Brexit is not the only challenge! There has been much written about the next prospective stock market crash, and now is the time to prepare for it by moving from financial assets, like stocks and shares to real assets like, property. There are some compelling reasons to act and some good, undervalued markets, like the Caribbean that offer some protection from the storm that will surely come.
The stock markets have come a long way since the collapse of Lehman Brothers at the peak of the financial crisis ten years ago. The anniversary of the crisis has caused much reflection and has plenty of investors asking the key question — ‘How will we know the next crash is coming?’
Barbara Kollmeyer from MarketWatch (17th September, 2018) spoke with Russ Mould, investment director for AJ Bell, who identified that recent U.S. Census Bureau data that shows 10 years after the crisis, median U.S. household income is finally back at 2007 levels—at $61,372. That is in contrast to U.S. household net worth, which recently crossed the $100 trillion mark for the first time, nearly 50% higher than at the cyclical high of a decade ago. So, according to Mould, the pace of household net worth versus incomes is not sustainable. In effect the difference between net worth and income can probably be accounted for by the surge in the value of financial and other assets, like equities, all pointing to a prospective and probably painful crash.
Mould is not alone in his pessimistic view of stock markets. A headline in the Daily Star by Charlotte Ikonen (17th September 2018) reads: ‘Global economic crash: Banks predict financial MELTDOWN.’ Although not usually rated as a key source of financial information, it is worth noting that the source of the report was JPMorgan, whose economic experts have predicted the next global financial crash will arrive by 2020. Analysts at the investment bank say the recession in two years’ time could see drastic reductions in energy prices and the value of base metals. Emerging markets, such as Brazil, Russia, India and China, would also see stock values plummet by close to half, along with a significant drop in emerging currencies. The crash could also see U.S. stocks drop by 20%, a significant change even if not as dramatic as the 50% tumble in the S&P 500 index a decade ago. Other analysts, notably the founder of Bridgewater, say the societal and economic changes since the last recession have reduced the effectiveness of Central Bank policies, making it harder for the banks to reverse a downturn.
Now add all of the foregoing to the sentiment expressed in The Daily Express just over a month ago: ‘Stock market CRASH: ‘Chaotic NO-DEAL BREXIT’ means BIG market REACTION.’ According to Sorcha Bradley (August 9th, 2018) ‘GLOBAL stock markets could react negatively if a ‘chaotic no-deal’ Brexit scenario becomes more likely, with the UK’s rupture with the EU having largely been reflected in the pound to date.’
With all of the concerns about stock markets in addition to Brexit, it is probably a good time to think about taking action and investing in real assets to balance financial risk. As a financial asset, stocks and shares depend on the value of the company they represent. Without the company or its future outlook, those stocks and bonds are worth only the value of the paper itself…nothing. Balancing financial assets with investments in real assets, like real estate, makes good sense. Real property has actual physical value that can hold more of its worth even when the market tumbles. That helps to support your wealth, while providing a great tax shelter on earnings.
If real assets, like property, are really to be considered, it makes sense to look at places that provide the most potential for gain. Areas where housing prices have fallen, like the Caribbean, present opportunities for savvy investors to take advantage of relative bargains. Certainly, the Caribbean property market has been seeing some positive trends, with investors confident to put their money into luxury Barbados property as a counter against Brexit. Barbados has always had a lure for British investors particularly, who make up around 70% of the buying population, according to The Move Channel. Amongst its relaxed way of life, picturesque scenery, English-speaking expat community and 3,000 hours of sunshine a year, the reasons for the popularity of Barbados for Britons is attributable to its range of property options at a variety of prices. Second homeowners can retreat to a holiday home in Barbados for extended breaks, with Britons being allowed to stay for up to six months with no permit. Whilst retirees looking for permanent residency can apply for permits that take their assets and income into consideration.
However, Britons are not the only investors to which Barbados appeals. Americans and Canadians have also gravitated towards the island in search of value investing. As indicated, property prices have fallen in recent years around Barbados and, with a positive change of government, there is considerable optimism in the country. This, together with world economic and political concerns, point to it being a good time for investors to consider securing a property while the prices stay low.