View more on these topics

Richard Buxton: Why are investors sitting on the sidelines?

Buxton Richard Old Mutual

Markets are flirting with all-time highs and rightly so. The world – in economic terms at least – is in a better place. Employment prospects are bright, global growth is on the up and credit is readily available. Corporate results, thus far, have either met, or indeed bettered, investor expectations.

This is a far cry from the six months or so ago when the spectre of deflation and the era of negative real interest rates looked set to dominate the economic landscape. What is it that has fanned the economic flames so suddenly?

The Donald Trump bandwagon has rolled into town, with the promise of higher US growth and “phenomenal” tax cuts. And there it looks set to stay for the foreseeable future. But what is stopping investors from joining in the euphoria? What is the reason for their sitting on the side lines, waiting for that crucial pullback that, quite frankly, will not happen?

If you are asking me for possible caveats, here are two. You could point to the fact that US Federal Reserve chair Janet Yellen may have to raise US interest rates faster than expected in the event President Trump’s policies turn out to be more fiscally lax than first imagined.

You could say the fate of the UK consumer might be another cause of concern, with rising inflation eating into wage packets.

But while this is something we need to pay particular attention to, with all the usual ramifications for domestically sensitive stocks, we do not know for sure if the latest weakness in January retail sales was merely a blip or part of a longer-term trend. More evidence is required.

Back to the here and now, and “animal spirits”, as witnessed by the increase in merger and acquisition activity, such as Tesco’s bid for food wholesaler Booker and Kraft’s aborted bid for Unilever, are on the rise. Expect more deals to be forthcoming; a further reminder to nervous investors that large corporate deals act as a support for the markets.

What is more, the reflation trade has continued to buoy those more economically sensitive areas of the market: the mining companies, the engineers and, broadly speaking, financials.

Many are hoping the rally in mining companies, in particular, will fade (mining stocks remain incredibly under-owned and are universally loathed by investors). They continue to hope that defensive, quality growth stocks will have their day in the sun once more. But there is nothing to suggest this will happen.

Recent profits announcements from cyclically exposed areas of the market were encouraging, with miners and banks generating healthy cashflow. The chances of that cash being returned to shareholders in the form of healthy dividends look high. Yet another reason to own them.

Sceptics will remind me I have told them before that nothing goes up in a straight line. They may point to the fact that stockmarkets have risen for eight years in a row. They could also conclude the general removal of central bank stimulus might mean we are due a down year in markets or that the reflation trade may fade.

But the crux of the matter is this. As an investor, if you could only make one decision over the next three years – to buy or to stay in cash – now is time to buy. Do not hang around hoping for a pullback in stockmarkets at a time when global growth is picking up. It is time to get involved.

Richard Buxton is head of UK equities at Old Mutual Global Investors



Neil Liversidge: Tackling the FOS and claims firm culture

As a life-long reader of history I learned at an early age Clausewitz’ first principle of establishing a secure base and applied it when I set up West Riding, taking indemnity commission on protection for the first six months only. Once I had built up a war chest I switched wholly to non-indemnity. On investments, […]

Tapering of annual allowance – adjusted and threshold income

The definitions of adjusted income and threshold income used to determine whether, and to what extent, someone’s annual allowance will be reduced can be confusing.  Here we try to make sense of it all. The annual allowance will be reduced for high income individuals from 6 April 2016.  Our previous article Tapering of annual allowance […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm