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New world symphony

The manager of the £1bn Murray International Investment Trust believes emerging markets have decoup led from the West and can continue with impressive growth

Now that the holiday season is over, with children back at school and share traders once again concen – trating on their screens, it seems a good moment to take stock of the market. Last week was encouraging for equity investors, although it was the US that was driving sentiment rather than good news on the home front. Indeed, gathering fears of a slowing recovery sent the pound into reverse. But shares staged something of a recovery.

It was useful to be able to canvas the views of Aber – deen’s Bruce Stout. It happened that I was unable to attend this fund manage – ment group’s annual conference in Aberdeen, so finding the manager of the £1bn Murray International Investment Trust addressing a number of JM Finn’s investment people was something of a plus. The message he delivered was mixed but encouraging nonetheless.

Such is the regard in which Murray International is held that the shares stand at a premium to asset value, despite new shares being issued regularly to satisfy investor demand.

Given that the recently published interim results disclosed a healthy outper – formance of the benchmark index and an increase in the dividend of more than 20 per cent, is it any wonder they are so sought after?

Bruce is an experienced investment manager who acknowledges that things can change and the unexpected occur. He is, though, mightily encour – aged by the way in which the so-called emerging world seems to have decoupled successfully from the over-indebted West.

He believes that Europe, Japan and the US will continue to experience a prolonged period of sub-trend economic growth but this will have little impact on the growing consumption of nations like China, Brazil and India.

Those companies selling into these nations are experiencing buoyant trading conditions and are able to raise their dividends to shareholders – an important factor in Bruce’s share selection criteria. With government bonds yielding less than 3 per cent in this country, just 2.5 per cent in America and below 1 per cent in Japan, the case for buying equities looks sound. But these low yields do paint a picture of investor concern which should not be ignored.

The main risk, he feels, is that governments will shy away from the pain of correcting an overborrowed situation and return to quantitative easing too swiftly.

With yields this low, little risk is priced in to the very bonds the West was relying on the cash-rich emerging coun tries to buy to finance their deficits. Printing money could frighten away the very inves tors the developed world needs to maintain an even keel.

And there are risks in the corporate world, too. We know from the better than expected results season that companies have acted remarkably swiftly to trim waste and rebuild balance sheets.

Balance sheets now appear so strong in some cases that they are allowing a surge in merger and acquisition activity to develop. If boards pursue this approach, rather than use their recently acquired strength to finance capital expenditure, then he can see value attrition among the predator businesses.

It was, though, an upbeat and realistic assessment of the global market from an experienced manager with his feet well and truly on the ground. The trust remains geared into the equity market. In the past, it had held bonds, but he struggled to find value in them now, following a period of strong performance.

It encouraged me to believe the real risk remained being out of the market. Bruce’s comments also reminded me how much the world has changed in a comparatively short period.

Brian Tora is a consultant to investment managers, JM Finn & Co


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