I attended the London Investor Show at Olympia recently, and joined a panel, which was chaired by the BBC's Adam Shaw. The panel was asked to discuss the investment outlook for 2015 and I have to say that I found it extremely difficult to say anything positive.
I am a very optimistic person by nature, but at this moment, it is hard to see where the world's economy is going and how this might translate into positive investment returns. The slowing of growth in China has caused problems for the Far East and the Chinese market itself is down 70% this year. I am about to board a plane for Shanghai and so I will be able to judge for myself the impact this slowdown is having.
Of course, it seems absurd to many that the world is concerned about Chinese growth slowing from 7% to 10%. But most countries in Europe would kill to achieve any growth at all at this point. The UK seems to be the exception in Europe with the IMF predicting that UK growth will be 3.2% in 2014, falling to 2.7 % in 2015. The decline between 2014 and 2015 reflects the effect of the deteriorating position in Europe, which the IMF does not believe that the UK can escape.
The US had a slow start to the year, but growth is accelerating and the IMF predicts that US growth will be 2.2% for 2014 rising to 3.1% for 2015. The US stock market has provided decent returns over the last few years, driven by the technology sector. As the pace of economic growth picks up, other sectors will start to perform. However, the US stock market does not look cheap on traditional measures.
And what about bonds? The effect of quantitative easing was to push bond prices to very high levels and UK gilts and US treasuries continue to look very poor value. Corporate bonds too look expensive. Interest rates don't look as though they are going to rise anytime soon as inflation seems to be falling around the world in response to lower oil prices, but the IMF still believes that interest rates will rise in the UK and US in the middle of 2015.
And so here is the dilemma for investors. Where there is growth, markets look overvalued.
Some emerging markets could turn out to have been cheap, but there are considerable lingering risks, which make them look dangerous in the short term. Bonds are expensive and so is real estate. Returns on cash are pitifully low and so what can investors do? One option is to invest in person-to-business loans.
My company, Money&Co., is finding an array of interesting creditworthy businesses to lend to. Since we launched at the end of April, we have lent to eight businesses and the loan book is generating a gross return of 8.2%. We take a fee of 1%, so the net return to investors is 7.2%. This provides a very attractive investment option, although no-one should invest all of their cash in any one asset category.