There have been some dramatic changes to the worldwide investment arena over the last few years starting with the American mortgage crisis and the more recent European debt debacle. As a consequence the investment trends and investment aims of various expats around the world have changed enormously and we thought it would be interesting to take a look at their current thoughts.
We will now take a look at the French expat market and see which asset classes remain popular amongst investors in France. Some of the results may well be predictable but others may be a little surprising.
For some time now France has been very much the ally of the German government which has very much been the focal point of European Union management for many years now. However, the recent change in the French government has very much put the French authorities out of line with their former German allies and there has been a serious breakdown in the relationship.
There is now a growing momentum for a reduction in austerity measures across France and indeed the new government is demanding more powers for the French people. This comes at a time when the French economy is struggling amid signs that the European debt debacle is having a major impact upon the European market as a whole. We have seen a number of false dawns with regards to the European debt debacle which has not helped sentiment across the region.
Recent data in relation to the French economy shows that there was no growth in the first half of 2012 and while the incoming government is very confident of a return to economic growth in the second half of 2012 this is not by any means guaranteed. The European problem needs to resolved as soon as possible otherwise they could be lasting damage to the overall European economy and individual economies.
It may come as a surprise to learn that there is still significant interest in the French property market despite the fact that we saw property prices fall in France and the economy flatlining in the first half of 2012. There are serious concerns that the French economy will move into negative growth in the second half of 2012 and you would expect this to have a negative impact upon the property sector. However, it seems that expat investors are now very keen to put property at the forefront of their investment portfolios. In fact, a recent survey by Barclays International has shown that investor behaviour is changing; we aim to find out how and why.
For many people the property sector has been a very strong performer in the longer term and it would seem that some expat investors living in France are prepared to ignore the short to medium-term outlook in favour of the longer term situation. When you take into account that France is one of the most popular tourist destinations in the world then perhaps this could offer some respite for frustrated investors in the region. The property market in France is also very diverse which also offers other attractions meaning that whatever type of property, whatever area and whatever style of property you are looking for there will be something for you.
Precious metals (20%)
The precious metals market has certainly benefited from the ongoing worldwide economic turmoil and indeed the specific turmoil being felt within Europe. If we take a look at the price of gold, which has risen from $300 an ounce back in the year 2000 to around $1600 an ounce today, peaking at $1800 an ounce in 2011, this perfectly reflects the so-called safe haven status associated with many precious metals. It is also worth noting there has been a significant increase in the price of non-precious metals such as iron ore which is very much in demand from countries such as China and India – which are still showing significant economic growth even during these difficult worldwide times.
Whether expat investors in France are looking for safe havens or indeed they believe there is further growth potential in the precious metals market is a matter for debate. There are few who believe the European problem will be resolved in the short term therefore in theory there may well be further growth potential for precious metals. However, this market is likely to run out of steam as and when the worldwide economy recovers so timing may well be of the essence.
Stocks and shares (10%)
The French stock market is one of the more prominent across Europe and indeed it has moved in line with the vast majority of other European markets which have been under pressure. Stock markets did receive some respite of late due to the perceived breakthrough when the German government appeared to soften its stance on banking bailout across Europe but we have yet to see this deal delivered. There are major concerns that this could well be yet another false dawn for investors leading to yet more disappointment and resentment in the short term.
However, when you take into account the recent reduction in worldwide stock markets and indeed the French stock market you could argue there is potential for long-term growth. Whether the situation will get much worse before it gets better remains to be seen but some investors appear willing to dip their toe into the water and at least begin to build up their stock market holdings again. If you are looking down this particular route it is vital that you take professional financial advice because these markets are still very difficult and they are still very volatile.
Classic cars (10%)
The classic cars sector is making something of a comeback with many enthusiasts now returning to the market. It is unclear whether this increase in activity, and this increase in interest, is associated with the so-called “safe havens” status or indeed it is genuine long-term investment interest. Whatever the reason we have seen a number of multimillion dollar deals in the classic cars market and indeed whether looking for historic cars or perhaps some of the eye catching sports cars of recent times it seems as though demand is still strong.
If you are looking towards the classic cars market then it is imperative that you take professional advice as soon as possible because this is very different to your traditional property and stock markets. You may well acquire a classic car at a very reasonable price with the potential to make a significant return but this is indeed a very illiquid market and therefore if you need to cash in your assets at short notice there may be limited buyers or indeed a lack of interest. A number of private investors have looked towards the more provincial investment arenas thinking there was easy money to be made, this is most certainly not the case!
For some reason it seems as though there is very little interest from expats in the France in relation to antique investments which will be something of a surprise to some people. While this is a specialist investment arena it is one which tends to benefit from times of worldwide economic distress although for some reason this pattern has not been repeated in the French market. However, the antiques market is not alone with very little interest shown in fine wine and art.
Some people may see the antiques market as something of a safe haven although whether this is the truth is a matter for debate. Very often as the worldwide economy comes under pressure we see private investors and professional investors looking elsewhere for their investment ideas and quite often some of the more obscure investment markets will come to the fore. However, will investors in the antiques market reduce their exposure as and when the worldwide economy recovers and worldwide stock markets are back in vogue?
