There are no chief executives whose judgement I respect more than Sir Martin Sorrell. Being head of global advertising agency WPP (WPP), Sorrell has a clear insight into how markets are performing, by country, by continent, by product and by sector.
"I remain a raging bull in relation to China," he told the BBC's Today programme. This is the China that is supposedly in such dire straits that it sent the FTSE 100 index down for 10 consecutive trading days and snuffed out a promising rally on Monday with a further plunge on Tuesday.
Sorrell reckons that Chinese economic growth is fundamental to WPP’s future, adding: "They ain't done too bad with a five-year planned economy since 1985.” In his view China's prospects needed to be seen in the light of 30 years of growth and expansion and the hundreds of millions of people that have been taken out of poverty and moved into a lower-middle or middle class.
That rather runs contrary to the impression we get in the media of a China that blunders its way through because neither the government nor the inhabitants really understand capitalism and therefore they inevitably make a mess of it.
China is WPP’s third largest market and if things were going badly it would reflect heavily on WPP’s figures. Yet the group saw revenue rise 6.8% in the first half of this year and pre-tax profits leapt a remarkable 45%. Even taking out exceptionals, profits rose a very encouraging 12.1%.
The interim dividend is raised 37%. That rather large increase is partly because WPP is rebalancing its dividend higher to reach approximately 50% of earnings but it does mean that the likely pay-out for the full year will be comfortably covered more than twice.
It gets better. WPP says billings in July indicated that the group was in for a strong third quarter. If there really is a serious global slowdown, it has not hit WPP yet. Ahead of the figures, WPP shares had fallen from £16.11 in April to £13.62 in line with the general stock market. The fall, for the indices and for WPP, was heavily overdone, especially in the ten trading days up to and including Monday, ten consecutive days in the red.
Choosing My ISA Investments
I have been waiting for the right moment to invest the last of my 2015/16 ISA allowance, trying as best I could to judge the point when the market turned. A sharp rise in the FTSE 100 on Tuesday, coinciding with Sorrell’s encouraging pronouncement, convinced me that the time had come. I even tweeted that we might never see 6,000 on the Footsie again.
I was a day too soon. Markets that one day rejoiced at news that the Chinese government was cutting interest rates to get the economy moving again decided the next day that the Chinese economy must be in pretty bad shape to merit the interest rate cut, and there we were back below 6,000.
It goes to show how difficult it is to catch the bottom of the market precisely. It’s probably best not to try too hard. An approximation will do. Another surge on Thursday, as the topsy-turvy week progressed, convinced me we really have turned the corner.
For the record, I took a new stake in Rio Tinto (RIO) to give exposure to any upturn in commodity prices and I added to my Lloyds Bank (LLOY) holding because the shares had fallen below the price at which the government has been offloading its stake.
Baltic or Bust
I am taking a two week break while I lecture on a Fred Olsen Baltic cruise sailing from Newcastle-upon-Tyne. If any readers of this column are on board the Boudicca, please come and talk to me.
On October 15 I will be speaking at the Leeds Investor Show and the London Investor Show on October 23. More details when I return.
