Monday, July 29, 2019

Frederick Achom on the likelihood and consequences of a no-deal Brexit

Frederick Achom on the likelihood and consequences of a no-deal Brexit


The country is currently waiting with bated breath to see who the new Prime Minister will be, following Theresa May’s resignation for failing to agree Brexit terms with the European Union.

As the business community waits to see what will happen, it’s still unclear how close we could be to a no-deal Brexit, and the fallout this would realistically cause. The two contenders for the Prime Minister position, Jeremy Hunt and Boris Johnson, both say they are prepared to take the UK out of the EU with no deal. So, where does this leave us?

And in particular, where does it leave the small and medium sized businesses community that makes up more than 99% of the private sector, and forms the backbone of the UK’s economy?

Industry opinion on a no-deal Brexit

In this post I’m going to look at the most recent comments from industry experts, manufacturing bodies and the Bank of England, to gauge the consensus of opinion regarding no-deal Brexit.

Make UK is a trade body that covers many businesses across 19 different sectors. Companies represented by the body include BAE Systems, Toyota, Airbus, Nissan, Ikea, Lush Cosmetics and Warburtons. The body told the Guardian that manufacturers are going through the biggest drop in orders for around seven years.

Seamus Nevin is chief economist for the group and believes that Hunt and Johnson’s tough act on a potential no deal Brexit demonstrates little practical understanding of the consequences for UK’s businesses. Johnson is the more vocal of the two regarding no-deal, basing most of his campaign on a ‘do or die’ attitude to the UK leaving the trading bloc. Hunt, on the other hand, began his campaign much more cautiously, but is now echoing Johnson’s attitude, and has pledged a deadline of 30 September 2019 for his final decision on no-deal should be become Prime Minister.

Spending decreasing across business sector

Businesses across the UK are slashing spending, and the corresponding decrease in manufacturing reflects a general mood of uncertainty across the sector. And while some commenters insist that this manufacturing decline is a direct response to the stockpiling that occurred in Q1 2019 to prepare for a possible no-deal Brexit on the original exit date of 29 March 2019, the purchasing manager’s index (PMI) suggests that it’s a continual decline, rather than a one-off event.

The PMI acts as a monthly barometer check on supply and demand across 19 different industries in the UK. The data gives an accurate view of the economic trends of the moment, as they respond to external factors. It shows whether manufacturing is contracting, expanding or remaining the same.

The latest PMI figures show the biggest contracts (50.3 to 47.2) since October 2012. Make UK says that this shows that these 19 industries are reporting fewer export deals as other countries lose confidence in the UK because of Brexit uncertainty. The British Chambers of Commerce agree with Make UK, saying that domestic manufacturing orders are at their lowest since 2012.

Government figures show that the UK’s economy grew in Q1 2019 by 0.5%. This is most likely due to the aforementioned stockpiling to prepare for a possible no-deal Brexit at the end of March. The boost this gave to the economy is now in reverse, and according to the Bank of England, growth stopped completely by April 2019.

UK would revert to WTO rules

It’s safe to say that there is little obvious support for a no-deal Brexit from high profile commenters across the manufacturing and business world. The country is currently counting down to the extension to Article 50 requested by Theresa May, which takes the date for Brexit to 31 October 2019.

And while Hunt and Johnson continue to battle it out for the role of Prime Minister, the EU has been clear that there is no more time or room for negotiation. If the country does exit with no deal, then there will be no transition period at all. This means that every current arrangement with the EU will simply stop on 31 October.

The UK would then revert to trade rules set by the World Trade Organisation (WTO), and would be subject to external tariffs by the EU. It’s also possible that the change in rules and regulations cold lead to the EU rejecting British made products.

In some ways, the business community is still uncertain as to what the consequences of a no-deal Brexit would be. However, regardless of the outcome, UK businesses and SMEs must prepare for every possible scenario. The new Prime Minister will be announced on 22 July, and after this I expect to see clarity and support for SMEs laid out by the Government. For now, however, it’s a waiting game.

