After what seems far too long a period of leading a somewhat introspective life, last week found me back on my feet addressing a group of IFAs. On this occasion, I was part of a double act, with Baring chief investment officer Michael Hughes providing the serious meat for consumption. Needless to say, I was on my mettle as a consequence.
In preparation, I consulted Gerrard chief economist Simon Rubinsohn. Perhaps it was because he had only just returned from holiday but he was remarkably upbeat, something I have found increasingly difficult to achieve as the FTSE 100 index fails to make any real progress. Overall, his view was that, while we should not expect fireworks, the second half of the year should be better than the first and he considers that the index should finish the year higher than it started.
His belief that equities should outperform bonds accor-ded with Hughes' scenario. It worries me when there is too much agreement around but I must say I found the arguments convincing. The rise of Chinese economic power should do much to balance the decline in the traditional industrial nations. Witness the behaviour of scrap iron. It has been soaring in value due to Chinese demand.
Little wonder in circumstances like these that Baring prefers Eastern equities to Western equities. Moreover, the expectation is for real assets to outperform financial assets, according to Hughes. It seems as though a bout of selective inflation encompassing, among other things, commodities, will provide opportunities for investors at a time when the recovery in economic activity in the developed world is slowing, in part due to the dearer cost of oil. Inflation, though, was unlikely to re-emerge as a serious problem, in Baring's view.
Catching up with the views of other investment commentators, it is hard not to reach the conclusion that many are struggling to say anything overly positive for the market as a whole. The best I can glean is that current conditions favour stockpickers. With so few available that have a long track record, it is little wonder that investors are increasingly interested in structured, guaranteed and “alternative” investments, which naturally includes property. This is one area that Hughes expects to deliver superior terms as a “real asset”.
However, even house prices appear to be stalling, according to the most recent survey from the Royal Institute of Chartered Surveyors. The housing market has continued to del-iver positive returns during the last quarter overall but the rate of increase has slowed. More important, the performance achieved in London and the South-east has at best been a standstill, at worst a modest decline. This may simply be a straw in the wind but we need to watch the health of the residential property market closely.
The real indicator that the game is up in property will, of course, come from a sharp reduction in buy-to-let purchases. Although there is no sign that this is starting to happen, anecdotal evidence suggests that property sales in the home counties have ground to a halt. This may simply reflect temporary nervousness as homebuyers reflect upon the additional costs that higher interest charges will impose. But even a price standstill could deter buyers from adding to their rental portfolios and a ready market for those wishing to move will dry up.