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Govt cash trashing forcing investors into riskier assets, says Hargreaves Lansdown

The Government’s recent intervention is trashing cash and pushing investors who are seeking greater income into riskier assets, says Hargreaves Lansdown head of research Mark Dampier.

Speaking at a Hargreaves Lansdown press briefing this morning, Dampier said the firm had noted a three-fold increase in investors shifting out of cash Isas as their earnings diminish.

He said: “Some of it is going into equity Isas, a lot into corporate bonds and some into equity income funds. What do you do? You have a lump of money to use, you can either spend your capital, which some people do or you take some of the investable cash and put it in a more risky investment.”

“Investors are moving into the market and its an increasing flow as cash effectively gets trashed. They’re being forced out of cash into other assets. Maybe the Government wants them buying gilts, corporate bonds and other investments to get consumer demand.”

Dampier did not believe the corporate bond bubble currently presents an investment bubble but noted the significant flow into the asset class.

He said: “ I do see an awful lot of money going in there. That might suggest a kind of a bubble but its far too soon to suggest that. I’ve got to see clients going completely and utterly mad and I’ve not seen that.”

He said the Government had “overdone it” in terms of intervention and was not confident it would be able to successfully reverse the quantitative easing process it had implemented in time.

He also said the scale of the policies enforced had been largely political in motive and questioned the efficacy of their strategy.

He said: “They’re running out of time, they’ve got an election and they’re trying everything now to get some meaningful green shoots through before May 2010. Maybe they will, but it takes a lot longer. I think some of the initiatives will make it worse and actually prolong the recession in the end.”

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