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Feverish speculation

More questions than answers from the wonderful world of investment over the last weeks or so – not least, is Hargeave Hale new boy Patrick Evershed now officially the Duracell Bunny of fund management?

Is Royal London Asset Management CIO Robert Talbut’s “Bambi-style” recovery the most creative animal-based economic reference since Jupiter boss Edward Bonham Carter got involved with hippopotamuses? Er…hippopotami?

And has the IMA overtaken the ABI as the most welcoming trade body in Her Majesty’s financial services industry? Not to knock the hard graft that somebody has obviously been putting in on the lobbying front but, in recent weeks, we have seen the IMA welcome the Budget’s measures to enhance the UK fund industry, welcome the subsequent tax elected funds regime and, of course, welcome the extended limits on Isas. Indeed, the IMA was by far the most positive voice – very possibly the only positive voice – in the wake of the Budget. Is there no end to its generosity of spirit?

But the question I plan to dwell upon for the rest of this column – and despite the handy guide to how stock-markets fare during pand-emics that has just landed on my desk from the good, good people of Fidelity (not too shabbily, long term, apparently) – is the one that, according to Mr Talbut’s colleague, RLAM head of equities Jane Coffey, most fund managers are asking. Have we been experiencing a bear market rally, which will run out of steam and hit new lows, or the start of a new bull market?

The gist of her answer is, of course, it depends – or to give the slightly longer version: “On a short-term basis, much of this will depend on sentiment shifts and changes in the risk appetite of investors.” Oh good, that most stalwart and constant of groups – nothing to worry about there then.

Putting me in good company, Ms Coffey skates over swine flu in one sentence, suggesting fears of a pandemic “may dominate in the short term but, further out, fundamental valuations and the evolution of cashflows and dividends will dictate where the market settles”.

The nature of the recent rally is a question that has also been occupying Tom McGrath and the rest of the team at Apollo Multi Asset Management, who, in passing, applaud the G20 bigwigs for, among other things, the disturbing mental image of “injecting a not insignificant lubricant of $1.1 trillion into the financial system”. Or maybe it is just me.

Anyway, according to the Apollo crew, the mistake that the G20 seem to be making is to regard this crisis as one of liquidity, not solvency. “Quantitative easing, or making money out of thin air, is untested,” they explain. “While undoubtedly it will improve the access to money for consumers and corporates alike, it may not necessarily ‘make these horses drink’.

“In reality, the necessary deleveraging of the household and corporate balance sheet has only just started. In the Anglo-Saxon world, which still remains the primary driver of world growth, savings rates have to rise much higher, shops will shut, job losses will escalate and corporate earnings will remain very weak. The crucial question in the US, UK and Europe, is whether markets have properly discounted this and the jury is still out.”

Pandemic or not – and did you see the less reported stat that 35,000 to 40,000 people die each year in the US from your common or garden flu? – those last five words would probably be the short answer from the majority of fund managers if pressed on the sort of market we are in.

Or as column favourite, BlackRock CIO Bob Doll, puts it: “We are not conv- inced that we are at the beginning of a new secular bull market since there are still a number of downside risks and a high degree of uncertainty remains. We do, however, continue to believe that stock prices will be higher one year from now than they are today.”

A bit more concrete – although not nearly as certain as the fact that, regardless of what my handy Fidelity guide says, swine flu is really not the sort of shot in the arm that the global economy has been looking for as it totters out in search of Thumper. Unquestionably.

Julian Marr is editorial director of


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