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Investment view

One anniversary is now out of the way. We have another this week. It was 10 years ago that sterling was forced out of the Exchange Rate Mechanism, netting hedge fund manager George Soros a profit greater than some countries&#39 national debt. It is an anniversary worth remembering, if only to reflect on how things have changed.

Norman Lamont was the hapless Chancellor who found that market forces could not be turned aside by Government intervention. At the time, it seemed as though our ejection represented failure, yet with hindsight we know that it helped secure our competitive position, allowed Britain&#39s economy to grow faster than the rest of Europe and laid the foundation for us to enter a period of unrivalled prosperity. If you seek evidence of how little control that Governments exercise over their economies, you need to look a little further.

Currencies were once a big deal when it came to the business of managing money. Indeed, it is only comparatively recently that we have been able to trade currencies freely. When I started in this business, we were subject to what was known as the dollar premium. It was a disincentive for people to buy foreign currencies. There was even a penalty when you came to convert back to sterling. A quarter of the dollar premium had to be surrendered to the Government.

Needless to say, investment managers created innovative means of circumventing exchange control regulations. Back-to-back loans were used to great effect by investment trusts in particular. It hardly took the risk out of investing abroad but it made it cheaper than would otherwise have been the case.

It was Margaret Thatcher who dismantled the old exchange control system. Already, pressures were rising for greater liberalisation in currency markets. The limits that existed when I first travelled abroad – you could only take £50 worth of foreign currency when taking a holiday – were abandoned. These days, we hardly think twice about popping into the bank to buy some euros to spend on one Costa or another.

Currencies can, of course, undo the best-laid plans of investment managers. Buy a foreign share which rises in a currency which devalues by a similar amount and you might just as well have not bothered.

However, excepting that the strong dollar has enhanced the performance of US markets in international terms,while a weak euro has added to the pain felt by Continental investors, foreign currencies play a far smaller role than used to be the case.

In part, this is due to the internationalisation of business. Many managers now allocate assets on an industrial sector basis while companies frequently list their shares on more than one exchange. It is a global investment world these days.

Last week was not the most comfortable in stockmarket terms. August had ended with a whimper, although the earlier rally in what was otherwise thin trading had at least brought us back from the depressed levels reached in July.

The profit-taking that took place while I was freezing halfway up a mountain in Switzerland, had started to reverse as the anniversary of the terrorist attacks approached. But sellers were soon back in the ascendancy and the outlook as we move into autumn looks as obscure as ever.

It is ironic that one of the more significant corporate events of last week was linked to September 11. British Airways finally lost its place in the FTSE 100 Index, a position that it had held since it was privatised back in the 1980s. It had only just sunk below the point at which discretion is denied the index compilers but in truth there is little of real importance in the fact that it is now a member of the FTSE 250. Still it is sad to see Britain&#39s flag carrier consigned to the ranks of the also rans.

Air travel has recovered from the depression that hit the industry in the wake of the terrorist attacks but it has been the low-cost carriers that have taken up the running. Even this is an important signal.

Consumers may be spending still but they are much cannier in the way in which they part with their money. No wonder earnings&#39 visibility is so poor. No wonder, too, the market remains so uncertain.

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