View the article online at http://citywire.co.uk/money/article/a654754
David Kempton: I’ve sold all of my government bonds
Experienced investor David Kempton is certain investors will ditch bonds to buy shares and has shifted his money into investment trusts.
Only occasionally does any investor get a real conviction, such as I have now, that equities will go up, bonds will go down. Obviously some bumps along the way, but really, in my view, only the timing is in doubt.
Last week I was addressing a group of very savvy West Country investors on the ‘state of the world’ and was surprised by my bullish tones being countered by different views on the UK market.
Our High Street struggles desperately, the housing market is very patchy, Sterling depreciates against even the euro and a weak government stumbles at every turn, even now giving us the dreaded triple dip.
Endless quantitative easing puts money into the wrong hands to be spent on imported goods, hence our balance of payments figures are the worst for 20 years and the man in the street still has no money to spend on the High Street, restaurants or pubs. The weak data, and now uncertainty caused by a drawn out referendum, will probably lose our AAA sovereign debt status.
The FTSE is not the UK
With such apparent gloom, it is important to realise that an investment in UK markets should be judged quite apart from all these issues for two reasons. First, markets reflect values 12 to 18 months ahead. You wouldn’t value a company on historic P/Es (price to earnings ratio) but on projected future growth; markets do the same.
Secondly, an investment in the FTSE 100 is probably 80% international exposure and even the FTSE 250 trends to overseas markets for home manufactured goods.
I continually meet people who say they want to live here since their family and friends are here, but they want their money elsewhere. A general FTSE investment will achieve just that, yet still bring jobs to indigenous corporates.
Reasons to remain bullish
In the US, the housing start figures, the great driver of sentiment, are significantly better than they have been for four years, the ‘Beige Book’ showed growth picked up in December in all regions, car sales are 50% ahead of ’08 and as they go into the fifth year from the financial crisis, there is renewed feeling of enthusiasm in an environment with good demographics, a culture which encourages entrepreneurs in an irrepressible youth, a furious printing of money, irrespective of debt implications.
Then there’s fracking, which will bring an enormous boost to jobs with gas already a quarter the European price.
Like Europe, they can’t raise interest rates (yet) since it would kill the property market, which would kill the banks.
China’s recent economic data have exceeded expectations and equity markets have already risen very strongly this year. Whilst spending 50% of GNP (probably highest ever in the world) on infrastructure, there remains bad social issues and inflation is starting to restrict exports.
Japan is enjoying the honeymoon period under the newly elected Shinzo Abe and shares have performed very strongly as the ‘planned’ devaluation of the yen continues, but further out the country’s industries are struggling to compete with improved quality products from emerging nations.
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