|Cycles and the Chinese|
The cyclical global recovery continues apace. The first part of the cycle of any recovery, after a recession, and certainly after a global recession of the magnitude which we experienced in 2008, is a fairly steep recovery in market values. It would seem that we have pretty well arrived at the end of that part of the cycle.
A contact of ours, who one might call “the Sage of Bedfordshire”, insists that five years is about the right period of time for this initial revaluation of stock markets. He also points to the risk of global destabilisation due to a magnification in the “haves” and “have-nots” in wealth ownership within society today. He has a slight concern that there is a risk of global war, because historically this is the method by which post-recessionary unemployment has been resolved. In our view, one would be hard pressed to persuade the more modern society of today’s northern Europeans to enter into any such wholesale loss of life. His rejoinder, born out of eighty years of life in the international arena, and not just a little historical fact and justification, was that we should not necessarily include the Americans in that presumption.
So, in our opinion, the first great surge in the cyclical recovery of stock market values has now been had, and the next stage of the cycle is a prolonged recovery at macroeconomic level, with a corresponding, but much gentler, increase in stock market valuations. This is where the “man in the street”, whoever he may be, begins to feel better about his lot in life, and the artisans of our society, the builders, the plasterers, the electricians, the plumbers and the roofers, begin to see their work-books fill up. Indeed, within our own microcosm of the Global Economy, we note that the really good ones are now “pulled out of the place” and yet others still struggle to find business.
This second part of the recovery cycle may well take several years to play out, and we sincerely hope that it does – we should enjoy the journey. Last year’s markets were predicting an increase in corporate earnings which has yet to be substantiated in the figures on the bottom line. In effect, in stock market terms, we are probably slightly ahead of the game, and this may well mean that the markets could continue to move sideways for some months yet. Earlier this year we predicted a FTSE level of 7000 “ish” for the end of 2014, and whilst we have no particular reason to review that figure, if we were going to do so now, we would say possibly slightly less.
During this next period of a gentler revaluation of stock markets, there will obviously still be periods when markets race ahead, and periods when they regress. During these times it is absolutely essential that all investments are placed with those managers who have a proven expertise in stock picking, and are able to make more than the market on the “up-sides”, whilst losing less on the down-sides. It may well be that, in order to track into this superior performance, we have to switch fund managers more regularly than has been the case in the last three or four years.
What of China, and the Asian emerging economies?
This is quite a different World compared to just a few years ago. As we have said before, the population of India is about to catch up with China’s at an almost incomprehensible 1,300,000 million people, which in turn means that India and China collectively represent over 1/3rd of the entire population of the World,. They are all inexorably moving into what we might call developed economies. More televisions and cars! Another throw away statistic – Singapore is now the most expensive city in which to live, in the entire World – not London or New York.
And what is the Global village?
We were looking at a property investment in Leicester the other day, property being usually described as low risk. Certainly property is deemed to be less volatile than international stock markets such as China where there are market risks, currency risks, and market capitalisation risks. This particular property was being developed into 150 self-contained “student lets”, which would rent for approximately £7,200 per year each. We remarked that this was quite expensive for “student lets”, as we know people who have recently been through University and their accommodation seemed to run at about £5,000 per year. Ahh-hah! … We were told, these properties were being specially built for the Chinese student market. Apparently they prefer brand new self-contained student apartments, and are they are quite happy to pay more for that extra comfort and privacy. Furthermore the apartments concerned have largely already been taken up, although they have not even been built yet. So, in reality, is this low risk property investment really an investment in China, with all the inherent risks which that will entail? The global village means that things are not necessarily all that they seem at first glance, even a property in Leicester which is intended for student accommodation.
The above are the personal opinions of Law Firm Limited; on 25 April 2014 it is intended to give an insight into the current situation as they see things at the current time. It is not intended to be nor should it viewed as advice and no action should be taken or action refrained from being taken based on its contents.
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