Monday 28/10/24

Japan’s PM vows to stay on after election debacle (Financial Times, Leo Lewis) gives us an insight into the whole debacle of Japan’s general election that was held over the weekend. The PM’s ruling Liberal Democratic party got thrashed, meaning that it won’t be able to govern alone. PM Shigeru Ishiba promised to remain as Japan’s leader despite the LDP’s worst performance for 15 years. The Yen weakened against the dollar on the news. * SO WHAT? * The outcome was worse than even the direst of predictions and this means that governing Japan just got that much harder. The LDP remains the biggest party in the lower house, but even in combination with its junior coalition partner, the Komeito party, it is still short of the threshold required to control parliament. Parties now have 30 days to form some kind of coalition. Clearly, Ishiba’s decision to gamble by holding a snap election has blown up in his face in spectacular fashion thanks to the Japanese public being less than forgiving about an political funding scandal that the LDP was in the middle of. Given the rising tensions in the Asian region regarding China, this is not a great time for Japan to falter. We’ll just have to see what this ragbag group of politicians can cobble together…

Back home, London’s Aim shrinks to smallest since 2001 amid fears of tax relief changes (The Guardian, Graeme Wearden) cites research from accountancy group UHY Hacker Young which shows that the UK’s AIM has reduced to its smallest size since 2001. It now has just 695 constituents as 26 companies have delisted since the general election in July alone! * SO WHAT? * This exodus has been blamed, at least in part, on fears about Rachel Reeves’s Budget – and specifically that she is going to ditch inheritance tax (IHT) relief on AIM shares. At the moment, AIM shares qualify for business property relief, which means that they don’t attract IHT if they’ve been held for over two years at the time of death. We’ll know for sure whether those fears were well-founded!

One company that doesn’t seem to be put off by potential Budget shenanigans is the subject of Flat Iron steakhouse chain mulls options after record sales (The Times, Jessica Newman) which shows that the company has appointed City advisers Houlihan Lokey to give it a range of options after it announced record sales for its latest financial year. Flat Iron started as a pop-up above a Shoreditch pub in 2012 and now has 16 restaurants across London, Cambridge, Leeds and Manchester. It wants to open another four to five sites per year, hence the desire to raise cash. * SO WHAT? * It’s always good to keep your options open and if you are a restaurant and want to expand fast – that takes money! Interestingly, another “up-and-coming” chain – Pizza Pilgrims – is also looking at potential funding options as it recently appointed PwC to come up with opportunities. It’s been tough out there for many casual dining operators so to hear confidence from places like this is refreshing! I have personally been to both Flat Iron and Pizza Pilgrims and am a fan! I hope it works well for them. Will Bleecker Burger one day scale up 😁??

Oil prices fall after Israel refrains from attacking Iran’s refining facilities (Financial Times, Arjun Neil Alim) highlights a fall in oil prices as both Israel and Iran showed restraint amidst ongoing tensions. Without the war-powered froth in the price, the underlying oil price drivers reverted to being weak demand from China. This could be a pause before another escalation but, for now, things seem to have calmed down a bit.

‘The storm before the storm’: UK lawyers race to deal with deluge of Budget enquiries (Financial Times, Suzi Ring and Emma Agyemang) highlights just one of the many actions that the affluent are taking ahead of this week’s Budget announcement. Lawyers for high-net worths have observed a major spike in the number of enquiries over the last few weeks, with one private client lawyer at Mishcon de Reya saying that “This is the busiest pre-Budget run-up since I started practising law in the UK in 2003”. The main worries from clients have stemmed from noises from the chancellor about Inheritance Tax (IHT) relief on business assets, shares in unlisted companies or farmland. This has led to worried individuals transferring assets to children or relatives ahead of the announcement. Another key concern has been over how soon the new changes will come into force. * SO WHAT? * I would have thought that the volume of work will only increase after the Budget announcement is made. It’s always a gamble to act pre-emptively but I guess if you are that concerned you may prefer to be pro-active rather than await your fate! FWIW, I think that it is possible that what happens in the US election next week may have more impact on our economy (and Europe’s!) than Reeves’s Budget.

