Stock markets around the world, including London, yet London at least can still claim it is moving sideways. There is no cause to panic.
Only a fool would deny there are risks for shares
In recent months the FTSE 100 index was looking as if it might break upwards to new highs and once again it has disappointed. Now it has dropped back below 6,700 points. We are less prone to a hefty fall than the S&P 500 however because the index’s upward performance during the economic recovery has been more muted than those of the indices in New York. The FTSE still trades well off the floor of the 500-point range that has been its limits for the past 12 months or more.
But there are obvious worries. The strong pound, which is very much in our long term interests, is depressing earnings as translated into sterling. Nonetheless, British companies are profitable abroad and will continue to be so. A falling pound would be far more disruptive.
War rumbles on in the Ukraine and the Middle East. The main direct concern for British investors is the effect of sanctions against Russia, which hurt the West more than their intended target. The big surprise here is that investors are not piling back into gold, supposedly the safe haven. Gold remains depressed at around two-thirds of its peak, and for British investors the effect is greater when the gold price is translated into sterling.
One has to face reality and only a fool would deny that there are downside risks for shares. There always are. One has to invest on the assumption that there will be a tomorrow. In my view the London stock market is holding up well. I remain fully invested with just £2,000 of this year’s enlarged ISA allowance left.
M&A and Asset Stripping
The dangers of chasing shares higher on takeover/merger talk have been amply demonstrated in the case of Balfour Beatty (BBY) and Carillion (CLLN). As a Balfour shareholder I was delighted to see the shares of both companies rise when merger talks leaked, though I was dubious about whether a merger rather than a takeover could really be so beneficial to both sides.
Far more puzzling is that talks foundered on Carillion’s very sensible insistence that Balfour should not sell off its Parsons Brinkerhoff unit. Analysts have questioned whether this sale is a good idea for an independent Balfour. I really cannot see why it would be a sticking point for an enlarged group.
I hope large shareholders will press the Balfour board to reconsider.
Banks Thrive Despite Odds
Some idea of the banks’ capacity to make profits in spite of everything that is thrown at them came from Barclays (BARC) and Lloyds (LLOY). Both continue to make hefty provisions for past misdeeds, a process that seems never ending, yet Barclays’ profits are hardly dented and Lloyds is doing well enough to confirm that a resumption of dividends is imminent.
I’ve taken a stake in Lloyds, admittedly missing the best chance to get in – I was not prepared to take the considerable gamble when shares were down to 23p. I believe there is a long way up to go. Remember, Lloyds was a highly successful bank before it was wrecked by the “deal of the century”. It can be again.
My Favourite Pharma Stock
Although I have a long standing and profitable holding in GlaxoSmithKline (GSK), if I were looking for a pharmaceutical company today for my portfolio I would be inclined towards AstraZeneca (AZN), and not because I think US rival Pfizer (PFE) will come back with another takeover offer in a few months’ time.
Astra has upgraded previous pessimistic guidance for the full year after an encouraging second quarter. It has a strong drugs pipeline and offers a yield around 4%. The P/E is 14.5, not far off the market average. The shares are down since Pfizer walked away. It could be a buying opportunity.
