Overseas outlook
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It certainly was a week of contrasts. Hargreaves Lansdown demonstrated that a well managed business can prosper, whatever the climate, while a survey of investors suggested around 30 per cent were still expecting the bull rally to reverse in the autumn. Admittedly, over half considered the market rise to be sustainable and expected shares to end the year higher but that was not reflected in many articles I read, which suggested September and October would be tough.
It was comforting to read Bill Mott's summary of what was going on. His assessment that the environment was "bracing, but not impossible" resonated with my current "cautious, but willing to get involved" stance. The expectation of an anaemic economic recovery should, in his view, be good for income funds - and he was weighting his fund towards overseas earnings, which seems no more than prudent in this climate.
It does rather look as though Britain may lag the rest of the world in recovering from the economic shock that we all sustained.
There are a number of reasons why this might be the case. Financial services, which bore the brunt of the early setbacks, is more important to us than to other nations. We have a socialist Government, almost certainly nearing the end of its term in office, which has overspent and looks leaderless. Not a happy state of affairs - and a view apparently shared by the OECD.
Should we worry? Probably not as investors. The FTSE 100 index is dominated by companies that trade all around the world. True, small and mid-cap companies might be more vulnerable but the nature of our market is that the biggest companies will drive the market in a far greater way than in many markets. Interestingly, Bill Mott, despite embracing overseas earners, is taking one of his biggest bets by underweighting mining shares - a truly international sector. Could the answer be to invest directly overseas? For many, this is precisely what they are doing. Several emails have dropped into my inbox recently enthusing about emerging markets and those in Africa in particular. I read with interest the report written by one manager of a global fund where he owned up to having refocused on Africa, which now represented the biggest geographical area despite being relatively small in global terms.
Meanwhile, I see banks are back in the limelight. Not only is our principal regulator taking a keen interest in how they behave, European politicians are taking an unhealthy interest in the level of bonuses paid. No wonder one of Bill's other bets is to commit only 3 per cent of his fund to banks, a sector that accounts for 13 per cent of the market. He will doubtless take comfort from the OECD agreeing that the UK's recovery will be far from robust. Let's hope he is correct in his overall bullishness.
Brian Tora is principal of The Tora Partnership
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