Mark Dampier: Opportunities still to take in 'impossible rally'

The Analyst

Stock markets across the world started 2013 in fine form. The bears and soothsayers among us have suggested this is a final fling. I'm not able to call it either way. It is worth noting though that this bull market, which began in March 2009, has been referred to as the "impossible rally".

On 9 March 2009 the Dow Jones stood at 6,547.05 and the S&P 500 at 676.53. Some leading commentators were suggesting that the S&P 500 could go below 500 points. Instead, global stock markets rallied strongly. In sterling terms and with dividends reinvested the S&P 500 is up 124 per cent since 9 March 2009, and the FTSE All Share 116 per cent. Yet given the turbulence of the past few years it doesn't seem this way, which is why I think it is called the impossible rally.

Global economic data has been consistently poor. Half the world has been mired in what could be called a depression. The UK and eurozone don't look in better shape now than four years ago. Investors have simply not believed in the rally.

Discretionary fund managers and private investors alike have been caught out. Most have been highly cautious. Either they have held high levels of cash, standing by as rates on cash deposits fell further, or defensive investments.

The latter, to be fair, have performed reasonably well. The average investment grade corporate bond fund has achieved equity-like returns, growing by almost 50 per cent since March 2009. Yet many investors have been on the sidelines fretting over a break-up of the eurozone, Chinese economic growth slowing, US fiscal problems, or geopolitical tension in the Middle East. These risks have not gone away, but there has been a gradual diminution.

This has been coupled with increased corporate strength. Throughout 2008 and 2009 many companies, fearing Armageddon, reined in costs and strengthened their balance sheets. (If only governments had done the same!) This means many companies are cash-rich, and we are starting to see this feed through to investors via attractive dividend growth and special dividends. The only thing missing is increased merger & acquisition activity, which I think would really spur stock markets on.

Looking ahead you can't rule out a correction. That said, I think any falls could be shortlived. Those on the sidelines who missed recent gains could be desperate to get in, meaning the market could display further strength rather than prolonged weakness. Against this background global growth is creeping up and interest rates show no sign of rising. Plenty of money is being pushed into the system via quantitative easing and the Europeans haven't even started printing money. Unless there is an external shock or "black swan" event I think markets will continue rising.

As for funds, some of those I mentioned when economic headwinds were strongest have performed well. In Europe, the Henderson European Special Situations Fund springs to mind. Richard Pease, the manager, continues to favour companies that can continue growing regardless of the political or economic environment, including those increasing sales in emerging markets.

In Japan, Invesco Perpetual Japan and GLG Japan CoreAlpha have rallied strongly from their low points. Both hold large, export-oriented companies which benefited from recent currency weakness. I don't think valuations look stretched yet.

The UK, on the other hand, is written off time and again by home-grown investors. Perhaps they are too close to see companies are making hay and recent sterling weakness could surely be positive for our exporters. Funds such as Old Mutual UK Dynamic Equity, Standard Life UK Equity Unconstrained and Marlborough Special Situations could merit further investigation. All three have managers I rate highly at the helm and together provide exposure to larger, mid-sized and smaller firms.

I continue to favour using short-term stock market weakness to top up favoured investments. The past few years have shown the hazards of sitting on the sidelines, and for investors able to take a long-term view and some risk with their capital I still see opportunities ahead.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
PROMOTED VIDEO
News
Happy in his hat: Pharrell Williams
people
Arts and Entertainment
Stella Gibson is getting closer to catching her killer
tvReview: It's gripping edge-of-the-seat drama, so a curveball can be forgiven at such a late stage
News
Brazilian football legend Pele pictured in 2011
peopleFans had feared the worst when it was announced the Brazil legand was in a 'special care' unit
News
i100(More than you think)
Sport
Brendan Rodgers seems more stressed than ever before as Liverpool manager
FOOTBALLI like Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
News
Phyllis Dorothy James on stage during a reading of her book 'Death Comes to Pemberley' last year
peopleJohn Walsh pays tribute to PD James, who died today
Life and Style
Dishing it out: the head chef in ‘Ratatouille’
food + drinkShould UK restaurants follow suit?
News
peopleExclusive: Maryum and Hana Ali share their stories of the family man behind the boxing gloves
Arts and Entertainment
John Hurt will voice Prince Bolkonsky in Radio 4's War and Peace
radioRadio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Extras
indybest
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Argyll Scott International: Service Desk Analyst

    £20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

    Argyll Scott International: 2x Service Desk Analyst

    £20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

    Recruitment Genius: Senior Execution Trader

    £30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...

    Citifocus Ltd: ACA - Financial Reporting

    £Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game