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Thursday, July 11, 2019

Frederick Achom on some of the best Fintech investment apps available

There are various reasons contributing to the rise of Fintech and the plethora of all kinds of financial services apps now on the market. It can be tempting to dive into some of these investment apps without thorough research, particularly as they generally demand much lower starter fees.

However, all investment carries risk, and there are no guarantees. Traditional investment rules apply to apps too. For example, it still stands that higher returns mean higher risks, and it’s important to regularly review your portfolio. But apps can absolutely take away some of the stress out of investing, saving and other financial services. Here’s a rundown of the kinds of apps available right now and their risks.

Wide range of Fintech services available

The Fintech sector covers a wide range of disruptive start-ups that use technology to simplify financial services. They offer something new to the market, or they offer something that was previously inaccessible for many users. Fintech began with the aim of disrupting traditional financial institutions and revolutionising the way we all manage finances.

More recently, established financial institutions and banks have realised the importance of this sector. They now offer their own FinTech solutions, either developed in-house, or in partnership with start-ups. The net result is a much wider choice for investors, savers and users.

Robo-advisor apps and websites

Robo-advisor services are a niche but fast-growing area of Fintech. They are online investment services that ask users a set of questions and come up with a plan based on the answers. The app uses algorithms to work out the best plan for the specific user.

There are few minimum requirements for users to open an investment account on these platforms, making them easily accessible to a wide market. They often offer low-cost, low-risk investments, which limit fees. They also reallocate assets and maintain the portfolio automatically, taking the stress away from the user.

Successful examples include Wealthfront and Betterment, but there are many to choose from. They specialise in reaching a generation of investors who do not generally use traditional investment advisors.

The biggest advantages for users are the low fees involved. For example, an online robo-advisory investment service usually charges around 0.25%, while a human financial advisor will charge around 1%. The obvious disadvantage is the robo-advisory service cannot allow for changes in personal circumstances, nor can they offer reassurance in worrying times.

Round-up savings and investment apps

Round-up apps can be thought of as the digital equivalent of hoarding spare change in a jar at home. Except that the change goes directly into a savings account or investment scheme that can accrue interest for the user.

Apps like Moneybox work by linking up with the user’s bank account or credit card. The user then sets their preferences on online transactions, and the app automatically rounds up the pound and puts the excess in the saving or investment account.

For example, a user spends £2.90 every day on a coffee. The app will take the extra 10p by rounding up to the nearest pound and transfer into the savings account. Another successful example is the digital bank Monzo, which has partnered with Investec to pay 1% interest on the savings account formed by the excess change on digital transactions.

Apps for trading stocks and shares

More seasoned investors are often interested in apps that allow them to carry out digital stock broking. Examples include Freetrade and IG Markets, which trade everything from shares, forex and bonds to commodities and cryptocurrency.
Fees are much lower than traditional broker services and are often commission free. However, they do tend to charge in other areas, such as instant orders and outgoing bank transfers, so it’s important to read the small print. These apps offer an impressive range of trading options and can work well for the right kind of investor. You can also try them out before you decide to invest, so it’s worth doing lots of research if this area of Fintech interests you.
Fintech appeals to lots of people thanks to its easy accessibility, flexibility and generally low fees. However, for serious investors with large portfolios, these apps often don’t offer the necessary levels of support. As big banks and financial institutions get on board the FinTech bandwagon, I think this is likely to change in the near future.

Tuesday, July 9, 2019

Frederick Achom unravels plans for its own cryptocurrency

Image credit: K.unshu /

While the cryptocurrency industry has had all eyes on encrypted messaging services Telegram’s moves in the space, Facebook has quietly been creating its own token.
Recently, new details emerged about Telegraph’s blockchain platform TON. I’ve been following its development since the company secured a huge amount in initial coin offerings. Last year, two private token sales rounded up $1.7 billion for Telegram.
New details recently emerged about one of the most discussed and anticipated cryptocurrency projects in the sector – TON. The new blockchain platform has been in development by Telegram, the WhatsApp rival instant messaging service.

