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Cloud spotter’s guide

Now that we are firmly in the new tax year – a year when we are all likely to paying rather more tax – I feel the need to take a step back and look at what has been going on in the investment world.

The seemingly unstoppable rise in indices all around the world has caught out many investors and damaged a few reputations. In some measure, this is helping the momentum of markets as some investors try to play catch-up. Where to now is the difficult question to answer.

With mixed signals continuing to emerge from the world’s most important economies, it is clear there is more than a little hope value attached to recent market performance. But capitalism has survived, so it must be accepted that a fair proportion of the rise in equities is down to correcting the overpessimistic plunge that markets took in the wake of the credit crunch.

Still, it would be a foolhardy commentator who did not acknowledge that we are not out of the woods yet.

In America, I read that consumer spending is set to rise by 4 per cent during the first quarter of this year. True, this is on an annualised basis,
but the 1.6 per cent rise in retail sales during March suggests confidence is returning in some measure. Yet lending there is still constrained by the overhang from the financial turbulence. For every good bit of news, it seems there is a counterbalance in the form of a question mark.

Meanwhile, in China, we learn that the economy expanded by a whopping 12 per cent (nearly), year on year, during the first quarter of this year. This was an advance on the final quarter of 2009, which saw growth of 10.7 per cent annualised, not a figure to be sniffed at either. China is now the world’s biggest manu – facturing nation and the influence it exerts is truly staggering. The merest hint that growth might be slowing
recently saw commodity prices take a dive.

It happens that I have been taking a gander at the emerging markets’ scene for a sister publication. To my astonishment, I found that there ere no funds in negative territory in the sixmonth or one, three and fiveyear tables to the end of March.

Moreover, the returns over the past five years for even the average fund were impressive to say the least. Those who have ridden the developing bandwagon have prospered mightily but it will only continue to roll if the global recovery remains intact.

Turning to bonds, it seems their performance has not been too shabby either, even if some of the steam seems to have gone out of this sector recently.

Arguably, the Noughties were the decade of the bonds, even if the corporate sector proved vulnerable to the dip in sentiment that followed the
Lehman collapse. It is hard to find an unequivocal supporter just now, though, even if the threat of inflation does appear to be receding.

We have had 0.5 per cent interest rates for over a year now. In some parts of the world, rates are starting to edge up but the future is still
as clouded as the skies over Britain, following yet another devastating blow from that little nation perched in the North Atlantic. It seems
Iceland never does things by halves. Erupting volcanoes are difficult to forecast, as are economic trends and market performance. Perhaps all will be clearer after the election. Somehow I doubt it.

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

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