Thank you, David Gardner and St James’s Place Asia and Middle East, for sharing your valuable market insights with our community in the SJP 30th September Weekwatch.

In this week’s WeekWatch, the SJP Team tackles the Stock Take, Wealth Check, and In the Picture. The focus is on the Chinese, US, EU, and UK economic updates. We’ve taken the time to put together the takeaways from the update.

Stock Take

China

• Since it was opened up and reformed in the late 1970s, China’s economy has grown at an average rate of 9% annually.

• China risks missing its annual growth target of around 5%. Therefore, markets reacted enthusiastically to the People’s Bank of China unveiling a major package of aggressive measures designed to stimulate the economy.

  • Plans to cut the amount of cash banks must hold in reserve estimated to free up around one trillion yuan ($142 billion) for new lending.

  • Efforts to boost the property market by cutting borrowing costs for existing mortgages and lowering the minimum down payments on all homes to 15%.

  • Global stocks rose to a record high on Tuesday, while major US indices also hit closing highs as investors cheered the news.

• However, analysts believe that a lack of liquidity isn’t the main problem and that only policies that put money into consumers’ pockets will boost demand.

• Markets lost momentum in the middle of the week as doubts resurfaced. Still, they regained strength on Thursday when Chinese leaders pledged to deploy “necessary fiscal spending” to meet the country’s growth target, raising expectations for further stimulus.

• Leading indices in the US and Europe registered all-time closing highs, and Asian stocks finished the week at two-and-a-half-year highs. Chinese shares had their best week since 2008 after jumping nearly 16%.

“Even at the lower end of estimates, China’s GDP is still forecast to grow at 4.6% this year, so it’s hardly falling off a cliff. The Fed’s action has made it easier for China to take these steps, and with its leadership in advanced manufacturing, green energy and transport, the fundamentals remain in place. These factors, combined with low valuations in both absolute and relative terms, continue to make a strong case for Chinese equities within a well-diversified portfolio.”

Martin Hennecke, Head of Asia Investment Advisory at St. James's Place.

US

• US consumer confidence fell unexpectedly in September, citing concerns about the job market. This was the most significant decline in over three years.

• Data revealed that 12-month inflation expectations rose in August.

• Analysts were cautious about short-term data, but declining consumer confidence supported the case for another significant interest rate cut at the Federal Reserve’s November meeting.

• The week ended with news that dampened hopes: US weekly jobless claims fell to a four-month low, indicating a healthy labour market and second-quarter corporate profits were revised upward, supporting business investment and employment.

• Expectations for a quarter-point rate cut solidified Friday as US consumer spending rose modestly in August, and the personal consumption expenditures index posted its smallest year-on-year gain since February 2021.

EU

• Disappointing business activity data raised expectations for more interest rate cuts from the European Central Bank (ECB).

• The euro zone’s dominant services industry flatlined in September while manufacturing activity continued to decline.

  • After the Olympic boost, France contracted again.

  • Germany saw its slowdown deepen.

  • The German economy may be tipping into recession in the third quarter.

  • German businesses are shedding staff at a rate not seen in over 15 years outside of the pandemic.

• Sweden and Switzerland reduced borrowing costs by a quarter point amid easing inflation. The worsening economic outlook has increased expectations for an ECB rate cut in October.

UK

• The OECD has upgraded its forecast for UK economic growth in 2024 from 0.4% to 1.1%, making it the second highest among G7 countries.

• Office for Budget Responsibility has revised the UK's GDP growth from April to June from 0.6% to 0.5%.

Wealth Check

With the UK Labour government’s first Budget scheduled for 30 October, speculation is rife about what it might include. What any changes will mean for everyone is yet to be fully understood and unless there are significant leaks in advance, we won’t know the detail until the day.

But it pays to keep abreast of speculation.

Prior to the election, Labour committed to:

• changing the taxation of non-domiciles, although without certain rules

• charging VAT and business rates on private schools

• increasing stamp duty on residential property purchases by non-UK residents.

But it has ruled out:

• increasing tax for “working people,” i.e. headline rates of Income Tax, National Insurance Contributions and VAT; and

• increasing corporation tax above 25%.

In his Rose Garden speech on 27 August, Keir Starmer referred extensively to a “black hole” in the country’s finances, suggesting things would have to get worse before they get better. He also mentioned that the biggest burden would be borne by those with the broadest shoulders.

Most of what we know is based on the Labour manifesto. Whilst it was silent on wealth taxes - Capital Gains Tax (CGT) and Inheritance Tax (IHT) - and investment taxes, there is speculation that changes in these areas could be announced in the Budget:

• IHT relief changes

• Higher tax on capital gains and changes to CGT exemption

• Higher taxes on investment income

• Pensions tax relief changes (although Rachel Reeves has stated that there is no plan to curb tax relief)

• Pensions tax-free allowance changes

• Business Assets Disposal relief changes

1. The speculation stems from the acknowledgement that tax increases may be necessary to meet Labour’s commitment to address the fiscal challenges.

   We know that uncertainty and speculation can be unnerving, but it’s important to remember that change – to your aspirations, your personal circumstances and legislation - is constant. As a result, it’s important that your financial plans are reviewed regularly with your financial adviser to ensure they remain on target to meet your objectives and maximise any tax allowances available to you.

   The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

   The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Source: St. James’s Place Weekwatch.

In the Picture

Last week's stimulus news provided a welcome lift after a tough few months for the Chinese market.

If you’d like to read the full report, please click on the button below.

Feel free to contact the SJP Team if you want to learn more or discuss your current situation. You can explore David Gardner's biography or talk to a financial advisor from St. James's Place Asia and the Middle East.

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