Jeremy Warner's Outlook: Retail investors make return to the stock market. Is this the beginning of the end?

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The Independent Online

Stock market lore has it that when the retail investor arrives en masse, it's time to head for the exit. With the FTSE 100 regularly closing at new five-year highs - it's risen by nearly a 1,000 points over the past six months - the great British public has finally woken up to the fact that equities have for some years now been offering a superior rate of return to housing. All of a sudden they are piling in like lemmings.

As households rediscover the will to save, equities have become the investment of choice. After the famine of recent years, fund managers report a veritable tidal wave of retail money heading for the stock market. This is a phenomenon that generally comes to be seen as marking the beginning of the end of the bull market. Is that the message to be drawn this time around?

Certain sectors of the market are beginning to look more than a little frothy. There is also a queue of IPOs as long as your arm building up to tap investors' new-found appetite for equities, which in itself is nearly always a bad sign. Corporate profits may soon be under pressure too, with rising interest rates and energy costs compounded by a slowdown in consumption.

Yet bull markets need some kind of a trigger to bring them to an end, and at this stage it's hard to see what that might be. Bar a nuclear strike on Iran, or some such other madness, the present surge in stock prices may have further to run yet.

Now Dubai joins the stock exchange soap

The story so far. Deutsche Börse wanted to merge with the London Stock Exchange but was thwarted by anti-German feeling. Undeterred, Deutsche returned for a second bite at the cherry but was repulsed after hedge funds sacked the chief executive.

The London Stock Exchange was meanwhile flirting with Euronext, Nasdaq and the New York Stock Exchange, who were all also flirting with each other, only not Nasdaq and the NYSE, who hate and despise each other so much that they would sell their own grandmother to prevent the other getting its hands on the LSE. Confused? You will be after the next exciting instalment of Soap, an everyday story of stock market folk.

The latest episode has the Dubai stock exchange emerging as a 1.7 per cent shareholder in Euronext. This new addition to the cast of characters could hardly be more incredible had it come straight out of the script for Footballers' Wives. The grandly named Dubai International Financial Exchange may be backed by the Maktoums, which presumably gives it an open chequebook to play with. It may also boast a former chief executive of the Stockholm exchange as its head but it has only 15 listed investments to its name.

Still, DIFX seems determined to take its place at the table. Whatever its aims and ambitions might be, they are plainly big, for it already presumptuously describes itself as "the world's fastest growing financial centre". The Euronext investment apparently "fits in well with our ambitions for growth".

And the LSE? Who knows, Dubai might come for the LSE too. The plot is already unbelievable enough. Such a farcical endgame would be almost fitting.

AB Foods: a slight case of indigestion

The honeymoon already appears to be over for George Weston, less than a year into the job as chief executive of Associated British Foods. AB Foods is one of the last big conglomerates left quoted on the London stock market. But for the controlling Weston family interest, it would by now almost certainly have fallen prey to the modern fashion for break-up into more "focused" industry units.

Yet AB Foods has also been able to justify its existence as an eclectic mix of baking, sugar, animal feeds and retailing interests on the grounds that it has actually managed to be rather successful in all of them. Not for AB Foods the usual pattern of conglomerate trading, when success in one business tended to be matched by failure in another; to the contrary, AB Foods would routinely fire on all cylinders.

Up until yesterday, that is, when Mr Weston announced both that the transition to the European Union's new sugar regime is proving more costly than anticipated and that the Kingsmill baking business was suffering a "bad year" due to intense competition from RHM in bread making. Bird feed sales are suffering too, thanks to avian flu in the Far East.

Were it not for another sparkling performance from Primark, the group's discount retailer, things would have looked even worse. As it is, first half profits are marginally lower, and the group warns of a further fall in the second half.

As one of Europe's most efficient sugar producers, AB Foods should eventually emerge a winner from the EU's sugar reforms, which involve the closure of great swaths of capacity so as to give poorer nations a chance to export to Europe.

The company has always warned that there would be some cost in getting from here to there, but in the event it is turning out to be rather more painful than expected. Mr Weston anticipates turbulence for at least another couple of years. As for the perennially competitive baking market, urgent remedial action has had to be applied.

No one's yet suggesting that these troubles are enough to shake the Weston dynasty. With 55 per cent of the company, other shareholders must content themselves with being along only for the ride; the Weston family calls the shots. Yet the ride may be a bumpy one from here on in.

Ryton: the problem with foreign owners

The unions are right about Ryton: it wouldn't have happened in France. This is not just because it is easier and less costly to close a plant and lay off workers in Britain than it is in France. Ryton is also paying the penalty for being run out of Paris. When competitive conditions force rationalisation, it is always the outlying, peripheral interests that get chopped first.

In recent years, Ryton has been starved of investment, leaving it wholly dependent on just one, ageing model, the Peugeot 206. It never seemed very likely that when production of the 206 came to an end, it would be replaced with something else. If that had been Peugeot's intention, the retooling would have started ages ago.

The main production facilities in France have by contrast been equipped to make them "platform plants" capable of producing both Citroens and Peugeots. This has underwritten their future in a manner which has been absent at Ryton.

It is a similar story at most mass car producers, and indeed in most heavy industries. The cutting edge, value-added investment, is generally made on home turf first. Thus it is that all of Toyota's investment in hybrid and fuel cell cars has so far been concentrated on Japan. Even in this age of globalised companies, where production gravitates to the lowest cost areas of the world, national loyalties and favours die hard.

This may ultimately be quite bad news for mass car production in the UK. Outside a few niche producers, Britain's motor industry is now wholly foreign owned, and though there are some examples of outstanding industrial success within it - most notably the BMW-produced Mini - it can be easily sacrificed in the drive for ever more efficient production.

This may be less so in the case of the Japanese transplants than their European and American counterparts, since Japan has largely chosen Britain for what a former Peugeot chief executive called its "aircraft carrier" for attacking the European market. Yet there will be no national loyalties to save these plants if tough choices eventually have to be made. What remains of Britain's fast depleting industrial base is these days largely outside the control of indigenous forces and therefore much more expendable than we'd like to imagine.

j.warner@independent.co.uk

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