Between
the lines
Multi-asset investment thinking
from the Quilter Investors team.
Dividend and conquer
Global dividend payouts hit a record $513.8bn in the second quarter up 1.1% on a year ago, although dividend growth now looks to be slowing
due to the strength of the US dollar.
Global dividend
payouts hit new highs
Source: Janus Henderson Global Dividend Index – Edition 23 Aug 2019/Quilter Investors.
Credit: iStock/ tupungato
Not just a FTSE 100
departure…
Marks & Spencer is to be relegated from the
FTSE 100 in the next index reshuffle. The
storied British retailer has been a benchmark
constituent for 35 years and its departure
highlights the challenges facing UK retailers.
M&S shares are off some 20% this year
following the announcement of a potentially
transformative deal with Ocado which
required both a rights issue and a dividend
cut. At the start of this week its market cap was
a meagre £3.7bn (down from c£18bn in 1997).
The index changes take effect from 23
September when M&S will be joined in the
FTSE 250 by Micro Focus, following a c30%
decline in the software company’s shares last
week, and the insurer Direct Line. They will
be replaced by the gold miner Polymetal,
Hikma Pharmaceuticals and Meggitt, the
aerospace engineer.
Week
36
EM: $35.8bn (+12.6%)
Japan: $39.6bn (+10.1%)
UK: $35.0bn (+8.6%)
US: $132.9bn (+4.4%)
Asia Pacific: $43.2bn (-2.9%)
Europe ex UK: $169.5bn (-12.6%)
Sterling hits the skids
As MPs returned from their summer holidays
on Tuesday, the pound hit its lowest levels
($1.19) since the ‘flash crash’ in October 2016.
The battle to divert the country from a
‘no-deal’ exit has once again hammered
sterling but as Quilter Investors credit analyst
Tim Li explains, worse is to come.
“The pound is caught between a rock and a
hard place,” he says. “The Bank of England has
forecast that a ‘no-deal’ could see sterling fall
well below parity to the dollar in a disorderly
scenario and this just isn’t priced in.
“Meanwhile, with global and euro zone growth
cooling and UK economic numbers declining,
there’s little in the plus column.
“Currently, the outcomes look like ‘no-deal’, a
third general election in four years, a Corbyn
government or some combination of all three.
“Sterling will recoil at the prospect,” he says.
UK: Suitable for retail investors. Rest of Europe and Singapore: For sophisticated investors only.
Japan and Korea escalate
private war
An ugly diplomatic dispute that dates back
to World War II has quickly escalated into
a bitter trade war between Japan and
South Korea.
In July, Japan restricted exports of high-
tech materials critical to South Korea’s
semiconductor and display screen industries.
Last week it dropped Korea from its list of
‘preferential’ trade partners.
Meanwhile, South Korea has scrapped a
military intelligence-sharing pact with Japan.
Its people have been marching in the streets
while its retailers have scoured Japanese
goods from their shelves.
Japanese beer imports have almost ceased.
Toyota and Honda have seen a sharp decline
in sales while a slew of Korean airlines have
suspended flights to Japan.
 Credit: iStock/ Dave Walsh Photography

Irish banks swamped by Chart of the week

Brexit concerns UK retail sales go off a cliff: In the year to the start of August, retail sales volumes fell at their
fastest since December 2008: 49% of UK retailers now report lower sales than this time last year.
With Westminster entering a frenetic Brexit
end game that’s already seen Mr Johnson
CBI retail sales volumes (directional)
prorogue parliament, threaten a snap election,
80
lose his parliamentary majority (of one) and Net balance (3m moving average)
sack party rebels, Ireland’s banks are caught in 60
the eye of the storm.
40
Since the end of June, shares in Bank of
Ireland have fallen some 25% while Allied Irish 20
Banks (AIB) are down closer to 36%, making
it Europe’s worst performing bank over the 0
period. Its share price is now down some 60%
-20
from its high at the start of 2018 after pre-tax
profits fell over 40% in the first half of the year. -40
Ireland’s banks are especially exposed to the
-60
threat of a ‘no-deal’ while they’re struggling
1985
1987

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2001
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2007

2009
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2013

2015

2017
2019
1991
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1995
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with the ECB’s “lower for longer” interest rates
and a recent mortgage overcharging scandal.
Thanks to state bailouts, the Irish government
Source: Quilter Investors/ CBI/Macrobond.
owns 71% of AIB and 14% of Bank of Ireland.

Mulling a smoky reunion

11 years after they parted company to dodge US legislation, Philip Morris (PMI) and Altria, two
of the biggest names in the tobacco industry, are talking about reuniting in a potential $210bn
deal recombining the maker of Marlboro with the parent company that sold it off in 2008.
Altria, worth c$88bn, sells Marlboro cigarettes in the US while Philip Morris, worth closer to
$121bn, has largely focused on overseas markets. Both companies have their eyes on the
electronic cigarette market and other alternatives such as cannabis, which has helped spark
merger speculation.
Altria owns 35% of Juul Labs, the thriving e-cigarette maker, as well as 45% of Canada’s Cronos
Credit: iStock/ krblokhin Group, a leading cannabis grower. Meanwhile, PMI has invested heavily in the iQOS tobacco
heating device.
Shares in both stocks have eased in the last week as analysts notably cooled to the idea of a deal.

The pound is caught between a rock and a hard place... a ‘no-deal’ could see sterling
fall well below parity to the dollar... this just isn’t priced in.

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QIL-245-19/219-0953/SK18218

UK: Suitable for retail investors. Rest of Europe and Singapore: For sophisticated investors only.