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Come what May

It must have been at about the time I was writing last week’s article that commodity prices suddenly took a turn for the worse. While it does not appear as though the bottom has dropped out of these markets, the shake-out has served as a reminder that once speculators gain the upper hand over the end consumer, the risk element rises significantly.

With resource stocks such an important part of the FTSE 100 index, it is perhaps surprising that shares overall have held up as well as they have. For six months or more, this index has travelled in a relatively tight band either side of 6,000. For 15 years, no real progress has been made in this most important benchmark. Where, I wonder, do we go from here?

There are three elements from which equity investors should take comfort. First, markets have had a great deal to contend with recently – a war in Libya, unrest in the Middle East, the Japanese nuclear problems and aftermath of the earthquake.

Any one of these could have sent investors heading for the hills. As it is, these problems, all of which are ongoing, have been absorbed with what I can only describe as equanimity.

Second, company results have painted a more favour-able picture than was sug-gested by the parlous state of the developed world econ-omies. Business adjusted to the slowdown swiftly and, by and large, companies are on a much sounder footing than might otherwise have been the case.

We are still a few weeks away from the interim reporting season in the UK but US first-quarter figures have generally been ahead of expectations.

Third, corporate activity has continued at a level that suggests company boards view the future with confidence.

But this could be a double-edged sword. Last week’s bid by Microsoft for Skype suggests the technology sector could be becoming over-hyped again. Social networks have been receiving most of the attention but valuation levels are starting to be driven up by giants anxious to bolt on businesses that may come under threat in the future.

Meanwhile, lurking in the background are continuing sovereign debt problems – particularly in Europe – and the risk that above-average inflation could persist for longer than anticipated.

Perhaps this is why investors are failing to drive prices higher, even though there is a reluctance to disengage, despite all the issues clouding the future. What is clear is that the degree of interdependence is such that governments are now obliged to work together more closely. This should also be of comfort for investors.

Still, it is May and many will be wondering if now is not the time to sell. The origins of the oft repeated rhyme go back to a time when our stockmarket was dominated by wealthy private investors, many of whom would leave London for the summer and cease share dealing.

Professional investors now call the shots – but even they have to go on holiday although these days they will be accom-panied by a smartphone.

By the time you read this, I will have returned from foreign shores and will once again be at the sharp end of the business of investment. Not that it has felt particularly remote, out here in the middle of the Atlantic. The reality is that modern communications allow everyone to stay in touch pretty much all of the time.

Perhaps it is not the changes to society that have rendered the old adage ’sell in May’ less relevant but rather the advances in technology.

Brian Tora is an associate with investment managers JM Finn & Co


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