Brian Tora’s Investment View
It seems we in the UK are the odd one out – the tail-end Charlie, if you like. Last week, it was confirmed the US was emerging from recession. Europe had shaken off negative growth a quarter earlier. But when the Office for National Statistics declared the state of play back home, it was to announce that for six straight quarters our economy had shrunk. Notwithstanding optimistic expectations ahead of the figures, we were still on the downward slope.
The official declaration of figures was not far short of two weeks ago now but attracted less attention than you might have expected.
For me, always keen to introduce current data into an article – particularly if it is wide of recent forecasts, the numbers were disclosed too late for inclusion in last week’s column.
For others prepared to pontificate on the shortcomings of a dying Government, it seemed there was less surprise than the positive forecasts suggested.
Or is it just that what takes place in UK plc is of declining relevance to the way that markets behave? Certainly, the FTSE 100 share index is no longer a proxy for the domestic economy.
With the oil majors (which have just reported profits suitably lower, given the decline in the price of oil) deriving the bulk of their revenues offshore and declaring dividends in dollars, and mining shares having little relevance to what goes on back home, should we wonder that a slip in our economic performance is shrugged off by investors?
As it happened, I was asked to opine on the state of the nation – in economic terms, that is – the day the third- quarter GDP figures were published. True, this was just regional TV but it did give me a chance to visit the port of Felixstowe, the pre-eminent container port in this country. Ports are valuable forward indicators of economic activity. A year ago, this television programme had taken the temperature of the domestic economy by monitoring port traffic. This was a repeat exercise.
The good news was that activity had improved. In particular, the flow of goods inward through the port had improved significantly. But too many containers were being shipped out empty. Even those that were in use going out were, as like as not, simply transporting waste.
Indeed, I was told that, when China stopped importing waste items for recycling towards the end of last year, most containers left empty.
Read into this what you will, but the UK can no longer be considered a manufacturing nation, so the end of destocking – which has hauled countries such as Germany out of the slough of despond – will have little effect here.
Does this matter? Probably less than you might imagine. With intellectual capital counting for far more than capital goods, we need an overall upturn in global economic fortunes, rather than an inventory swing.
I am not entirely sure what all this might mean for markets, but I do retain a healthy level of scepticism. The bounce in share values tells us that the over-reaction on the downside has been corrected but not that the problem has been fixed.
Debates continue as to whether this particular recession was a V (no, it took to long to recover) a U (possibly) a W (perish the thought) or an L (still possible here but not, thankfully, elsewhere).
Whatever, remaining nimble looks sensible right now. The cult of the equity may not be dead but it hasn’t left intensive care yet.
Brian Tora (brian.tora@ centaur.co.uk) is principal of the Tora Partnership