The London Financial Market
The London financial market together with the New York and Tokyo stock exchange is one of the largest and busiest financial markets in the world. A 1995 survey conducted by British International showed that the London foreign exchange market accounted for 30%of global business activities that involved foreign exchange with New York accounting for 16%. Most of the foreign exchange done in the European countries is mostly done in London which accounts for half of the foreign exchange transactions. The average exchange turnover daily in London is greater than that in Frankfurt and Paris. [1]
Other than the foreign exchange market, London has dominated the banking sector both locally and internationally. When compared with other countries such as New York, London had already established 521 foreign banks at the end of 1993 with this number increasing to 560 in 1996. New York had 340 foreign banks while France had 170 banks compared to Germany’s 150. [2] London has the third-largest equity market which is evidenced by the many foreign companies listed on the London Stock Exchange. These foreign companies have equities with a turnover that is larger than equities in the New York or Tokyo equity market.
The London Stock Exchange in 1997 saw trading of 65% being carried out on foreign equity. Other than banking, foreign exchange, and equity markets, London also boasts of being one of the major centers that are dealing in international bonds. Examples of international bonds are Eurocurrencies and Eurobonds which are mostly for the European market. [3]
Energy Industry in the United Kingdom
The United Kingdom is one of the most energy-rich countries in the European country, enjoying a wealth of energy resources such as oil, natural gas, and coal and the technical expertise to exploit these resources. In 2000, the expenditure on energy resources amounted to 69.87 billion pounds. The energy industry in the UK is focused on oil, electricity, natural gas, coal, and renewable resources such as wind, solar power, and bio fuels[4]. The oil industry is important to the UK economy as this is the main export item. In 2000, revenue generated from the sale of crude oil and gas liquids was 17.24 billion pounds.
The sale of mineral oil amounted to 26.98 billion pounds in the same year5. Oil is vital in the manufacturing industry in the UK as most industries that are concerned with producing food commodities rely on oil to power their machines. Oil is also used in the transport sector. Natural gas has become an important fuel, especially when used in generating electricity for manufacture and consumer use. The sale of natural gas in the year 2000 was approximated to be 9.44 billion pounds in the UK[5].
Nuclear energy is another source used by the UK and its consumers but its usage has been on a decline because nuclear power stations are being decommissioned around the European nation and safer energy options are being pursued such as renewable energy. Natural sources such as wind, solar, and biofuels are being viewed as a more viable option when compared to nuclear energy. Other than being environmentally friendly, renewables can be able to meet a large number of global energy needs without facing any extinction. Even though harnessing these resources is expensive, they are safer and less harmful to the environment.
The post-war period in the UK saw a major change in the industrial shares related to fuel and energy. Figures released in the 1950s and 60s show that the use of coal during those periods was on a decline with the introduction of oil and gas for industrial oil use. According to Bending and Eden, industrial fuels were divided into three categories which are bulk heat applications or nonpremium, premium heat, and specific uses of electricity. The nonpremium fuels included coal, crude oil while premium fuels comprised of cleaner oils or oils that were distilled, and natural gas. [6]
Stock Picks
Financial analysts have come up with stock picks that investors can invest in for the year 2010. Kevin Gardiner the head of investment at Barclays Wealth predicts companies that will be the five stock picks in the UK for 2010. He notes that equities will be the most sought-after asset despite uncertainty in the stock market with the upcoming elections in the country. The increase in equity investments will be due to the subdued valuations and constant interest rates. [7] Other stock picks for UK investors will be companies such as British Tobacco, Standard Chartered, Home Retail Group, WPP (Wire and Plastic Products) Company, and GKN (Guest, Keen and Nettle folds) engineering Company.
Stock picks in the energy industry have revealed predictions that natural gas will be the more viable alternative compared to oil. Oil use will decline as more and more companies are looking to build cars that run on natural gas or electricity, a more environmentally friendly option since natural gas is 30% cleaner than oil. Clean Energy Fuels Corporation was mentioned as a stock pick for the incorporation of natural fuel gas stations. There has been speculative stock picks for producing engines that will run on natural gas or renewable energy. This will eliminate the use of coal and crude oil sources[8]
Dream Portfolio
The dream investment portfolio will have to include cash, large, mid-sized, and small stocks in the UK market, UK bonds and non- UK bonds, investments in commodities and the emerging stock markets in the world, resources, and investment in the real estate industry. These funds represent part of the 7Twelve portfolio plan developed by Israelsen that utilizes mutual funds that allow the investor to gain exposure to a vast range of investable assets. The combination of the different funds and assets ensures that there is the optimization of performance and the minimization of risk in the investments. [9]
The diversified portfolio will ensure that the investor can invest in all fields and players in the stock market. The 7Twelve portfolio advocates for allocating 65% to the equity and diversifying funds such as the real estate industry and the UK, non-UK stock. 35% of the investment should be allocated towards fixed-income funds such as cash and UK, non-UK bonds. [10] For investors who want a simpler investing alternative, can explore investment options which will include debt instruments, equities, cash, and mutual funds.
Cash investment will include savings accounts, treasury bills investment, and money market certificates. Bond investments will be mortgages, debentures, and personal loans as well as bonds. Equity investments will be common and preferred stock while mutual funds will involve equities, bonds, and cash investments.
Bibliography
Bending, R., and Eden R.J. UK energy: structure, prospects and policies. Cambridge: University of Cambridge, 2006.
Bretani, C. Portfolio management in practice. Oxford, UK: Elsevier Ltd, 2001.
Buckle, M., and Thompson, J.L. The UK financial system: theory and practice. Manchester, UK: Manchester University Press, 2008.
Israelsen, C. 7Twelve: a diversified investment portfolio with a plan. New Jersey: John Wiley & Sons, 2010.
Lobo, D. Five UK stock picks for 2010. 2010. Web.
Ogg, J.C. Cramer’s energy shortage stock picks for 2010. Web.
Research and Markets. The energy industry in the UK market review. Web.
Small business town. The entrepreneurs guide book series. Web.