Having made reference to the division of opinion on the likely direction of emerging markets previously, it had been my intention to cover the issues in greater detail, having then set out some of the arguments on both sides of the commodities debate.
In the end it became too difficult to separate out this group of disparate nations from the wider issue of where investors should now be placing their bets for the future.
In part this decision was influenced by the need to start work on the next edition of our client newsletter. This quarterly publication garners opinion from a wide range of sources and allows a number of people in the firm to express their opinions. In other words, it is not centrally driven, as many such investment newsletters are. Nor is it a “Lifestyle Magazine”, as has become common practice amongst the wealth management departments of our banks.
Not that other areas of interest are left unexplored. An article submitted by the firm’s head of IT on the rapid development of cyber crime in our industry certainly gave me food for thought, while often outside contributors, such as lawyers, accountants and IFAs will be invited to contribute on a topic which, while not strictly about investment, nevertheless has implications for those with investment assets.
But to return to the broader point of where to place your focus on asset allocation, I was struck by the view of a number of investment managers that UK Growth, as a sector, was currently flavour of the month.
Perhaps this should come as little surprise. The news on the economic front has continued to improve. Retail sales are improving, unemployment is coming down and the mighty IMF has raised its expectations for what we might achieve in economic growth. Even sterling has been in demand, reaching levels against the euro not seen for more than a year.
This has been reflected in the market. The FTSE 100 Share index has been nudging last year’s highs and, as I write, stands little more than 100 points off the previous all time peak, scaled some 14 years ago. So should investors still be piling in to a market that has rewarded those who backed it handsomely in recent years? Or are bombed out emerging markets a better bet?
We will only know the answer with the benefit of hindsight, of course, but the arguments could be considered sustainable. Is it better to place your faith in an asset that has already made substantial gains, or back one where much ground remains to be made up?
This latter point is what might be considered the contrarian approach. After all, markets are low because there are more sellers than buyers, so to invest in such a scenario means betting against the crowd.
Unfortunately, history provides too many examples when the crowd turns out to be right, though on balance it is not a bad strategy to bear in mind. Certainly, with individual shares an investor must remember that the possible downside is truly zero – something that is unlikely to apply to a market as a whole, though countries have gone bust in the past, as my collection of busted bonds – pretty to look at, but financially worthless – bears witness.
So we return to the debate – where to place an investor’s money. The reality is that it might be too early to take profits on the developed markets (the US and Japan have rewarded even more comprehensively than the UK) and switch into emerging markets but it is likely to prove a good call at some stage. Doubtless the debate will continue. Arguing the relative merits is all you can do when you really do not know the answer.
Brian Tora is an associate with investment managers JM Finn & Co