William Kay: With the bears nipping at the heels of the hippos, it's a jungle out there

It wasn't the most exciting prediction the world has ever seen, but my forecast last September that we were entering a hippo market was taken up by Edward Bonham Carter, guiding light at Jupiter Asset Management, and is now becoming a source of solace to a wider audience.

It wasn't the most exciting prediction the world has ever seen, but my forecast last September that we were entering a hippo market was taken up by Edward Bonham Carter, guiding light at Jupiter Asset Management, and is now becoming a source of solace to a wider audience.

I wrote: "The question is whether industrial growth can grow fast enough, soon enough, to take up the running as consumers run out of steam, particularly as they may face modest hikes in interest rates. That is why the bear is still twitching. We are moving into that tricky phase between a bull and bear market, more of a hippo market really, floundering around in the mud, slipping below the surface from time to time, then coming back up."

The reason I say that is becoming a source of solace is that investors, professional and amateur, are rudderless. Despite the recent rally, the FTSE 100 index has gone nowhere since December, weighed down by higher interest rates, actual and promised.

Another leading investor succumbed to uncertainty this week. Robert Talbut, chief investment officer of the Isis fund management group, has retreated from equities. He said: "Equities should make some modest progress during the rest of the year, but our overall impression is that the easy gains are over."

This, however, is positively tame compared with the apocalyptic bearishness of Jeremy Grantham, British-born chairman and co-founder of the Boston-based fund manager, Grantham Mayo Van Otterloo. He regards the 1,000-point rise in the FTSE 100 as the greatest sucker rally in history and says: "There's never been a more broadly overpriced global asset base than there is today - never." One failing you cannot accuse Mr Grantham of is uncertainty.

The Madrid bombs reminded us that the stock market is still vulnerable to shocking events. As Jeremy Tighe, manager of Foreign & Colonial Investment Trust, says in the trust's latest annual report: "The unexpected keeps on happening." If terrorists want to precipitate a bear market to end them all, they simply have to set off a sequence of atrocities on a monthly basis. Short of that, the market has developed the ability to absorb the occasional attack. The reason that 9/11 had such a powerful effect is that there is nothing worse than not knowing where the next hit is coming from, and at that stage it seemed possible that al-Qa'ida would launch more of the same on a regular basis. Happily, that has not come to pass and a pattern has gradually developed which leaves room for rational investment decisions.

Mr Grantham takes the view that the US and therefore the rest of the world's stock markets are being propped up by George W Bush's need to keep the American economy vibrant until November's presidential election. After that, on Mr Grantham's analysis, share prices will be a little like the cartoon cat that walks off the edge of a cliff and stays in mid-air for a few seconds - then plunges.

This seems a long way from our friendly if slothful hippo, sloshing about in the mud. But, as I said at the time, hippo markets persist only while investors are making up their mind whether they are in a bull or a bear phase. Enjoy the present stability while you can: it won't last.

* While attention has re-focused on Japan lately, there is much to said for the rest of the Asian region. It is a beneficiary of the rapidly awakening Chinese dragon, is taking on plenty of outsourcing work for the west, and is developing its own consumer boom.

One way into the region is the Henderson TR Pacific Investment Trust, which is heavily skewed towards China, Thailand and Taiwan. The potential there is enormous: average incomes of less than £1,000 a year in several cases, yet savings ratios of more than 10 per cent of income.

Gilts could add lustre to your Isas

Now we're into the new tax year, Isa has become a dirty word among the fund management fraternity. The season is over, so we are supposed to wait until next January to be prompted into taking up our new Isa allowances.

This is not only arrant nonsense, it is cynically bad advice. Whether you have a lump sum to invest or prefer to drip-feed money in, logic dictates that you should do so without delay so that your tax-protected nest egg can benefit from its Isa wrapper for as long as possible.

Some of the tax relief on dividends has gone, but there is no tax relief at all on dividends from shares held outside an Isa. And this is the last tax year in which you can put up to £7,000 in an Isa.

My inclination is to avoid putting shares into an Isa this year, given the uncertainties I refer to elsewhere on this page. But I jib at the charges levied by bond fund managers when returns are likely to be low anyway.

Gilts can go into an Isa if they have more than five years to run. While their capital gains are tax-free anyway, that is not an issue with most as they are trading above par. Crucially, though, all the interest is tax-free within an Isa.

And index-linked gilts could be a good hedge against uncertainty. The interest is linked to the Retail Prices Index, so it maintains its real value and guarantees a real return. You can buy them at Post Offices, or by phoning the Bank of England on 0800 818614.

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

Suggested Topics
PROMOTED VIDEO
Life and Style
tech

Company reveals $542m investment in start-up building 'a rocket ship for the mind"

News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

Sport
CSKA Moscow celebrate after equalising with a late penalty
football

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

    Helpdesk Analyst

    £23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

    Senior Helpdesk Analyst / Service Desk Co-ordinator

    £27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album