City Talk: Is this the calm before the fall?

It has been a subdued stock market, as election blues take hold. Investors are taking a back seat for the weeks ahead, and volumes are low. Two weeks from now, we will know if we have a new government under Labour, or whether John Major has performed a remarkable act of escapology.

Either way, the market should be waking up to the fact that whoever wins, an interest-rate rise after the election must be a foregone conclusion.

Here the arguments about the future direction of the stock market become more complex. The received wisdom is that a rate rise will see share prices fall. True enough, as the recent interest rate increase under Federal Reserve chairman Alan Greenspan demonstrated.

But any increase, the conventional wisdom also runs, will see sterling propped up at its current uncompetitive level and will keep sterling-sensitive stocks under the cosh. In other words, the next rise could create a double- whammy effect, as blue chips are marked down across the board, with the big exporters suffering even greater declines.

Against this, is the general perception of what a Labour victory may mean. Barely the width of a cigarette paper separates the two parties on economic matters, or so it would seem. In any case, like it or not, for any advanced open economy, the party in power is hostage to the view of international forces way beyond its control.

However, it seems a safe bet that the present gains in sterling will not be sustained indefinitely. Too many companies are hurting, and there will be an inevitable fall.

Overseas investors are more likely to be long-term sellers of sterling- denominated assets - equities and gilts - with interest rates rising.

Tomorrow morning, savers with the Alliance & Leicester building society will see their former mutual society's shares listed on the Stock Exchange. On Friday, IG Index, the specialist City betting firm, said its clients were betting on the shares closing at over 528p - way, way ahead of most earlier expectations, which saw a range from 385p to 515p.

That leaves the shares trading at a premium to banking peers. Should savers sell, and reinvest the proceeds in something with better growth prospects?

The dilemma is a tough one for shareholders, who are spoilt for choice: A&L would make a tasty meal for a determined predator, who would have to pay an even heftier premium. And notwithstanding the way demand seems to have outstripped supply in the auction conducted by Cazenove on Friday, A&L should be rated a good growth stock, able to maintain annual dividend growth of 10 per cent a year.

It also has pounds 1.5bn in surplus capital which, if it is feeling generous, it could feed back to shareholders, while there is ample scope for cost cutting.

On the football front, Aston Villa bounced towards the market, with a price tag of pounds 11 a share, to value the club at pounds 125.9m.

This is six times forecast sales - a premium to both Manchester United and Newcastle. As any fan knows, this reverses the order of these clubs in the Premiership League table. Surely some mistake?

Given the insatiable appetite of fans for shares in their clubs, probably not, but if you are looking for a serious football investment, do not go for Villa at this price.

Problems continue to dog the water utilities, whose forays overseas have not won undiluted praise from their shareholders. The race to expand overseas had all the classic hallmarks of management left unfettered after privatisation, and with more money than sense. After all, if you were about to embark on investment overseas, would you choose countries like the Czech Republic or Brazil as the place to test your appetite for overseas expansion?

Anglia did, and is about to pay the price. After a report by our daily sister paper, it is slowly emerging that the company is likely to make a provision of up to pounds 20m over these ventures when it reports its results next month.