Mark Dampier: As markets steam ahead, we are watchful travellers
Saturday 30 October 2010
After hitting a low of around 4800 in July, the FTSE 100, along with most other markets, has been moving up strongly, climbing the proverbial wall of worry.
Even September and October, months notorious for their volatility, treated investors well. With such a difficult economic backdrop, I'm sure many are questioning why this should be. Yet most of the problems we see are to do with government and consumer debt.
True, these are worrying issues, but, broadly speaking, companies are in good health having started putting their houses in order almost as soon as the financial crisis hit. Not so governments, some of whom are still procrastinating and inclined to spend more money rather than less. Consumers meanwhile have been gradually getting the message and paying back debt.
One of the main reasons I believe stock markets have been moving up is the possibility of fresh quantitative easing, or QE2 as it has become known. Essentially, quantitative easing results in new money being created and being allowed to circulate in the economy. The idea is to give economic growth a kick-start. I have no particular view whether this is the right or wrong action, but it could produce some interesting consequences.
Given the severity of the financial crisis, it is hardly surprising to see a period of weak growth. It is only natural, and I expect it to continue. Yet politicians and central banks on both sides of the Atlantic seem loath to accept this and are looking around for a cure for the problem. Unfortunately QE is a medicine that hasn't been tested on its patient before. It is debatable whether it will work in the way it is intended, or whether it will produce different, entirely unintended, effects.
It could be, for instance, that it has an impact on financial assets, driving up prices, without any real effect on the real economy. In particular, I suspect QE could be a shot in the arm for emerging markets rather than for those economies implementing QE.
This should not come as a surprise. Money, like water, flows along the path of least resistance. If you can find where that is, you have found your pot of gold. And,if you'll pardon the pun, gold is surely one of those places at the moment, along with other commodities and emerging market equities. These are seen as the most exciting, high-growth areas, so investors have already been turning their backs on traditional Western markets to pour money into these areas.
Financial commentators have picked up on this and I am increasingly seeing the word "bubble" used in conjunction with gold and various emerging economies. I have no doubt that some assets look overbought, but I think calling it a bubble is far too premature.
Gold is rising because of the debasement of currencies caused by QE, and with interest rates so low there is little opportunity cost incurred by holding it. If it doubles I would probably change my mind, but for now I see the price movement as rational rather than irrational. Meanwhile, emerging market equities, whilst not cheap, don't look particularly overvalued.
Next week will see the US Federal Reserve decide on QE2, and markets could have a setback if they are disappointed by the outcome. A well-known market expression goes, "it is always better to travel than to arrive," and I feel much of the QE effect must have been discounted already.
If we do see a correction in the markets I would be a buyer of the dips, particularly in emerging markets and gold. I feel there is at least one more leg to go in this market rally. So I am still a fan of Aberdeen Emerging Markets, BlackRock Gold & General, Neptune Russia & Greater Russia and First State Latin America. Investors will need to keep an eye on valuations and be prepared to jump ship, but in the meantime I think this is a "buy in the dips" market.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
How couples can protect their financial interests when cohabiting
Money alert: Overdrafts at HSBC and First Direct
'Dismal' eurozone data sparks concerns
How to protect your assets if the stock markets begin to head south again
Child Maintenance Service to replace Child Support Agency - but is it better?
- 1 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 3 A third of employers never check job applicants' qualifications, survey finds
- 4 James Foley beheading: Fox news presenter Megyn Kelly annoyed by Ferguson update during broadcast about murdered journalist
- 5 Paul Scholes: Manchester United need five experienced players who can turn round a desperate situation
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Scottish Independence Referendum: Salmond described as 'arrogant, ambitious and dishonest' by Scottish women
iJobs Money & Business
£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...
£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...
£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...
£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony