21 May 2014

Market comment: a personal view 21 May 2014

Markets have retained their more positive stance, despite little sign of any resolution in any of the world’s trouble spots


Not all in the garden is rosy, of course. Fears abound of a property bubble deflating rapidly to leave a new generation of negative equity home owners, though in truth it is hard to see the surge in house prices as anything other than a Londoncentric phenomenon. True, other adjacent regions have experienced a knock-on effect as people cash in on their overpriced London homes to move to other more moderately priced areas, but in some places the thought of house price inflation is still met with incredulity.

Still a shortage of new homes does exist, so if the effect of rising prices encourages new building, then some benefit should be gained. Certainly, both local and central government are endeavouring to address the problem created by a collapse in house building that followed on from the financial crash – now nearly six years behind us. And new rules governing how mortgages are advanced should prevent the worst excesses of previous bubbles being repeated, not that the Bank of England is entirely convinced this will be sufficient.

Remarkably we appear to be learning to live with a more stable, low growth, low interest rate environment that could well remain the legacy of the unwinding of the over lending that characterised much of the early years of the new millennium. At the very least it appears to have made governments grasp the nettle of the demographic time bomb that exists in the developed world, where a falling birth rate and aging populations could under- mine society. Painful it may be, but nobody should doubt the necessity of controlling social spending.

Meanwhile, on some measures, China appears to be overtaking the US as the world’s largest economy. Apparently, if you measure China’s contribution to the global economic cake on a purchasing power parity basis, rather than simply converting their GDP at the ruling exchange rate, China is on a par with America, admittedly with a population four times greater. It goes to show how much is changing. I was always told to distrust anyone in the investment world who said this time is different, but the future looks increasingly unpredictable to me.

Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn & Co. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn & Co. A version of this article may appear elsewhere in the press


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