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David Kempton: my path through the euro wreckage
Awaiting a major 'euro event' to clear the air, David Kempton reveals the funds, trusts and shares he's willing to hold.
A major European shakeout is looming, and until it passes I'm going to watch from the sidelines as world markets swing violently, influenced by every barely credible statement from our leaders. My prediction is that the future will be shaped by a major euro event, followed by a bout of powerful inflation.
While this plays out I'm still sitting on my hands, with cash – all in US dollars – forming a larger proportion of my portfolio than I can ever recall.
All talk, no action
Mario Draghi, the head of the European Central Bank, says ‘we will preserve the euro, whatever it takes’, but how? No details were supplied, and Italy's €1 trillion of debt is only rising. So where can that sort of money come from? The prosperous industrial areas north of Rome are drowned by the debts of the south of Rome. The Spanish regions fight among themselves while Catalonia is asked to bail out the rest.
I despair of our politicians as they move inexorably from one gaffe to another. Many French people despair of president Francois Hollande, and some are leaving the country, terrified of the unknowns which lie ahead. The non-doms now rent houses, don’t buy cars and don’t rent fixed-line phones, such is the fear.
US numbers have taken a serious turn for the worse recently. My own favourite indicator is the American housing figures, which I think hold the key to any improvement. But these do not bode well at the moment.
Only German chancellor Angela Merkel commands respect as she continues to steer her country through the minefield, attempting to keep the euro alive while placating her own electorate.
Biding my time, playing it safe
Meanwhile, I am building a buying list and am bursting to get back in with some exciting stocks, but fear we will see them fall before we get clarity, which will probably not be until the fourth quarter or perhaps even into early 2013. I maintain some holdings, as it is too risky to be right out of the market. My biggest positions are in collectives where I can rely on a manager to watch events 24/7 and respond accordingly.
I've kept my holdings in Murray International , Finsbury Growth & Income , Hawksmoor Vanbrugh (I’m a director of the management company), Newton Asian Income , CG Assets Dollar Tips Fund and the M & G Inflation linked Corporate Bond fund.
More cash has gone into HICL Infrastructure , since I think infrastructure funds offer a safe source of high income, with inflation built in as the underlying rentals are mostly inflation linked.
Sticking with resources
I have also held all my resources stocks, some of which have halved in value, as cautious investors have fled to safer havens, leaving behind some stunningly cheap valuations. Their time will surely come again.
I remain mindful of the risks, of which the hardest to read is probably resource nationalisation, where sudden taxes, royalties, enforced partnerships or other means of the host country taking a slice, seems to have become an unpredictable feature in the emerging world. One can have some sympathy with this, but the unpredictability makes it hard to assess a company’s net worth.
I have held on to my oils too, but do worry about the new world of US energy self sufficiency. Nobody seems to have factored in that the US has enough cheap gas now for the next 100 years, and may even become a net exporter of gas and oil, killing any thought of nuclear development, which is now uneconomic.
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In association with Aberdeen Asset Management
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- Murray International (Ordinary Share)
- Finsbury Growth & Income (Ordinary Share)
- HICL Infrastructure C (Ordinary Share)
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