1995 shares vintage proved better than expected

Justin Urquhart-Stewart detects some clues to future trends as he looks back at the investment highlights of the year
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The Independent Online
From uncertain beginnings, 1995 certainly became a vintage year for investment, with the FT-SE 100 rising by over 20 per cent. But did we expect it? Back at the turn of the year there was no great feeling of confidence. The Government was looking insecure again, the stock market had a poor year in 94, and British financial pride was just about to be humiliated with the Barings fiasco. Not exactly an auspicious start.

But there was a springboard of interest for the private investor.The final tranche of PowerGen and National Power turned out sure fire winners, despite the strangely timed comments from the regulator which sent the shares sliding for a short period of time.

Also back in January came the first hints that the regional electricity companies might behave like standing dominoes. The Trafalgar House bid for Northern Electric was doomed but the concept which Trafalgar House had identified was about to be followed up very strongly by others. These Recs had a near guaranteed income, market and assets - but this was not reflected in their share price. Within weeks all this was to change, and the takeover frenzy lasted the whole year.

Domestically things were sluggish. But the market saw there were quality assets at good value prices for the taking. In the financial sector historic names such as Warburgs, Kleinwort Benson & Smith New Court all were taken over, and with the continuing rationalisation of the building societies, you could see the whole sector changing. Watch for this next year as well, with banks, insurance companies and building societies all attempting to form wagon train circles for their own protection.

Hindsight is wonderful, but it is logical that the staggering costs of drug development means that mergers to pool resources are almost inevitable. In 1995 we had Glaxo and Wellcome, Fisons and RPR from France and there will no doubt be others involving Medeva and Zeneca who were also in the fray this year.

As many of these takeovers involved FT-SE 100 companies, they had a disproportionate effect on the index. Confidence did extend further, but speculation was leading the market and I fear to an extent still is. At the time of writing I would see it as being healthy for the market to start just under 3600.

This enthusiasm was a marvellous coincidence for the birth of a newcomer. On 19 June a new stock market was launched, the Alternative Investment Market (AIM). This infant was not just a replacement for other smaller markets or trading rules. It was a genuine attempt to look at funding for growing companies from the customer's view point. And it has worked. To date 113 companies are quoted on it, funds have been raised and as a result jobs created.

In the autumn Tradepoint went live as a rival to the London Stock Exchange. It operates by matching institutional buy and sell orders together. This contrasts with the normal pattern of share trading in the UK through the exchange's market makers - who act as a form of wholesalers. Such direct competition is indicative of what is happening around the world through increased automation. There will be more to come here.

A further advance was the introduction of corporate Bonds into Peps as from 10 July 1995. The attraction of fixed income from sources other than Gilts and Pibs (permanent interest-bearing shares issued by building societies) can only be helpful. But take care here. These are not risk free, and high income does not necessarily balance with high security.

In July the Stock Exchange improved the settlement system in the UK by introducing five day rolling settlement. This may sound horribly technical, but its impact was to push many investors towards transferring their assets to nominees, so their name no longer appears directly on the company register.

Now these can be very useful in the right hands in cutting out paperwork and speeding up payments, but a word of caution is appropriate to investors to ensure that they are not cut off in a nominee account from any company contact. If in doubt speak to your broker or bank and shop around. Next year this question will arise again with the introduction of Crest.

The changes in financial, chemicals and power companies are likely to continue and other sectors will also be affected, maybe water and building materials. The question is can we make every year a vintage year from here on? I very much doubt it - but we can learn to avoid making a pig's ear of it.

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