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Investment view

My journeys around the country give me an insight into what investors and their advisers are thinking. Take last week. London, Ipswich, Nottingham and Birmingham all featured. Seminars and meetings abounded and the feelgood factor appeared to be holding well among financial advisers. Yet the take-up of portfolio management services still lags the expectations we had at the beginning of the year. With markets looking generally healthier and economic numbers on course, why are people reluctant?

Two themes emerged. First, for the sophisticated investor, the build-up of debt was causing grave concern. Sovereign, corporate and personal debt all seem to be rising in the developed world. At best, this leaves economic activity vulnerable to a rise in interest rates but it is hard to see Western economies performing without the stimulus of borrowed money.

In Europe, it is clear that deficit financing is viewed as the only means of kickstarting the moribund economies of France and Germany. This is causing the IMF concerns, let alone the European Commission, which is seeing the stabilisation agreement flaunted by France. Yet the French government believes it has little alternative. Given the howls of rage that emanated from the population when some comparatively minor changes to ease the cost to the state of maintaining the welfare programme were announced, it has a point.

In the UK, personal indebtedness is viewed as a timebomb. Low interest rates are encouraging people to borrow, with remortgaging to release cash more popular then ever. This money is being recycled into the economy, allowing Gordon Brown to claim the UK&#39s economic performance continues to outstrip the eurozone. But what if interest rates start to rise? The consumer slowdown could be swift and damaging.

My mind goes back to the summer of 1998 when the Asian debt crisis, Russian bond default and collapse of hedge fund manager Long Term Capital Management sent a tremor high in the Richter scale through financial markets. However, the speed with which Asian economies, business and individuals tidied up their balance sheets was remarkable. Today, these countries are leading the world growth stakes and are seeing an increasing flow of capacity from the developed West that now extends into the service sector as well as manufacturing. It strikes me that the growing prosperity these business flows will generate may yet provide salvation for the capitalist ideal.

The second theme that emerged was of the alternative investment proving so popular today – National Savings. Recent figures showed that money which once might have gone into equity or bond markets is ending up in premium bonds or National Savings certificates. For higher-rate taxpayers, the attraction of a tax-free income from the monthly wins that seem assured by the higher personal limit of £30,000 must appear a no-brainer. If my experience is anything to go by, though, the rewards are less than you expect.

What seems to be happening is that traders are back in the market but long-term investors are still fighting shy. Given that markets appear well up with events, it is hard to try to persuade them otherwise but if the US continues to deliver good news, we could find ourselves wishing we had been more aggressive. With higher interest rates likely to be a consequence of higher inflation – which may be no bad thing -this looks like an autumn to buy on bad days.

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