It is a little disappointing to see no interest in the French art market amongst expats living in France when you bear in mind the worldwide sector is worth in excess of $100 billion per annum. While the market is dominated by Chinese investors, accounting for 30% of annual investment, there are very strong art markets around the world and this is an area which continues to grab headlines with massive amounts paid for historic works of art.
Again, there is some debate as to whether the art market is seen as something of a safe haven in times of trouble because the price of all art, whether relatively cheap art or very expensive art, is dominated by fashions and trends. It is potentially even more surprising there is little interest in artwork in France when you bear in mind the number of art galleries and prominent paintings in the country. Whether investors see more potential long-term gain in the property arena, which took 60% of the vote, or indeed they are scared of investing full stop is also an interesting discussion.
If there is little interest in the art market with the worldwide economy in the current situation then it is unlikely this will increase in the short to medium term. In simple terms it seems as though the expat community in France has little or no interest in this particular investment class.
Fine wine (0%)
When you bear in mind the very close relationship between France and the fine wines market it is again very surprising to see there is no interest whatsoever from the French expat community. This is an investment class which attracts investors from Asia, Russia, South America, Europe and India to name but a few but has few fans in France.
The fine wines investment arena has been growing for many years now on a worldwide basis and indeed the regulatory framework has been strengthened significantly. Whether or not the fine wines market in France has been impacted by the large number of scams and fraudsters operating in the sector in years gone by is debatable but there is also no doubt that scams and frauds in the fine wines market have fallen significantly.
If you are looking at an investment in the fine wines market then it is imperative that you take professional advice at the earliest opportunity. This is a specialist arena and it does require specialist advice to get the best returns available.
Risk reward ratio
The risk reward ratio is a vital element of any investment calculation whatever the asset class and whatever the individual asset. It allows you to take into account the potential risk to your funds against the potential rewards in certain scenarios. While many investors will make gut reaction investments in various assets, the professional investor is more likely to take a more dogmatic approach and look at the cold hard facts and the cold hard figures. So what risks are associated with the investment arenas of today?
There are two main risk categories which you need to take into account which are systemic risk, i.e. the risk of investing in any market, and the specific risk which is associated with a specific investment class or individual investment. While the underlying figures are not always easy to calculate there is enough economic data out there and forecasts for the future to give you some idea of what you should expect. It is also advisable to consider different scenarios with regards to your risk reward ratio and consider which you feel more likely to occur.
We will give you a perfect example of how the risk reward ratio can change very quickly by taking a look at the money markets after the mortgage crisis in the US back in 2008. As soon as the mortgage crisis began to run out of control a number of lenders left the international money markets because of the perceived increase in risk. However, those who remained in the market were demanding higher returns on their investment because of the increased risk that borrowers could default on their liabilities and create huge losses. This led to credit crunch part one and the worldwide cost of borrowing increased dramatically in a very short space of time.
This perfectly reflects how the risk reward ratio can move markets in an instant.
As we touched on above, the turmoil in the money markets back in 2008, some of which are continuing today, led to a massive increase in the cost of borrowing around the world. This put more pressure on the banking system, leading to a reduction in loans which then led to cost cutting across the business arena. Indeed many businesses failed to recover from this damaging increase in the cost of borrowing and the number of business failures rose dramatically.
The worldwide economy today is still struggling to maintain any forward momentum and the European problem is having a major impact. Despite the fact that China and India in particular are still showing signs of significant economic growth the likes of the US are struggling to push ahead. There are ongoing concerns that the European debt debacle is nowhere near being resolved and indeed some doomsday scenarios suggest that it could take decades to recover. Whether or not this is the case remains to be seen but until the debt crisis within Europe is resolved we are unlikely to see a major push from the worldwide economy.
Interest rates around the globe are now at record lows, investors are starting to pick up some “underpriced assets” but on the whole there is still scepticism amongst investors. In times of trouble or times of prosperity human emotion very much comes to the fore and this is no different in the investment arena. In times of trouble many investors will remain sceptical for a prolonged period of time and in times of prosperity many investors will push prices to unsustainable levels such as we saw just prior to the US mortgage crash. Until investor confidence recovers it is unlikely we will see any significant forward momentum.
It is interesting to see that French expat investors appear to be one looking at the property market, precious metals market, classic cars and stocks and shares. These are very different investment arenas because predominantly the precious metals market and to a lesser extent the classic cars market tend to benefit from times of economic distress. It looks as though some investors are discounting the short to medium term problems within Europe and perhaps looking to pick up property and stocks and shares which they believe may have been oversold in the short term and offer long-term growth opportunities. This is perhaps one of the smartest policies to introduce in the longer term although the short-term situation could get very much worse before it gets better.
The situation in France is very different to that in many other areas of the world where there has been a general spread of investment interest into other areas such as antiques, fine wines and art. Whether the ever changing political situation has impacted upon investment trends and investment plans for the future is a matter for debate but this is a country which is going through a major change in more ways than one.