Even though economic data is leading us to believe that global economy growth might be slowing, share prices have been picking up in this country. The resurgence in investment activity is tentative but the signs are a little more comforting.
It is too early to say we are about to break out of the trading range that has hemmed us in for the best part of a year but it is encouraging that buyers are returning when the news elsewhere is so downbeat. August was a poor month for the high streets and a survey suggests the feelgood factor has faded fast all around the country. Stagnating house prices and dearer money seems to be driving consumers into their shells.
Markets should anticipate events, even though they react to news in a spontaneous, and often emotional, fashion. The optimists will read into the late summer rally the belief that the interest rate cycle is close to its peak and that any global economic slowdown will be short-lived. If that is what is happening, then we can reasonably expect to see shares break out upwards. I feel it is too early to make that call.
Taking the parochial view, the slowdown in consumer spending must be a worry. Our economy is consumer-led, so if people spend less the economy slows. Even the public sector, which has been particularly robust, cannot take up the running indefinitely. Higher public spending has to be financed by borrowing or higher taxes. Higher taxes will place more pressure on consumers while borrowing, both personal and governmental, is becoming a real issue.
Looking at long-term trends, we appear to be coming out of a period of disinflation that lasted more than two decades and matched the previous inflationary period almost exactly in length – a worrying coincidence.
It is too early to determine if the new trend will be for inflation to return or for a period of stability. The latter looks the most likely and will generally be welcomed by governments and central banks but it means that investment returns will be muted while debt will not be devalued by a rising cost of living.
There is money around for investment. Not all the boom in buy to let has been financed through borrowed money. At the more sophisticated, monied end of the market, the appetite for private equity and hedge funds is apparent through the exponential growth of these two sub-asset classes.
Finding the measure of the large number of mass affluent around the country will be my task this autumn, starting in the West Country. This week, I am in Exeter and Truro, talking to IFAs. Last week found me in Cornwall at one of the AITC roadshows. I find these particularly helpful as the very nature of the database they use for attracting attendees encourages DIY investors. There were plenty of them at St Mellion too.
By and large, I found the atmosphere upbeat. People want ideas and were happy to attend to find them, even though investment trusts have disappointed recently as discounts have widened. This does, of course, provide opportunity and this is what these investors were seeking.
One of the most interesting aspects of these roadshows is the question-and-answer panel session. One of the questions was, “Why don't advisers recommend investment trusts?” Answers on a postcard, please.