period ends. A less fiddly option is to opt for National Savings and Investments, which does a cash Isa with a 5.8% rate.
So at least if Mr Brown does up taxes in the week ahead, you’ll have a decent chance of making some of the money back on your investments.
Turning to the stock markets…
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In London, the blue-chip FTSE 100 index closed 17 points higher on Friday, at 6,252, as high street chemists Alliance Boots gained over 14% on bid talk. Supermarket chain and fellow takeover target Wm Morrison was the day’s second-highest climber. However, it was a less positive day for mining stocks as investors took profits following recent gains. For a full market report, see: London market close
Elsewhere in Europe, the Paris CAC-40 closed 13 points higher, at 5,537, whilst the DAX-30 climbed 3 points to end the day at 6,716.
Across the Atlantic, February’s jobs report helped to ease concerns over slowing economic growth but was offset by fears that interest rates would remain high. The Dow Jones closed 15 points higher, at 12,276. The tech-heavy Nasdaq fell a fraction of a point to end the day at 2,387, whilst the S&P 500 closed 1 point higher, at 1,402.
In Asia, the Nikkei rose 128 points to close at 17,292 today.
Crude oil had fallen back below the $60 mark this morning, and was last trading at $59.84. Meanwhile, Brent spot was at $59.72 in London.
Spot gold had risen to $651.50 in Asia trading, and silver was trading lower, at $12.91/oz.
And motor company Ford will make an ‘important’ announcement regarding its Aston Martin unit at 1pm today. A source told Bloomberg.com that the troubled carmaker is to sell its luxury sports car arm for as much as $850m to a group led by racing champion David Richards. Ford declined to comment on the reports.
And our two recommended articles for today…
Equity market’s loss is bond market’s gain
– Sharp falls on global equity markets have had investors looking for potentially defensive bolt-holes, including the previously unloved bond markets. But beyond providing a shelter from market storms, how attractive are bonds at the moment? For Jeremy Batstone’s predictions as to where yields are likely to head next, see: Equity market’s loss is bond market’s gain
Why the Treasury got it wrong on North Sea Oil
– Treasury forecasts for last year’s North Sea oil receipts were out by 21%. Gordon Brown may have asserted that falling North Sea oil production is not the fault of his department, but Brian Durrantbegs to differ. To find out why government taxes are threatening investment in new wells, read: Why the Treasury got it wrong on North Sea Oil