Justin Skyline

FDI versus Custard Pie!

27 May 2016

Justin Urquhart Stewart, Head of Corporate Development

Politicians' predictions about what is due our way post the 23 June Referendum, depending on their EU stance, are hogging the headlines. Meanwhile numbers published showing a downturn in foreign direct investment are more concrete. Overseas companies are taking a dim view of the possible results that a Brexit vote could mean.

Oh gosh…I am sick of the "custard pie" fights between childish politicians who seem to be becoming increasingly eccentric in their claims and counter claims about our lives after the referendum.

From references to impending military conflagration to the threat of European dictatorships, they don't seem to realise that the more extreme and shrill they sound, the less credible they are. If there is a common theme amongst them all, it seems to be that the loudness of their ranting is in direct proportion to their lack of any worldly experience in having a proper job, running a business or being truly responsible for people's livelihoods. These boorish characters seem to be live versions of the Hogarth cartoons of the 18th Century that suitably mocked the ruling "classes" of the time.

More constructively perhaps, we should look at some real facts as opposed to populist conjectures. Last week saw the annual EY report on foreign direct inward investment into the UK. I have always found this fascinating as it is a clear measure as to what the outside world thinks of the UK. In its clearest form. We need to know much money will be committed to a somewhat eccentric bunch of people on those islands off the North West coast of continental Europe.

"The loudness of their ranting is in direct proportion to their lack of any worldly experience in having a proper job, running a business or being truly responsible for people's livelihoods."

 

For Foreign Direct Investment (FDI) the UK attracted 1,065 projects that apparently may create 42,000 jobs. Well, I think you have to be quite circumspect about such numbers, but it certainly will be positive. In terms of projects, this put the UK at the top of the European leader board. However, what I found most fascinating was how this seems to have spread out from just the usual focus on the prosperous South East. In fact, 90% of the growth has come from the regions. The leader was the North West with a 118% increase in projects, followed by the North East with 83% and Yorkshire at 66%. Certainly a boost for the idea of a Northern Powerhouse. In contrast the number in the South East fell by 22%.

 

What I also found fascinating was that it was the manufacturing sector attracting more FDI projects than Germany. Meanwhile there was an increase of 79% from China and a healthy 58% increase from India.

 

However, the indication for figures for this year are apparently much lower, not because of any fundamental change in the UK economy, but primarily down to the concerns over the referendum and the final decision as whether we are staying in or not! Whatever your view on the vote, it has certainly given some key investors the excuse to delay a decision and that has no doubt caused some significant frustration.

 

These are just the headlines and I will be digging into the detail further to get information on each region and how this is effecting the local economies. One thing we can say though is that it does highlight the paucity of local funding in the UK for longer term investing. The Government and Treasury still don't seem to understand that relying on a centralised stock market in London, primarily for large companies, and shorter term private equity and venture capital, is not acceptable. More radical common sense here please.

 

When good business can and should go up in smoke.

I noticed that there is some concern that, with the easing of trade sanctions, Cuban cigars will at last be allowed to be legally imported into the USA. Of course they always did get them, but usually in a box marked "Honduran Finest". Thus, the expected increase in demand may well mean a significant shortage (surely a good short term buying opportunity here?) as the production of high quality hand rolled tobaccos is - by its nature - very labour intensive. We were always brought up on the delicious thought that the very finest and coolest of smokes were rolled on the smooth skin of a virgins’ thighs. Somewhat cruelly, my brother pointed out that this might well explain why Glasgow’s cigar production never took off. I think that is very unfair as some of my best friends come from that great city and none of them are…well I think I will leave it there…

 

* * * 

And finally…when you turn from pizzas to the dark side.

Saddled with back-taxes and other debts, an Italian restaurateur in Portugal left the pizzas to one side, took a plastic replica pistol and held up a dozen banks to pay the tax man according to court officials and local media.

The Sicilian-born 36-year-old, who owned two struggling pizza joints, has, confessed to robberies that netted some 100,000 euros to split with his accomplice. The pair, who did not resort to actual violence and just gesticulated to avoid speaking during the hold-ups and conceal their accents were caught after robbing a bank in the town of Viseu last September.

Beware of gesticulating Italians waving water pistols and tossing pizzas!

Have a good week.

Justin Urquhart Stewart
Co-Founder
Seven Investment Management

Justin Urquhart Stewart is one of the most recognisable and trusted market commentators on television, radio and in the press. Originally trained as a lawyer, he has observed the Investment industry for 30 years whilst in corporate banking and stockbroking, and has developed a unique understanding of the market’s roles and benefits for the private investor.

This article represents a personal and light-hearted view from 7IM, and is based on current financial news and events around the world.  Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision.

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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