I’ve been following the development of TON since Telegram raised one of the largest initial coin offerings (ICO) in the sector. In 2018, they made around $1.7 billion from two private token sales, and it was assumed they were leading the way in cryptocurrency development for social media platforms. However, more recently, it has become clear that Facebook is well on its way to creating its own token too.

Reports break of Facebooks’ cryptocurrency plans

A major investigative report by The Information shows that Facebook’s own blockchain project is nearing completion. While this project has been discussed for a while, we’ve had nothing concrete to examine until the report was published on 5 June 2019. Based on various news stories, the report has since been partly validated by a European Facebook executive. We also know that there is a white paper due in the imminent future, which will lay out details of Facebook’s plans. Before we see that, here’s everything we know so far.

Facebook has built a team of cryptocurrency experts

The Information say that the project began roughly a year ago, when Facebook began building its team. The former president of PayPal was brought in to run the project, swiftly followed by the entire team from a start-up called Chainspace. More than 100 staff are now rumoured to be on the project.

In May, there were reports from the BBC saying the cryptocurrency is named internally as ‘GlobalCoin’, but there is much more evidence to support its name as Libra. In the same month, Facebook registered a company in Switzerland. Its name is Libra Networks. The Information claim that Mark Zuckerberg is closely involved in the direction of the project.

Facebook is targeting developing countries

As the new token will be a borderless currency, we know that it will be used seamlessly on Facebook platforms, which include Instagram, Messenger and WhatsApp. It’s also likely that marketing will initially be confined to developing countries, as it is set to launch in India.

There are around two billion users of Facebook’s network of platforms, and many of these people don’t have immediate access to financial services. They also routinely face high cross-border fees. If Libra works and people begin to use it in these countries, it could revolutionise personal finance, giving h them access to e-commerce, peer to peer lending and all kinds of other services.

In an article for Forbes, Wall Street expert Caitlin Long believes that: “Facebook’s cryptocurrency will be a powerful force for good in developing countries.”
How will the token retain value?
The report says that the token will be linked with a basket of currencies, along with low-risk securities. However, there are no further details of how this will work and which currencies will be included. Facebook does have plans to move Libra into the offline world too. They will provide ATM terminals so that Libra users can exchange their crypto for fiat currency. Facebook employees will also have the chance to be part paid in Libra.
In terms of regulation, it’s not surprising to see that Facebook is making lots of effort to show that the network will be partly decentralised. There is much made in the media of Facebook’s handling of personal user data, and whether any company should have that much influence. Now that they are making forays into financial services, it has many people concerned about how this will be regulated. Facebook’s response is to form an external body of financial institutions and experts that will provide oversight.
As for those who will be part of the network to validate transactions, this will be a premium few. Entities will have to pay $10 million for control of one of the network nodes of operation on the blockchain. It will launch with 100 nodes initially.
Reaction to Facebook’s plans

Inevitably there has already been much debate over Facebook’s cryptocurrency, and how it will affect the sector. It does look like the company is attempting to deliver user-friendly financial services to a group of people who don’t have ready access to them, which is generally being welcomed as a positive thing.
A key difference between Libra and other currencies like Bitcoin and Ethereum, is the fact that Facebook will essentially be acting like a bank. Crypto expert Jian M Villaverde told CoinTelegraph that Facebook would essentially act like current financial institutions by implementing a layer of oversight to people’s actions. This is very different to Bitcoin and other cryptocurrencies, which were formed from the ground up as disruptors to this traditional world of financial services.
Others think that Facebook will be integral in spreading general understanding of cryptocurrencies and making it more normal for people to use. For example, Caitlin Long tells Forbes that while Facebook will help people understand cryptocurrency, they are more likely to eventually choose scarce currency such as Bitcoin over plentiful tokens from Facebook.
Time will tell how Facebook’s plans play out, and the impact they will have in this space. How much they will alter the financial services sector remains to be seen.

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