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Investment view

Last week delivered something of a rollercoaster ride for equity markets. London saw its biggest single-day rise for 10 years, only to hand back much of the gain during the following trading session. Individual shares were also moving at alarming speeds – too often down rather than up. By the end of the week the market had bounced back but volatility on this scale can be very offputting for private investors.

The continuing poor stockmarket conditions were clearly on many people&#39s minds at the annual Apcims conference in Dublin. The Association of Private Client Investment Managers and Stockbrokers, to give the full title, was meeting for the 11th time in a cold, but sunny Irish capital the day before the referendum to ratify the Nice Treaty was due to take place. It seemed appropriate that it should be Ireland&#39s Premier Bertie Ahern who delivered the opening address.

The last time that the Irish population was asked their opinion on whether the EU should extend its borders and allow new members to join had resulted in rejection, which put a shillelagh-sized spanner into the European works. If the posters on the way from the airport were any indication, then the yes victory appeared easy to forecast. Such was the level of debate that, according to Mr. Ahern, conversations over a pint of Guinness in the many bars that grace this fine city were more likely to be on the topic of EU enlargement then Ireland&#39s prospects for the Six Nations Tournament.

Europe featured heavily in this year&#39s conference. Europe – and regulation. David Wright from the European Commission talked about the extensive – and worrying for many of the audience – plans for the harmonisation of financial services regulation throughout the member states. Indeed, in her opening remarks, Apcims chief executive Angela Knight – herself a previous Treasury minister – stated that “Regulation is driving business; no longer is business driving regulation.” And she referred to a recent survey which had disclosed that, among a significant sample of private client stockbrokers, compliance staff had risen by nearly a quarter at a time when firms were shedding jobs overall and trimming overheads to cope with adverse market conditions.

But if regulation was an official conference topic, it was the state of markets that featured in discussions taking place at those social gatherings that surround such events. One speaker, Michael Hughes of Baring Asset Management, did cover the investment outlook. Titling his talk, Investment Challenges in a Difficult Market, pretty much summed up the mood of the audience. He was, though, modestly encouraging – even if he also denied any knowledge of when the bear market would end, or if it had already.

Comparisons with 1973/74 abounded throughout the conference. Michael Hughes was not so sure they were relevant. Like any economist (he had gained his degree originally from Manchester University but had spent time subsequently at the London School of Economics), his talk was peppered with graphs and statistics. The three themes he chose to develop – debt, equity valuations and regionalisation – linked together beautifully but left the audience just a little concerned that the worst was not yet behind us.

Debt, it would seem, remains a concern while equity market valuations (he chose the US as his example) were not far from their long-run sustainable average. So far so good, you may think but the evidence he presented to support the contention that equity markets could return 10 per cent a year compound total return over the next decade also demonstrated that valuation levels were quite capable of dipping below the average. Still, it did at least suggest that the irrational exuberance of the 90s had largely been expunged from the system.

But perhaps his third theme – that regionalisation was taking over from globalisation – carried the most interesting message. It would seem that stockmarket performance is polarising into regions – three to be precise. Europe and North America formed one, Asia and the Pacific Basin another and emerging countries the third. It was in the Asia-Pacific region that he could offer words of comfort. There, they had paid down the debt accumulated during the 90s to the point where it no longer constituted a problem while equity market valuations were undemanding. It was not exactly a recommendation, rather a glimmer of hope for Eastern markets.


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