money

Spread Betting on the World Cup

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Brazil 2014. The most anticipated footballing event of the sports calendar is just around the corner. The World Cup which by God’s grace, Nigeria will be crowned champions18 years on from their Olympic football gold medal. I’m sure readers of Lekanomics (link to his blog) will not be too happy with that!

A World Cup betting report by Regulus Insights has predicted around £800 million pounds worth of stakes will be placed during the World Cup. This is most likely down to the wide range of betting options available for punters to select from as they ponder on where to put their money.

The spread betting markets is an extension is this betting craze. Punters can bet on things such as, the shirt number of a goalscorer, to which two teams will make the World Cup finals and even the total amount of yards accumulated by the number of goals scored throughout the tournament.

Let me explain how the spread betting market works.

Let’s use the total corners market as an example. Currently, this market is being quoted at 643-653. What this means is that you can decide to ‘sell’ at 643 or ‘buy’ at 653.

If Josh Capital believes there will be more than 653 corners in the tournament he will buy at 653, equally, if he thinks there will be less than 643 corners he will sell at 642. What does that mean in practice?

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As you can see in the diagram above, the market can be highly leveraged and an investor’s mentality should be applied – only stake what he/she sees as as a comfortable amount to lose. Take a long term approach to the tournament – assess how the favourites (and England) perform, the leniency of the referees and other factors which could affect the final scoreline.

Good luck to everyone who has money on the tournament – let me know how well you do!

@capitalmoments

The economic recovery – Return of the pound?

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The economic outlook of the UK has had an impact on the Foreign Exchange markets. The pound sterling is strengthening against many currencies in both the developed and emerging markets however in this blog I’m going to focus on the relationship between the pound and the dollar and the positives/negative impacts as a result of this. First of all what does it mean for the pound to strengthen against the dollar? Basically you get more dollars for every pound when you go to exchange it at your local bureau. What has caused this in the markets? Well it is a combination of the following – the outlook on monetary policy and economic recovery.

Monetary policy in a nutshell is the setting of interest rates. The Bank of England Base Rate has been set at a record low 0.5% for 5 years now primarily down to the recession that had plagued the country for years. This was to enable businesses (and banks) to borrow from banks to fund operations and create new employment opportunities to compensate for all the jobs lost during the difficult period post 2008. In 2009 GBPUSD was trading at 1.3505, a 23 year low! The Bank of England announced earlier this year that they expect the Base Rate to increase by 2nd Quarter 2015. Due to the positive correlation between interest rates and foreign exchange rates, this led to the pound strengthening against major FX currencies and emerging market currencies. In fact $11bn was removed from emerging market funds by the end of February primarily down to the positive outlook investors had on developed markets (source:Bloomberg)

The economic recovery has also played a part in strengthening the pound. UK unemployment fell by 63,000 to 2.33 million in the three months to January 2014, according to the Office of National Statistics. Lower unemployment will inevitably lead to an increase in a country’s GDP which symbolises growth and is one of the many signs of recovery. The budget especially the reforms relating to ISA’s and pensions were seen by the public as great news (more details check here)

The strengthening of the pound great news for people like me who want to get as many dollars as possible to use to spray at Nigerian weddings this summer but is bad for British investors in UK blue chip companies, as many of these firms report their profits and deliver dividend payouts in dollars. Capita Asset Services released a report recently arguing that the pound’s strength will wipe £3.5bn off the value of dollar denominated dividends of UK based firms.

With the weaker than expected US first quarter GDP growth (0.1% Actual v 1.1% Expected) and the manufacturing sector purchasing managers’ index reaching five-year highs this week,this will provide the impetus for investors to capitalise and invest in the Pound, before it’s too late and there is a ‘correction’ in the market.

GBPUSD is currently trading around 1.68-1.69 (i.e. 1 Pound = 1.6878 Dollars) – which is a 5 year high for the currency pair. Who knows the days where you’d get a 2 dollars for every pound may soon be back on the horizon – only time will tell….
@capitalmoments

Primark – London Firm American Dreaming?

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Primark announced plans for more international growth by opening stores In America. They plan to open a superstore in Boston next year along with 8 smaller stores and a warehousing site on the north east of the States. The company owned by Associated British Foods (ABR) beat analysts expectations with revenues (sales) up 14% to £2.278bn and posted operating profits of £298m. This is primarily down to the retention and expansion of the customer base, playing on the fact that the retail market (excluding high end brands) has experienced a shift from quality to value. This shift has led to the emergence of Poundland, Aldi, Lidl, but also has enabled Primark to have a solid market share and be one of the stronger performers under the ABR umbrella. This has also given Primark to expand in the E-commerce space, as they tied up a deal with ASOS to sell clothes on their platform.

Now the next big step for the company is tackling America. This is no easy feat just ask the following British stores. 
1 – Tesco’s US chain Fresh & Easy has filed for bankruptcy. The retailer has agreed to sell the majority of its US stores to Ron Burkle, lending his investment vehicle £80m to take on about 150 stores. The redundancy packages for about 400 permanent staff, the store closures and the loan being given to Mr Burke will cost Tesco £150m, taking the total cost of its failed US adventure to around 2 Billion pounds. (Source: Telegraph)
2 – Marks & Spencers got rid of US grocer King’s in 2006 to focus on its struggling operations back in Britain. Two-thirds of its investment was lost when it sold the New York based clothing chain Brooks Brothers in 2001.
3 – Laura Ashley Sold its entire US chain for $1 in 1999 after a string of profit warnings caused by over-ambitious expansion. (A profit warning is a public announcement made by companies to let people know that profits won’t be as high as expected)
What do Primark need to do to not follow down the footsteps of the above? In my opinion they first need to improve on how they are perceived by the general public. Corporate Social Responsibility plays a big part nowadays and is in some industries the only reason why customers choose company A over B. I have seen various comments across the net from different individuals talking about the unethical conditions the factory workers have to contend with which led to the Rana Plaza disaster in Bangladesh this time last year. staff were ‘told to return to work’ despite a large crack in the factory wall and this negligence led to 1,129 people losing their lives and another 3,000 injured. Something must be done to show that the lessons have been learnt and the mistakes won’t be made again to improve the perception people have on the company, especially the people that have boycotted purchasing items from any of their stores. 
Their price advantage gives them a huge competitive edge and Primark need to play on that if they want to successfully break into the US. Sound out the competition and provide better value for money. Zara, H&M and Topshop who hail from Europe have all been able to successfully break into the US fashion market so Primark will be hoping to follow in their footsteps.
Finally they need to ramp up their social media presence. With a constantly evolving market the onus is on the company to keep up to date with all technological advancements and capitalise on them to obtain a competitive advantage. Trends are shared on sites such as Instagram and Tumblr, so it needs to ensure their potential American market, which is definitely more diverse, are constantly reminded of the brand through the applications on every young persons smartphone.

let me know your thoughts? Do you think America is a step too far for Primark or do you think they will be successful?
@capitalmoments