The background to the sharp up-tick in US share prices last week was not just the Fed’s decision to keep interest rates on hold. The accompanying statement pointed to a more robust economic performance than had been thought possible. Moreover, fears of a continued setback in the housing market were receding. Even so, it seems remarkable that the US stockmarket remains as firm as it is. There has not been a 2 per cent single-day fall since the early part of last year. Investors seem content to ride with this market, despite one or two worrying developments elsewhere.
Perhaps the most significant was China’s near 5 per cent fall in its principal equity index last week as investors dived for cover amid fears of a bubble bursting. The extent to which a speculative bubble has been developing is giving real cause for concern. Last year, shares soared by 130 per cent, giving funds concentrating on this part of the world a boost. Not before time. China has been a tricky market in which to operate, with issues of transparency and governance, not to mention the attitude of the government, combining to set out a minefield for the unwary investor.
We are seeing serious muscle-flexing among the new giant corporations of the emerging world. Should we be surprised that the two rivals to take over Britain’s last remaining steel company were Indian and Brazilian?
Closer to home, there has been plenty to consider in the world of investment. Foreign & Colonial demonstrated that older and bigger is not necessarily better in the world of fund management while New Star’s plan to return money to shareholders underscores just how swiftly this new brand has been established. With both companies reporting their fortunes pretty much at the same time, the contrast could not have been more marked.
Property also features prominently in my reading of what is hot among investors. Last month saw the arrival of real estate investment trusts. Over a third of the £2.7bn raised last year by closed-ended investment companies was in the property sector. With the average share price return a healthy 18 per cent-plus, little wonder appetite remains undiminished.
Last week, the Association of Investment Companies hosted a lunch at which prospects for this sector were debated. The consensus was that growth should continue at a slower rate. Let us hope nothing emerges to upset the quiet confidence across a whole range of asset classes with which 2007 is establishing itself.
Brian Tora (firstname.lastname@example.org) is principal of the Tora Partnership.