Tips and views from a City legend
10th April 2015 10:41
by David Buik from ii contributor
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10 share tips from a City legend
What shares would you buy right now?
I'm not an analyst, but Panmure likes four sectors at the moment; leisure, insurance, media and drugs. We are more enthusiastic about drugs and biotech because the level of M&A in the sector has already been substantial, and is only going to get better. I would flag up as a company that failed to bed down with AbbVie last year, but is always going to try and get a better drugs stream. We also think, from a very low base, has a good chance of improving its lot in life.
To insurance, we like and because they are incredibly well run. Our analyst Barrie Cornes still maintains his love for them.
The other sector M&A-oriented is media. Keep an eye on , Sky (SKY), and because there are signs that the economy over here is really starting to select another gear, coupled with the fact that there are always people looking to put telecoms, mobiles and television together. So, watch this space and don't miss out.
Finally, leisure. With oil at $50 a barrel or less and the euro falling out of bed, if the likes of and can't make money in the next six months out of desperate holiday makers in the UK, they are never going to.
Are there any stocks, or sectors, you would avoid?
I am very disenchanted with banking. We had a shocker in 2007/2008, billions of pounds were lost and we ended up owning big chunks of two large banks. Our regulation wasn't top drawer so we have imposed very tough regulatory controls. We have a new Governor of the Bank of England, who I think is doing a very good job. Andrew Bailey who is in charge of Prudential Regulatory Banking is an excellent person. Their reputations are on the line so they don't want to take any risks. Therefore, the UK banks are clean out of investment banking, which I think is a tragedy.
has a presence in New York now, very little in London and is going to cut its people from 18,000 to 4,000. Lloyds doesn't have an investment banking arm and has had its knuckles wrapped, so they will work from Hong Kong. This leaves the London banks denuded of investment banking. We have basically said to JP Morgan Chase, Deutsche Bank, UBS, "help yourself to our business". I don't see where the earnings are going to come from.
I am disappointed. I understand the rationale, but I think they are wrong.
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City legend's market forecast
Has your opinion of the markets changed since we spoke before Christmas?
Not really, I think I warned about my concerns of volatility, especially in regards to the Footsie and the forthcoming General Election which remains inconclusive. Who would have known oil would drop from $90/bbl to $50/bbl, who would have known the euro would have fallen out of bed and that stocks would be given a tremendous fillip in terms of quantitative easing, which has seen European stocks go up by an average of 16%?
On the other side of the coin, there are signs of China creaking and not producing what we want it to. There is still a massive question mark against the damage that IS can do around the world. Yemen, Putin was always there and always will be there, but he must not be trusted nor be taken lightly. He could damage the energy industry irrevocably. You put all of these together and it's a pretty toxic cocktail, so to say you're gung-ho fixed bayonet and over the top in regards to equities could be dangerous.
But interest rates are very low and are likely to stay low, so alternate asset classes are not obvious.
What are the chances of a major stockmarket correction this year?
It can’t be entirely ruled out. One thing I would say, unless there was an unforeseen political issue I can't see a correction of more than 10%. That is because interest rates in the mature markets of the world are unlikely to move at all for at least six months, if not a year. And I include North America as I think Janet Yellen, the chairwoman of the Federal Reserve, knows perfectly well the third and fourth quarter earnings may not be all they are cracked up to be.
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Why the FTSE 100 could halve
How will the markets react to a Labour win? And, conversely, a Conservative one?
Initially, the will probably fall 2-3%. But you have to give credence to Ed Miliband and Ed Ball's intelligence. If they were to go mad early on, the gilt market will react very badly and with ten-year money possible to pick up at 2% or slightly less, you don't want to see that going to 3% because the markets have lost confidence in the British government. So, Labour will take a very neutral course to start with. But it's the very long-term outlook that worries me. Labour has spent the banking bonuses ten times over, which means they are going to have to find other ways of taxing people. Those who earn £70-80,000+ a year are going to get clipped. If you take incentives away from people, this will damage businesses, profitability and the people who want to invest in this country. Therefore, I am 100% convinced if Labour is in administration in 2020, the stockmarket will be nearer 4,000 than 7,000.
Conversely, we are, in my opinion, close to being fully invested in the stockmarket. Unless Europe really girds up its loins, China gets over its difficulties and we get over these geopolitical problems, I doubt the stockmarket has much further to go, even if the Conservatives win. But what we will get with a Conservative win is stability, increased jobs and interest rates at a level that we can sustain debt.
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What election result will mean for you
Should investors be worried about the impact of May's general election?
May's general election is one of extreme concern. With five weeks to go, if the polls start to suggest a definite minority Labour government with SNP and the Liberal Democrats in the mix as well, I wouldn't be at all surprised to see the Footsie ease by 5-10% because the markets don't cope with uncertainty. A Labour-led administration would convey the impression that it's not pro-business at all, not so much Ed Balls, but Ed Milliband is known to be anti-business.
What I don't think the electorate, Milliband or Balls get, is that if you are friendly to business and give them incentives, then they will pay an enormous amount of tax. You need this tax to pay for necessary public sector services, like the NHS. If you smack business on the back of the head and take away all of the incentives, you will not achieve that goal. It's very simple.
Unfortunately if you say that to someone in Sandwell, Darlington or Whitehaven, where they have seen the cost of living index go up, but their earning and spending capacities go down, they are entirely ambivalent on what my thoughts are. And I think that might just tip the balance in favour of a minority Labour government. It is very essential for business; having made this remarkable recovery, don't throw the baby out with the bathwater. Unfortunately there's an extreme chance that is the likelihood.
You previously said Labour had some good policies. What changed your mind?
The main Westminster parties were so chilled out about the Scottish referendum and they got the shock of their lives. The prospect of 41 seats going to the SNP and almost entirely from Labour, that is a really dangerous minority. They will have enormous power to wield in favour of Scotland against business and against the community as a whole outside of those people in Scotland.
So you want a Conservative win?
Obviously, but I would be very happy with another Liberal Democrat coalition, because they have been relatively balanced in their thinking. They did stop the administration getting a lot of their legislation through, but in fairness, on the whole, we haven't had a bad five years considering the mess that was made five years prior to that. I think the recovery has been pretty decent and this coalition deserves another chance.
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This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.