(LONDON) While the world focuses on Greece’s debt crisis, investors in Edinburgh are busy preparing for the UK to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 per cent and 30 per cent against the US dollar once investors turn their sights on Britain as the government sells a record amount of debt.
Concern that Greece will not be able to cut its budget deficit helped send the euro 5 per cent lower against the US dollar this year.
‘Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,’ Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. ‘The UK is in a similar predicament. It could be hit very hard.’
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are manoeuvring to protect assets from the UK economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust plc in Edinburgh has doubled over the past five years, said that the chance of a plummeting pound are ‘better than even’ and his biggest holdings are in Asia and Latin America. He called sterling a ‘very vulnerable currency’.
UK fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than £pounds;30 billion (S$64.5 billion), said in January that they are buying companies that do the bulk of their business abroad.
‘When there’s a fiscal crisis, the markets tend to punish that country very quickly,’ said Mr. Bathgate, who is responsible for £pounds;560 million. ‘I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system; however, the position of the economy is very dire.’
The UK’s budget deficit is roughly the same as Greece’s, both exceeding 12 per cent of economic output. Moody’s Investors Service and Standard & Poor’s said last week that they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record £pounds;225.1 billion from the £pounds;220 billion announced in April. Moody’s Investors Service said in December that the UK may ‘test the Aaa boundaries’.
Mr. Brown must call an election by June and some polls signal that no party will emerge with a clear majority. A so-called hung parliament or signs that retail sales and economic growth are not recovering as expected might be the catalysts for the pound to accelerate declines, Mr. Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 per cent from a previous estimate of 0.1 per cent.
‘There could be a number of triggers,’ Mr. Bathgate said. ‘If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the UK.’
The pound may fall below parity with the euro and drop to the lowest level against the US dollar since the mid-1980s should the UK cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said last week in a report.
Sterling slid to a nine-month nadir against the US dollar last week, trading at US$1.52. Zurich- based UBS, the world’s second-biggest currency trader, predicted that it could fall ‘quickly back’ to US$1.05 or below.
The pound may come under further pressure with the Bank of England resuming its quantitative easing programme, a process of injecting new money into the economy, within the next three to four months, Mr. Bathgate said. Policymaker Adam Posen said on Feb 24 that the central bank may expand the £pounds;200 billion asset purchase plan should the economic recovery prove weaker than expected.
‘If it comes back, then we’re likely to be the only people doing that in the world at that time,’ said Mr. Bathgate. ‘My strong view is the government is trying to create inflation and devalue the currency.’
He added that he sold conventional UK government-bond investments at the end of 2008 and only holds index-linked securities because of concern that inflation may accelerate.
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Scottish investors expect sterling to plunge
Bloomberg
02 March 2010
(LONDON) While the world focuses on Greece’s debt crisis, investors in Edinburgh are busy preparing for the UK to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 per cent and 30 per cent against the US dollar once investors turn their sights on Britain as the government sells a record amount of debt.
Concern that Greece will not be able to cut its budget deficit helped send the euro 5 per cent lower against the US dollar this year.
‘Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,’ Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. ‘The UK is in a similar predicament. It could be hit very hard.’
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are manoeuvring to protect assets from the UK economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust plc in Edinburgh has doubled over the past five years, said that the chance of a plummeting pound are ‘better than even’ and his biggest holdings are in Asia and Latin America. He called sterling a ‘very vulnerable currency’.
UK fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than £pounds;30 billion (S$64.5 billion), said in January that they are buying companies that do the bulk of their business abroad.
‘When there’s a fiscal crisis, the markets tend to punish that country very quickly,’ said Mr. Bathgate, who is responsible for £pounds;560 million. ‘I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system; however, the position of the economy is very dire.’
The UK’s budget deficit is roughly the same as Greece’s, both exceeding 12 per cent of economic output. Moody’s Investors Service and Standard & Poor’s said last week that they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record £pounds;225.1 billion from the £pounds;220 billion announced in April. Moody’s Investors Service said in December that the UK may ‘test the Aaa boundaries’.
Mr. Brown must call an election by June and some polls signal that no party will emerge with a clear majority. A so-called hung parliament or signs that retail sales and economic growth are not recovering as expected might be the catalysts for the pound to accelerate declines, Mr. Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 per cent from a previous estimate of 0.1 per cent.
‘There could be a number of triggers,’ Mr. Bathgate said. ‘If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the UK.’
The pound may fall below parity with the euro and drop to the lowest level against the US dollar since the mid-1980s should the UK cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said last week in a report.
Sterling slid to a nine-month nadir against the US dollar last week, trading at US$1.52. Zurich- based UBS, the world’s second-biggest currency trader, predicted that it could fall ‘quickly back’ to US$1.05 or below.
The pound may come under further pressure with the Bank of England resuming its quantitative easing programme, a process of injecting new money into the economy, within the next three to four months, Mr. Bathgate said. Policymaker Adam Posen said on Feb 24 that the central bank may expand the £pounds;200 billion asset purchase plan should the economic recovery prove weaker than expected.
‘If it comes back, then we’re likely to be the only people doing that in the world at that time,’ said Mr. Bathgate. ‘My strong view is the government is trying to create inflation and devalue the currency.’
He added that he sold conventional UK government-bond investments at the end of 2008 and only holds index-linked securities because of concern that inflation may accelerate.
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