UK markets to outperform the US
Sharing his insights, Managing Director Fokrul Islam sheds light on why the UK is poised to surpass the US. Numerous factors can be cited to support the notion that the powerhouse of the global economy might be heading towards a significant downturn.
Like many, I too have found myself surprised by the resilience displayed by the US consumer, along with the relative robustness of their economy. Over the past 15 years, it's been a remarkable trend that the US consumer has acted as a stabilizing force during worrisome economic times. Judging by recent stock performance, it appears the global consensus is that history will repeat itself.
While the prevailing "soft-landing" narrative does provide a certain level of reassurance, I must admit that a chorus of alarm bells is echoing in my mind. This sentiment arises from a recent discovery – a relatively sound explanation for the unwavering strength of the US consumer, a perspective curiously absent from media reports.
The COVID Employee Retention Tax Credit
Particularly, I was unaware of the ongoing impact of the COVID Employee Retention Tax Credit, initiated by the US Government in 2020, which continues to yield positive outcomes for American companies. Despite its official expiration in September 2021, eligible businesses can retroactively file documentation and continue to make claims throughout 2023. Employers can secure as much as $26,000 per employee, with recent tax refunds amounting to a staggering $30 billion in the past month alone!
My thoughts lead me to ponder whether US employers will uphold the same level of dedication to their workforce once they are faced with resuming regular employee expenses. In an era of remote work and significantly reduced office occupancy, the potential for substantial workforce reductions could exacerbate the challenges faced by a market striving to regain its footing.
This tax credit also contributes in part to the escalating trajectory of the US deficit. Adding to the shock, it has come to light that the US has accumulated as much debt in the past four years as it has throughout its entire history! The magnitude of these figures is truly astonishing.
UK to eclipse the US
These revelations lead me to believe that it's now imperative to exercise even greater prudence in determining where and how to allocate one's financial resources. Despite abundant evidence favouring passive investment strategies for long-term outperformance – a stance I often advocate, particularly for less experienced investors who should consider sticking with long-term trackers – my perspective as a seasoned investor has shifted. In these times of profound uncertainty, when swift capital manoeuvring might be crucial, I find myself considering the potential benefits of entrusting active managers with my investments.
Given the aforementioned factors, the active investor within me, for the first time in years, entertains the notion that the UK might eclipse the US in terms of performance over the next 18 months. Thus, it's prudent to carefully assess the UK's potential, which strikes me as remarkably promising and well-positioned. The irony is striking, especially considering the predominantly negative portrayal of the UK in the media.
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