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Census Financial Planning's Market Update
Share prices continued to pick up during February, with indications that investor sentiment was showing tentative signs of improvement. In the UK, the FTSE 100 index rose by 3.3% during the month, having increased by 5.4% since 2012 began.
Medium-sized and smaller companies outstripped their larger counterparts and, during February, the FTSE 250 index rose by 6.3% while the FTSE SmallCap index rose by 6.1%. Since the start of 2012, medium-sized companies and smaller companies have posted overall gains of 13.3% and 12.7% respectively.
In the banking sector, Royal Bank of Scotland (RBS) announced another year of pre-tax losses, while Lloyds Banking Group reported full-year losses of £3.5bn, having set aside £3.2bn to meet claims for mis-sold payment protection insurance. In comparison, full-year profits at HSBC increased by 15% compared with last year. The company, which generates about 80% of its revenues from outside the UK, cited strong performance from its fast-growing Asian and Latin American operations.
February saw the British Bankers’ Association report the ‘Project Merlin’ banks, comprising Barclays, HSBC, Lloyds Banking Group, RBS and Santander, had met their “overall” business lending commitments, having delivered almost £215bn in gross lending to UK businesses during 2011.
Even so, Bank of England figures showed that total net lending by UK banks dropped during every quarter of 2011. Meanwhile, the Federation of Small Businesses pointed out that only 35% of its members used an overdraft facility during 2011, while just 11% succeeded in obtaining a secured bank loan – a decline of 8% and 3% respectively.
Elsewhere, leading insurer Prudential announced possible plans to shift its headquarters outside the UK in order to escape the new Solvency II rules that might require the company to hold large amounts of additional capital in reserve while mining company Xstrata announced a merger with commodities producer Glencore. This would create “Glencore Xstrata International plc”, the 10th-largest company in the FTSE 100 and the world’s fourth largest diversified natural resources business, producing and marketing 18 commodities. Glencore floated on the stock exchange in May 2011.
According to the Investment Management Association, the UK All Companies sector proved one of most unpopular fund groupings during 2011 as a whole. This trend carried on into January so that, while equity funds experienced their first net monthly inflows since August 2011, investors continued to avoid UK equity in favour of emerging market and Asian equity portfolios.
Paul Dixon FPFS
Chartered Financial Planner
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Census Financial Planning is an independent financial planning practice providing a professional and comprehensive financial planning service, located on the Lisburn Road in Belfast, Northern Ireland.