View more on these topics

In search of blue skies

Tips for investors looking to bask in the next market hotspot

By the time you read this, I will be soaking up the sun in warmer climes – I hope.

As I was leaving for my holiday destination, markets were continuing to struggle to make further headway despite the more positive start to the year. Given that the Greek problem had appeared to dissipate, we have to look elsewhere for the concerns assailing investors.

Central to these are fears that the slowdown in China will be sharper than feared. The Chinese authorities are already managing expectations on this front but even this has caused some dramatic falls in the prices of resources stocks. Last week, mining shares led the FTSE down to one of the biggest one-day falls in recent weeks. Plenty of pundits are now claiming that the long bull market in commodities is drawing to a close.

But oil continues to buck the trend. For how long this might continue is hard to assess but last week the Saudi oil minister went on record as saying that the price, at $125, was too high. He pointed to subdued real demand, which reinforces my view that we could soon be entering a period of a more volatile oil price. Commodity prices in general could be about to enter a less stable period.

If commodities might prove to be a trickier asset class for the immediate future, where else should investors be placing their cash? Not in government bonds, in my view. Recognising that I have called this asset class incorrectly in the past, I nevertheless find it hard to justify holding gilt-edged stocks or US treasuries at current yield levels. As it happens, the long end of both markets has been showing signs of cracking. Perhaps the retrenchment is about to take place.

While the shorter end of these markets owes much to the prevailing level of interest rates, the long end is more dependent on inflationary expectations. Last week saw inflation come down in the UK, with the consumer price index falling to 3.4 per cent in February, down from 3.6 per cent a month earlier.

The driving force was lower gas and electricity prices but the statement from the Office of National Statistics carried some less hopeful information. Alcohol prices are on the rise, for example, while interest rates are also trending higher for borrowers. This latter influence does not bear much weight in the CPI but the retail price index, which also fell – from 3.9 per cent to 3.7 per cent, will be affected if mortgage costs increase. Much of the comment I read in the wake of the inflation announcement was sceptical that the Bank of England’s forecast of meeting the 2 per cent CPI target by the end of the year would be achieved.

I am similarly dubious that inflation can be tackled easily, since many of the influences now lie outside the control of our Government and central bank.

A resurgence in global economic growth would push demand for resources higher, with all the effect that might have on commodity prices. It would be unwise to write off the commodity boom in its entirety, even if the shorterterm prospects are clouded.

Inflation, as I have said before, should be good for equities and property. True, high inflation would bring a separate set of problems but that would be most likely to occur if wage rises got out of hand – something it is hard to imagine in the current climate.

But a continuing weak domestic economy and growing demand from the emerging world seems likely to keep inflation higher than the authorities would like.

The case for equities looks better the more the fall in inflation slows.

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


Merchant House issued shares without admitting them to AIM

Merchant House Group has revealed it issued shares representing 14 per cent of the company’s enlarged issue share capital without announcing the move or admitting the shares to trading on the Alternative Investment Market. The parent firm of Merchant Capital temporarily suspended its shares last week and today revealed the suspension was triggered by the […]

Lowes queries ethics of enhanced share buyback schemes

Lowes Financial Management managing director Ian Lowes says venture capital trusts are using enhanced share buyback schemes to encourage investors to stay in badly performing investments. Enhanced share buybacks allow investors to sell their VCT holding back to the provider at the end of their five-year investment term, often for the net asset value, less […]

FE Adviser Fund Index

Following last week’s FE Adviser Fund Index article on investment timeframes, it is worth digging further into the performance of the three benchmark portfolios over three and five years. One surprising statistic is that despite the difficult market conditions between March 2007 and 2009, the ratio of negative to positive weeks does not seem to […]

ABI says simplified model is unworkable

The Association of British Insurers says the FSA has rendered the simplified advice model unworkable and risks further widening the advice gap. The FSA published its final guidance on simplified advice last week, which says simplified advice must meet the same requirements as full advice. ABI director of financial conduct regulation Maggie Craig says: “Simplified […]

Craig Inches – thoughts on how to preserve capital and generate income in an inflationary environment

In this short video, Craig Inches, head of short rates and cash at Royal London Asset Management, offers his thoughts on how to preserve capital and generate income in an inflationary environment. Watch the video in full The value of investments and the income from them is not guaranteed and may go down as well […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm