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After a decade of indifferent equity markets, we can reasonably expect to look forward to 10 years of better performance
New decade, new ball game
Brian Tora’s Investment View
So, farewell then, the Noughties. In this, the final Investment View column of 2009, it is not just the past year I feel obliged to look back on but the past 10 years. Mind you, the past year has been excep-tional in so many ways.
The foundations for what we have been through in the investment world in these tumultuous 12 months were laid even before the new millennium got under way.
We greeted the new decade with the FTSE 100 index having just reached an all- time high. On December 30, 1999, the UK’s benchmark equity index hit an intraday high just short of 7,000. You could say it has been downhill all the way ever since. The index has plunged way below 4,000 twice - the first time in March 2003 when it fell below 3,300 and again in March this year when 3,500 was broken on the downside.
In recent weeks, this index has been trading in the low 5,000s. A month ago, it nearly reached 5,400 but various concerns have been holding back further progress.
Dubai, Greece, Ireland - all have been in the news recently, demonstrating how bad the hangover from the debt-fuelled binge has become. And last week’s statement from Alistair Darling did little to lift sentiment.
The next decade will be, as they say, a whole new ball game.
With little time and even less propensity to trade between now and the end of the year, it seems inconceivable that we will end the year in negative territory for UK shares.
Not every market has been so lucky. Looking at the IMA sectors, the average Japan fund fell by 6.7 per cent. Contrast that with a 26 per cent rise on average for UK all companies funds and you can see how badly the world’s second-biggest economy has performed. Even now, the Japanese government is priming the pump to try to stimulate growth.
Corporate bonds have rewarded handsomely so far this year but their longer- term returns have been less impressive. Property, too, has had a chequered decade.
It happens that the average property fund in the IMA sector was 8.7 per cent higher between the start of 2009 and the beginning of December but that conceals a wide range of returns. But then, this is what happens in an illiquid market lacking total transparency.
The good news is that after a decade of generally indifferent equity markets, we can reasonably expect to look forward to 10 years of better performance.
Given that emerging markets have, with some notable exceptions, rewarded well during this decade, this old adage may no longer hold good.
till, with the US suffering similar poor returns, yet now showing signs of turning round economically, there are reasons to be cheerful.
But I cannot let the pre-Budget report pass completely unremarked. Alistair Darling was described as “Gordon- lite” by one economic commentator after his speech. The depths to which we have plumbed are now clear.
The attack on bankers’ bonuses will win few prizes, even if it will be received well among the wider electorate. Hauling ourselves out of this mess will be hard.
It is at times like this that I take comfort from the global nature of our domestic market. Next year, let alone the next decade, promises to be interesting.
Brian Tora (brian.tora @centaur.co.uk) is principal of the Tora Partnership
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