WeekWatch

Another week, another bout of turmoil and uncertainty in the markets. The major news was the decision by the US Court of International Trade to block Trump’s forthcoming tariffs. This was welcomed by global markets, which rallied following the news. Then, less than a day later, the ban on the tariffs was itself paused by the US appeals court “until further notice”.

Despite the upheaval, the US S&P 500 recorded its best May in 30 years. This highlights that Wall Street expects some relief on tariffs to be forthcoming. Yet there is no certainty. If the threatened tariffs are imposed in full force, or even increased, markets across the world will face upheaval, including the US.

But in the meantime, with US markets continuing to rise, and US equities still looking relatively expensive, is it time to look further afield to Asian markets?

A rocky road still

There is no shortage of volatility here either. Trade talks between the US and China continue to bounce from one direction to another. Just weeks after reaching an agreement on tariffs, relations have again deteriorated. President Trump has accused China of “violating” the trade deal reached.

Last week US Treasury Secretary Scott Bessent described trade talks between the US and China as “a bit stalled.” The two giants have failed to reach agreement on issues such as the production of chips and issuing of visas. There were also reports that the US would expand restrictions on Chinese technology companies.

Yet there are still opportunities for investors looking to diversify or to seek better value, believes Martin Hennecke, SJP’s Head of Investment Advisory, Asia & Middle East.

He points to Nvidia CEO Jensen Huang’s talk of ‘formidable’ competition from China this past week, and China’s strong economic fundamentals.

“China’s industrial profit growth has been more resilient than expected, coming in at 3% year on year for the month of April. This is despite the tariff fallout.”

While consumer spending has remained quite weak, Chinese household bank deposits have seen a net increase of $10.6 trillion over the past five years. This underlines that there is solid potential for a recovery in spending once confidence stabilises.

Hennecke says: “If investors are overweight on US equities, and technology in particular, the recent strong rebound in US markets might be a good second chance to broaden out across other relatively discounted markets regionally.

“Investors could also think about different investment styles, such as balancing growth with value.”

 Where does Japan stand?

Japan has been much in the news recently. After decades of deflation, the country has seen inflation rise sharply. Core inflation hit 3.5% in April, compared to a year earlier. This was the fastest rate of growth seen for more than two years.

Not only does this put pressure on the Japanese government to raise interest rates, it has also put pressure on Japanese government bonds, which have seen yields rise sharply.

Yet, higher yields on bonds mean greater borrowing costs for the government, which could limit the Bank of Japan’s room to raise interest rates as needed. Higher yields could also mean Japanese investors pull money held in the US to invest domestically. This could impact US markets – especially in US technology firms – where Japan has been the largest foreign direct investor over the past decade.

Typically, Japanese investors are cash heavy. But fears about inflation rates exceeding deposit rates (effectively negative real interest rates) and the impact on purchasing power, could see a move more to equities.

Hennecke says: “As the Bank of Japan’s interest rate remains far lower than inflation, we might see Japanese households choosing to redeploy their large deposit holdings into other assets, possibly including domestic equities. This may help protect against inflation.”

There are more good reasons to be positive about Japan. Last week the Nikkei 225 in Japan rose by +2.2%. This was due in large part to optimism that Japan would secure a beneficial trade deal with the US.

Europe

Unsurprisingly European markets rose after the ruling by the US Court of International Trade. Last week the MSCI Europe ex UK climbed by +0.7%.

Across Europe it was a less inflationary picture than elsewhere, with figures showing slower inflation across several key European countries including France, Spain and Italy.

UK

Here in the UK, the FTSE 100 and FTSE 250 advanced by +0.6% and +1.5% respectively.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

Giving larger sums of money to loved ones while you’re still alive is a practical and tax-smart way to get money flowing between generations.

However, if you die within seven years of making a substantial gift, the value of the gift is counted as part of your estate (if not covered by an inheritance tax (IHT) exemption). It could therefore be liable for IHT if you do not have sufficient nil rate band available on death to protect the gift.

These are the essentials you need to know:

1. The seven-year giving rule

Changes to pensions announced in the Autumn Budget could see thousands of taxpayers facing a much higher tax bill. As a result, many people are considering giving money or assets during their lifetime.

Under the seven-year rule, you need to live for seven years from the date of the gift. Otherwise, your beneficiaries may end up returning some of the gift to HMRC.

2.  What counts as a gift?

HMRC defines a gift as anything you give away.  This includes money, property or land, stocks and shares listed on the London Stock Exchange, household and personal goods, furniture, jewellery or antiques. It also covers unlisted shares if you held them for less than two years before your death. 

These gifts are called Potentially Exempt Transfers or PETs (unless they fall under an IHT exemption, such as the £3,000 annual exemption). The name sounds more complicated than it is. Essentially, your gift is ‘potentially exempt’ from IHT – an outright gift from one person to another, and you’ll only pay IHT on a PET if you do not survive for seven  years from the date of the gift, and the gift is not covered by your available nil rate band on death. 

A gift over £3,000 could also be considered a Chargeable Lifetime Transfer (CLT). A CLT is most commonly a gift made into a discretionary trust, where you pay the IHT upfront – at 20% on any amount over the Nil Rate Band (currently £325,000 per person). 

3.   The ‘tapering off’ rule

The good news is that the rate of IHT on gifts made above the available nil rate band tapers off on a sliding scale. This is known as taper relief.

Here’s how it works

• If you die 3 to 4 years after gifting, the rate of IHT on your gift reduces to 32%
• If you die 4 to 5 years after gifting, the rate of IHT reduces to 24%
• If you die 5 to 6 years after gifting, the rate of IHT reduces to 16%
• If you die 6 to 7 years after gifting, the rate of IHT on your gift to 8%.

Survive for seven years, and your gift is IHT tax-free. 

4. Can I protect my gift from IHT?

If the amount of your gift exceeds your available nil rate band, you can protect it by taking out a ‘gift inter vivos policy’. This is a form of life insurance that protects the recipient from IHT should you not live for seven years. These policies are designed to mirror the tapering effect of your liability. For example, if you die in year six, it'll pay out the exact amount to cover any tax due.  

It is also possible to protect gifts which are made within the available nil rate band using a level term assurance policy, with the term arranged to match the period until the gift falls outside of the estate – this would be seven years if the gift had just been made.

5. What other gifts can I make tax-free?

You can make tax-exempt gifts of up to £3,000 every tax year. Your annual allowance can be split between several people or given in full to one person.  When making your first gift, you can roll the gifting allowance from the previous year, so you can give away £6,000. Smaller gifts under £250 are tax free. And any gift to your civil partner or spouse is automatically tax exempt too.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.