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Investment View

Please do not take this the wrong way, those of you who read this column in Wales but, on the whole, Marrakesh knocks Swansea into a cocked hat. I suppose it was unfortunate that the first IFA seminar at which I was speaking for Gerrards this year took place just two days after I returned from Morocco but my mind was tuned in to warmer climes.

The investment seminars for IFAs we held in Swansea and Cardiff showed there is considerable interest in investment matters outside of London. Not only simple interest either. I was taken to task on whether my assessment of the likely inflation levels at the time of the Napoleonic wars was accurate. This is a level of questioning which demonstrates how much more professional the IFA market has become. I hope regulators read this column as well as practitioners.

The great advantage that IFAs have over private client stockbrokers is that they are not necessarily wedded to stockmarket investment. Equities may have proved the best place in which to invest your assets in the past but it is not the only row to hoe. Alternatives are available. The big question we have to ask ourselves is, will equities continue to deliver superior long-term returns to other forms of financial assets? The answer is probably yes. Equities are still more likely to reward investors most handsomely but do not expect returns that will compare with those during the 80s and 90s.

The apparent lack of momentum in the UK stockmarket is perhaps a more immediate concern. Building a portfolio on geographic considerations alone no longer makes sense. Yet the bulk of investors in this country – and the majority of their advisers – still consider the UK equity market to be the home for the bulk of their investment allocation.

The FTSE 100 is behaving in an unspectacular way. To take this at face value would, though, be underestimating the underlying strength of the market. This, the highest-profile benchmark index, is heavily influenced by a small group of industries. Telecoms account for a fair chunk and have been out of favour for a while. Such is the dominance of the index by a small number of these sectors that, unless they are all enjoying the same level of support, the index will tend to underperform the broader market.

Exclude new economy stocks from the
FTSE 100 and you are looking at a very different picture. There may be profit warnings from old economy companies but by and large their share price performance is looking healthy. We remain vulnerable to the vicissitudes of the US consumer. Americans spent to save the world during the dying days of the last millennium. Much of the spending was paid for from borrowing money. There was no need to save if your financials assets were replenishing at the rate they were a year or two back. The same is not true today. Mr Greenspan&#39s real test is persuading the American consumer to start spending again, even if it is at a more modest level.

So we should not feel threatened by a market which has gone nowhere over the past two years. How the Americans react to the stimulus being delivered from the Fed is a concern, though. Stockbrokers are usually bullish. Although not necessarily a virtue, it has stood them in good stead over recent years. The game may change but a proactive stance from the Fed should ensure American consumers feel able to resume at least a reasonable level of spending – sufficient to refloat their economy and ensure we in Europe need not worry too much. Of course, as Eastern Europe starts to take up the consumer cudgels, we may turn out to be far less dependent upon America than in the past. What we need to hold most at present is our nerve.


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