MANAGING DIRECTOR, ARTEMIS
DEBT is the thing: staggering amounts of it, now taken on by sovereign states. And as a result, there’s a strong bear case for investors. But there’s a bull case too.
If you accept that the “debt repayment race” will be won by the least impaired economy, then the UK has a pretty good chance. An experienced US investor visiting London this week has professed to being mystified as to the popularity of his currency. From his perspective, US indebtedness and public finances are on a par with the pariahs.
But if it plays its cards right, the UK has the prospect of emerging with a better reputation. How? Its currency is independent, its economic policy can be adjusted to fit its circumstances and its debt has a long maturity. So it is less likely to be bullied by financial markets. What is more, the UK has a relatively developed tax base. We generally play cricket by the rules. We understand why tax should be paid. And our banking system, although not without its problems, is comparatively transparent.
Contrast this with economies where a savings bank with €45bn of assets is run by a priesthood; where in the suburbs of a certain Mediterranean city the required swimming pool tax is paid by 300 good folk when Google Earth has identified 17,000 pools; where doctors declare €15,000 of annual earnings yet have over a million euros in the bank; and a government where the state uses 626,000 official cars, many of which are Maseratis costing €150,000 each. The UK economy, which is still a large manufacturer, could grow out of its problems. To do so would see UK assets, gilts and equities, become sought after by investors once again. Yet until now, courtesy of some prominent commentators, we seem determined to align ourselves with those countries in the Eurozone entrapped by debt.
Standing back from this and taking a long-term perspective, there is scope for UK equities to do well. Valuations are not demanding, and we have many world-class companies here.
So even amid the debt, let’s think positively. You never know: it might work.