No Pain, No Gain: 'Shares look set to make steady headway this year'

Click to follow
The Independent Online

It is astonishing how quickly the atmosphere changes. In March, shares were on their knees; now they are showing distinct signs of recapturing some of their old strength, with April's advance the strongest for more than five years. Allied Domecq, a constituent of the no pain, no gain portfolio, illustrates the more cheerful approach.

Not long ago, its shares were near 250p. They have since put on 100p. Admittedly, the price has been helped by a positive trading statement and a successful attempt to instil takeover speculation, but the more cheerful environment has made a major contribution.

Indeed, the rather tired and many times disproved stock market adage of "sell in May and go away; buy again on St Leger Day [this year, 13 September]" seems inappro- priate. My guess is that shares will continue to make steady headway. And I am still looking for the FTSE 100 index to end the year at around 5000.

The growing influence of the European Union (EU), with its seemingly anti-stock market agenda, will not help confidence, with investors witnessing yet another example of Brussels' distressingly ignorant approach to share trading.

Unless there are changes to proposals, it seems execution-only trading will be severely damaged, if not destroyed. The instrument creating this inexplicable and ill-conceived assault on the private investor is an EU investment services directive. As it stands, cost-effective execution-only stockbroking, popular here, will be replaced by a much more expensive nannying process aimed, the EU claims, at protecting inexperienced investors.

Up to 1.5m mostly private investors could be caught by the latest example of Brussels stupidity; some perhaps even priced out of the stock market. The EU worries about green Continental investors but ignores the requirements of experienced players.

Its customary pandering to the lowest common denominator is at the expense of a tried and tested system that has served the more sophisticated British investor with considerable distinction. Yet another indication that the Brits, in commercial terms, are closer to America than Europe.

Private investors like to hunt among small-cap shares, but blue chips should form a part of any investors' portfolio and I have made sure they are included in the no pain, no gain selection. The portfolio has three Footsie stocks, Safeway, Scottish & Newcastle and, of course, Allied.

After a cautious February trading statement, Allied produced a more cheerful interim update, with profits and sales a little ahead of last year. But events in Bermuda, where the Bacardi family has taken its first step towards relinquishing control of its eponymous white rum empire, probably had more influence on the shares. Allied could benefit from a switch from private ownership.

The wine and spirit giant, producing such brands as Beefeater gin and Teacher's scotch, has long enjoyed a special relationship with Bacardi and is said to have been in talks recently with the rum crowd. The view is that Allied, or the US group Brown Forman, maker of Jack Daniel's bourbon whiskey, will form part of any future Bacardi development.

Allied is a poor runner-up to the industry behemoth Diageo. Whether Allied and Bacardi end in the same distillation remains to be seen. Diageo has left the rest of the spirits industry so far behind that further consolidation is necessary to produce a more powerful challenge to the Johnnie Walker men.

My two other Footsie constituents also have been active. Scottish, already under pressure from a mild profits warning, has found the going tough in Russia. The setback comes on top of its surprise decision to sell its 1,450 pubs and a signalled dividend cut. The new chief executive, Australian Tony Froggatt, clearly faces a daunting task.

Safeway remains bogged in what has become the most boring takeover saga of the past decade. Increasing Westminster bureaucracy seems destined to drag out the affair. Trust officialdom to expand what is a decent meal into a veritable feast. But this fiasco is a British creation, nothing to do with the powers in Brussels. Yet.

Looking for credit card or current account deals? Search here

Comments