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Investment view

The end of July is a particularly busy period for company results. The first half of 2003 is properly tucked up and company chairmen are in a position to opine on how the full year might pan out. By and large, figures have not been too bad although the variation between the performance of individual companies certainly serves to remind investors that the stockmarket is, indeed, a market of stocks. It is the average we look to – and the average still refuses to break out on the upside.

True, the overall tone has remained encouraging but the narrow trading range continues to keep share prices constrained. This is despite some heavyweight names joining the chorus of those who have declared the start of a new bull market. Anthony Bolton of Fidelity was widely quoted last week as believing that the bear market ended in March. Investors will doubtless take heart from this widening collection of voices. I hope they are right but it does not yet feel like a bull market to me.

A principal problem remains the lack of belief that the economic recovery is likely to prove anything other than tentative and the knowledge that shares are not overwhelmingly cheap. The US economy may be poised like a coiled spring to leap forward in the second half of this year but most market-watchers would prefer to see tangible results rather than senior Government figures talking the economy up. But at least there is evidence in the Far East that things are getting better.

A little over a week ago, I took part in a television debate with an ex-colleague of mine who now runs the London office of a European brokerage firm. He was forecasting a major shift in the fortunes of Japan, where the inexorable advance of the Chinese economy was beginning to make an impact. All the traditional concerns over the Japanese economy – lack of transparency, adverse demographic profile and the innate conservatism of the Japanese business and political community – would be swept aside if an economic revival, powered by demand from their near neighbour took hold.

Behind China, of course, stands India, another super-power in the making. What combines them is the belief that aspirant populations with a strong work ethic in the Far East will stimulate change in the balance of economic power. It was a comforting argument to put forward. Again, there is more than a little hope value in this contention.

It was arguments of this nature that encouraged investors to eschew the US in favour of the Far East during the mid-1990s. How wrong they were, particularly when the Asian debt crisis turned the fortunes of these markets on their head. The picture does look more stable now but investors&#39 memories certainly go back the six or so years since these markets imploded. Still there is some merit in my ex-colleague&#39s beliefs.

The problem is in assessing how quickly all this may come about. It now seems as though the breakneck expansion of the Chinese economy is continuing despite the Sars&#39 epidemic. Recent figures suggest there has been some slowing following the near double-digit growth in the first quarter but it is still an impressive picture that is being painted. Already there are commodities where the price is more dictated by events in China than elsewhere.

One dividend from the rise in the power of the Chinese and Indian consumer could be that it might allow their Western counterparts to ease up on the acquisition of debt – one of the more worrying features of the way in which the world economy has been kept alive. The cost of borrowing might have fallen dramatically but in the end debt has to be repaid. Asset price inflation, if it continues at its present subdued level, may not bail out consumers.

Some investors will look East for salvation while others, like me, will continue to concentrate on the economic and business news coming out of North America and Europe. Balancing a generally steadier corporate sector are the fears that still abound over the pension industry. Pensions could yet turn out to be this Government&#39s poll tax. Perhaps it is the fact that I am much nearer drawing my own pension than starting my contribution strategy that keeps me on the cautious side of optimistic.

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