MANAGING DIRECTOR, ARTEMIS
THE Arabic word “shaggan” has no equivalent in English. It means the power some singers, such as Edith Piaf, have to imbue the lyrics of a song with an inexpressible melancholy; a yearning for better times. The shaggan has worked, it seems. As I write, the UK market is well above 5,700 – an almost 7 per cent rise this year. Not only that, but the FTSE is looking calm and confident. A “suckers’ rally” – or a sound and sustainable one?
Seminal reading here is the annual Barclays Capital Equity Gilt Study. It shows that from 1999-2009 the total return from both US and UK equities has been negative. The better news is that 10-year performance has been worse only once (1964-74) in the last 110 years; and that each poor/negative period of 10 consecutive years has been followed by a very profitable one (some 11 per cent per annum, in real terms.) So we are due a good decade. Or will it be different this time?
A critical factor is the relative attraction, or lack of it, of cash. UK interest rates remain at a 316-year low. If you leave your money in cash at current rates, doubling it will take you 6,932 years. That is rather beyond the endurance of what the FSA regards as “long-term investors.” And this is why, in the time you are taking to read this, much cash will have left Western deposit accounts for equities and bonds – hoping that both will go on up.
So one reason stock and bond markets have risen is because interest rates look set to stay low. That is because recovery is weak and economies face huge levels of debt. Yet what even the more reforming politicians talk about, as the election looms, is in effect simply cutting the rate at which the deficit is growing.
Markets are very effective discounting machines. They expect this debt to be dealt with, somehow. Of course there will be volatility, not least because a strong economic recovery would prompt central banks to begin removing stimulus and increasing interest rates. But in Arabic or English the runes, we think, are reading well.