Now that the Olympics – or, at least, the first tranche of this sporting fest – is behind us, perhaps we can return to what might drive markets throughout the rest of this rather disappointing summer. Disappointing in a weather sense, that is. Team GB did as well as we could possibly have hoped, while shares have held up well, too. But the feeling that nothing has really changed has persisted, from my point of view.
Trawling through the news last week, I find that fears of China retrenching are seeming to recede, while US recovery hopes are still on track – just. The bad news is coming from home, with the trade gap widening and the Bank of England becoming even less positive on growth. Yet shares, particularly in the US and the Far East, seem oblivious to the apparent lack of resolve still present in Europe. Long may it last, I say.
Investment is all about trying to spot the trends of the future. Once, simply backing the global names was sufficient but today it is a case of seeing where growth and profit might emerge in a world that is clearly succumbing to the social and demographic pressures that have been building in recent years. Socially, the developing world playing catch-up and the way new media are assisting social change is significant.
Demographically, the West is suffering the consequences of building a social infrastructure based on a workforce now in rapid decline. This is where the pain is being felt now in the heavily indebted nations of Southern Europe.
Can the emerging world bail out the troubled West? Unlikely, in my view, on its own. The real shift that is needed is in the attitudes of those that have come to depend on the handouts from the state. I have no wish to sound Colonel Blimp-ish, harkening back to a better age as I sip my pink gin on the sun-soaked veranda of my villa. Rather, I am admitting to the intractable problem faced by Mr Draghi and European leaders as they try to rein back the role of the state.
This is why the US is in a better position to face the challenges of an intertwined global market. While they do not always get it right (US public healthcare is both inefficient and costly, as President Obama has been seeking to address), there is no expectation that the state will provide support in the last resort. I am a firm advocate of the welfare state but only in the sense it provides a safety net, not a non-negotionable option.
While these seemingly insoluble problems overhang sentiment, it is hard to see how markets can make much progress. But there are surely messages to be received from what is happening. The US should not be written off as an investment priority – as it was, wrongly, during much of the 1990s. Then the Far East was all the rage, as it is now in many quarters. What was not spotted was the hold the US was gaining on the technological world.
OK, it did end in tears – briefly – but where are the new technological ideas emanating from today? The work might be carried out in Beijing or Bangalore but the thought processes originate from the good old US of A.
Indeed, technology could well be one of the more successful themes to carry forward into the post-Olympic world. There is little else with a compelling message these days.
Brian Tora is an associate with investment managers JM Finn & Co