Hundreds of entrepreneurs prepare to quit Britain ahead of Budget tax raid (Daily Telegraph, Matthew Field and James Titcomb) is another example of individuals showing concern about the Budget as they are threating to vote with their feet if they feel that they get overly clobbered by Reeves’s new measures, according to the Startup Coalition lobby group. They are particularly concerned about Reeves’s widely expected move to increase Capital Gains Tax (CGT) as a recent survey of over 500 company founders showed that 72% had “already investigated moving themselves or their business abroad”. Over 90% of respondents said that they would consider starting their next company abroad if she raised CGT beyond 20%. * SO WHAT? * TBH, it’s all very easy to SAY that you’ll quit the UK and set up shop abroad – and a totally different thing to go ahead and do it. Still, this does show a depth of feeling about the whole thing and is something that the chancellor needs to take into account.

In consumer trends news, European package breaks do deluxe as popularity of top-end resorts grows (Financial Times, Eri Sugiura) highlights growing demand for high-end all-inclusive resorts in Europe, something that has been benefiting Marriott and Hyatt. Hyatt will be offering

all-inclusive luxury packages at various European destinations over the next few years and is on the hunt for more locations! Marriott is also trying to jump on the trend but seems to be a bit behind its rival. * SO WHAT? * This is an interesting development as high-end all-inclusives have generally been more of an American thing than a European thing thus far – but that means that there is presumably more scope for upside! A recent report by McKinsey reckons that spending in the global luxury market could boom by 64% in the five years to 2028 – a way faster rate than any other travel industry segment. You certainly wouldn’t want to get left behind by THAT trend, now would you! For the purposes of this report, luxury travellers were defined as those who spend at least $500 a night on accommodation.

Crocs doubled down on ugly. It is paying off (Financial Times, Lex) is an interesting article which brings our attention to one of 2024’s top-performing stocks – Crocs! Shares in the company have boomed by 55% over the past year which puts Nike’s 23% decline into the shade and even beats the performance by Big Tech names including Apple, Microsoft and Alphabet! * SO WHAT? * It seems that “ugly” sells as rival Deckers Outdoor – which owns Ugg, Hoka and Teva – has also recently reported strong quarterly results! Unfortunately for Crocs, HeyDude, which it bought for $2.5bn in 2022, has been a drag on the overall business so I guess any improvement here could help sentiment in Crocs itself, which was a major winner under lockdown and beyond.

Number of first-time buyers surges amid landlord exodus (Daily Telegraph, Matthew Field) highlights another current trend – that first-time buyers are fuelling a surge in home sales as they buy from landlords looking for the exit, according to stats from Zoopla! It reported the highest number of transactions since autumn 2020 when a stamp duty holiday triggered a buying stampede under Covid. * SO WHAT? * If you put together landlords wanting to sell up ahead of the Budget, strong underlying property demand, buyers racing to take advantage of not paying stamp duty on properties worth up to £450,000 and falling mortgage rates then you have the recipe for a lot of housing market activity! Potential first-time buyers will be hoping that Reeves doesn’t put the stamp duty threshold back to the £300,000 level it was at before.

In a quick scoot around some of today’s other interesting stories, Franklin Templeton hit by record outflows as clients ditch troubled Western unit (Financial Times, Madison Derbyshire) shows that the famous asset manager is experiencing its worst quarter of outflows ever thanks to reputational damage and poor returns. This is especially painful for the group as rivals are starting to gain traction against a backdrop of falling interest rates. Franklin Templeton

announced in August that the co-CIO of its biggest subsidiary, Western Asset Management, had been put on leave pending an investigation by the SEC which didn’t make rising investor concerns about years of underperformance any better. * SO WHAT? * Rivals including Pimco, Invesco, BlackRock and JP Morgan have all reported INFLOWS into bonds over the last quarter while the pace of outflows from Franklin Templeton look likely to accelerate.

This cocktail is just incredible! How do people think of such things?!?