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One day at a time

October, that most capricious of months, is once again providing investors with testing conditions. In 1929, we suffered a stockmarket crash – in October. Black Monday in 1987 took place on October 19. It seems we have to add 2008 to the list of stockmarket disasters that have taken place in October. It was not, with the benefit of hindsight, the best of times for me to announce I was compiling a list of shares to buy but it might yet prove a propitious time to plan such a manoeuvre.

It happened that last week the Investment Summit, organised by sister publication Fund Strategy, took place in Dubai. I was there. So were a number of experienced and seasoned IFAs and investment managers, including several multi-managers. In the time it took for the conference to be held and the delegates to be delivered to, and transported from, the venue, equity markets fell a fifth in this country and the US. The timing was very good or very bad, depending on your point of view.

There was a surreal air to the proceedings as speakers took to the rostrum against a background of turmoil and panic. With the Gulf location, there was an understandable emphasis on oil and Middle East investment. Worryingly, all who opined on the likely direction of the price of a barrel of crude expressed the view that oil would rise in price. In the longer term, they are probably correct but oil was falling as traders positioned themselves to face a major economic downturn.

The pessimists had one clear champion at the conference. Andy Xie, an independent economist based in Shanghai, believed the economic tsunami was on its way. He was bearish on markets although he felt China would weather the storm better than most by virtue of the likely shift to infrastructure spen ding rather than manufacturing for export.

Andy’s energetic presentation included a forecast that the UK economy would shrink by 5 per cent and a warning that Japan should be avoided by investors. As it happened, the Japanese stockmarket delivered the worst performance of all major markets last week, falling by a quarter in just five days of trading. His bearish stance was in stark contrast to that of the SocGen Asset Management team whose workshop theme was built around a valuation argument for Japanese shares.

Interestingly, there were parallels with the current situation in the Anglo-Saxon markets. In 1989, just before the stockmarket crumbled in Tokyo, there were 19 major banks in Japan. Today there are just eight.

Much the same is happening here. The role call of disappearing banks is growing – North ern Rock, Alliance & Leicester, Bradford & Bingley, HBOS – the landscape is changing fast.

The good news is that investors took heart from what is seen as decisive action by the authorities – initially at any rate. Sentiment can turn in a trice and it is impossible to say what the mood will be later in the day, let alone later in the week. But we are all in this together. Confidence may have been shredded but governments need the situation to stabilise if capitalism is to survive.

No doubt all eyes will be on Iceland, where the potential debts of a failed banking system far exceed the GDP of the country. Arguably, Iceland’s problems were not as great a surprise as some other developments, which is why those with deposits may still face problems. By now we may know to rescue an entire coun try brought down by the global financial crisis.

These are exceptional times. Investment planning is virtually impossible in the circumstances in which we find ourselves. In the past, it has been possible to count on the dividend stream from shares to sustain investors while they wait for a recovery in capital value but with banks cancelling dividends, even this plank is threatened. For the time being, investors will need to live each day at a time.

Brian Tora ( is principal of the Tora Partnership


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