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Investment view

I am undecided at present as to which of last week&#39s three calamities should worry me the most. The turn-round in the fortunes of the dollar, the further downward blip for Marconi and the continued turmoil in the split-level investment trust market all impinge on investors in general.

With splits, we are not seeing a new story, simply a reinforcement of the realisation that they depend upon markets continuing to perform if they are to work for investors. The most worrying impact recently has been on zero-dividend preference shares. Managers of splits have made great play of the fact that no preference share has ever failed to be repaid in full, yet an increasing number of trusts are seeing this part of their capital structure uncovered by portfolio assets.

This is only a real concern if we do not see a recovery before redemption is due but the market is still stubbornly refusing to turn upwards while the increasing tendency for a number of these trusts to invest in each other compounds the problem. Care in the choice of the zero-dividend preference share you buy has never been more crucial.

As for Marconi, what can I say? It seemed impossible that the news could get any worse but Goldman Sachs delivered a body blow. It valued the company at just 55p a share and the market promptly moved the price in that direction. Unless a miraculous recovery is staged, this great British company seems set to be relegated from the FTSE100 Index.

I find it hard to believe that Marconi is a basket case. It is just that there is little prospect for good news in the foreseeable future.T he next major news event is likely to be the result of the review being undertaken at the request of Lord Simpson. This is due in September and it would not surprise me if the management decided to issue all the existing and potential bad news at once.

The decline of the dollar is a different story altogether.It compounds what is already something of a problem for inward investors into the US. If the currency falls as well as the stockmarket, you take a double whammy. But there is no disguising the fact that the initial weakness has been welcomed in some quarters. The principal beneficiary so far has been the euro which suddenly seems to have developed muscles and has been appreciating against pretty much everything. Against sterling it is around 5 per cent higher than a month ago when the dollar was at its peak and is up even more against the dollar. At this rate, the European Central Bank will soon feel able to cut interest rates.

But the dollar is weak all around the world. Part of the reason is worries over the general state of the US economy. A recent survey from American regional businesses showed conditions appeared to be worsening. There may be low consumer price inflation, a steady rise in new housebuilding and a fall in jobless benefit claimants but worries about the extent of the slowdown are very real. US treasury secretary Paul O&#39Neill spoke on TV in the middle of last week but failed to use the expression “strong dollar”. You can imagine what some people considered this to mean. It brought back memories of President Bush&#39s comments when interviewed by a leading European business newspaper last month. He commented, quite reasonably, that while a strong currency benefits the economy by attracting capital, it can damage exporters. Again this was interpreted as meaning that the era of the strong dollar may be over.

It is too early to know whether the turn really has been called but it has been a worrying time for dollar buffs. Perhaps they can take comfort from the news that the Bank of Japan does not want to see the yen higher. With Japan&#39s economic problems, who can blame them?


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