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Brian Tora: Looking at the positives

Brian Tora MM blog side

Despite being the dog days of summer, there is plenty taking place to exercise the minds of investors and their advisers. News the UK recession is not as deep as previously thought was hardly a surprise, but doesn’t really bring much in the way of comfort to an embattled nation. But pressure is growing on the chancellor to place more emphasis on growth and less on austerity.

The consensus view is growing that while shrinking the public sector is a necessity, maintaining spending on infrastructure projects is highly desirable. Some impetus to this approach has been given by the highly successful Olympic Games and it seems likely that transport could well be the beneficiary of looser reins at the Treasury to try to kick start an economy stagnating at best.

Meanwhile, the Eurozone crisis rumbles on, with Greece back in the firing line. Remarkably, markets have taken the increased likelihood of their ejection from the single currency zone with considerable equanimity. Perhaps the view is that sufficient time has elapsed for the most vulnerable to such a turn of events to build sufficient protection so that the effects are held to a minimum. Or it could be an increasing realisation that it is German public opinion that holds the key.

The Greek prime minister certainly understands this, having taken the trouble to give an interview to a popular newspaper when in Germany to request a stay of execution. With the risk of some form of contagion resulting from Greece abandoning the Euro, my money remains on the whole pack holding together, but nothing is certain in this world – especially when politicians are involved.

And we learned last week that one of the super mergers amongst FTSE 100 companies may stumble at the last fence. Glencore has planned to take over Xstrata to create a massive commodities mining and trading entity, but the Qatari sovereign wealth fund, which owns 12 per cent of Xstrata believes the terms are insufficiently generous. Glencore has indicated it is prepared to walk away from the deal. We’ll learn more after the shareholder vote next week.

Commodities have certainly been in the news recently. After a stunning decade, when even the most inefficient of mining companies was able to turn a buck or two, prices have turned south. The principal reason is the slowdown in China, but the implications of a shift in the direction which the world’s second largest economy is taking suggest demand could remain subdued for a little while.

With resource stocks such an important component in our headline index, this could have implications for the performance of our domestic market. At the very least it underscores the vulnerability of index tracking funds when an index is so influenced by a single sector. Stock pickers still seem to have the best of it at present, even if all the statistics suggest that, on balance, an active fund will underperform the index simply through the costs involved.

So we head into the period of shortening days with markets in reasonable fettle, but much of the uncertainty that has built in recent years still unresolved and looking like remaining so for the foreseeable future. Investors can take some comfort from an increasingly robust position in the US, with the S&P 500 moving into new territory. And Apple has become the most valuable company in the world – ever. At least some things are going right.

Brian Tora is associate with JM Finn & Co


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