THERE was little real surprise in the poor GDP numbers for the final three months of 2012 – except for those who took a punt on Thursday on the back of false rumours national income had risen.
True, if you strip out the temporary fall in North Sea production, Q4 output dipped by only 0.1 per cent. But the message remains clear: the UK economy is still flat-lining nearly five years after the credit crunch. GDP is actually 3.3 per cent lower than the start of 2008, which shouts “stagnation”.
Here’s the curious thing: UK equities are still on the rise. Despite bad GDP figures, the FTSE-100 touched post-credit crunch highs yesterday. It could break 6,500 this year. More indicative still, the FTSE-250 – which includes a host of strong domestic brands including Debenhams, Dixons and EasyJet – hit an all-time high in December, after rising 23 per cent in 2012. Don’t investors read the gloomy newspaper headlines?
One explanation is that equity markets are driven by valuations rather than economic outlook. Put simply, UK equities remain cheap compared with bonds, while British companies have strong balance sheets, good cash flows and rising dividends. The average UK share price-to-earnings ratio, though rising, is still a healthy 11. Compare that to the 20 back in pre-crisis days and you’ll see why buying shares is attractive.
Besides, while the UK economy languishes in the doldrums, confidence has risen sharply in the rest of the industrial world. Apocalyptic fears for the eurozone have subsided (at least till September’s German elections), the new Chinese leadership has opened the monetary and fiscal taps, and the US Congress has agreed another budget fudge. Result: German stocks were at a five-year high yesterday; the Japanese Nikkei has had 11 straight weeks of gain, its longest run since 1971; and the rise in the Dow Jones was blunted only by the overdue exit from Apple shares.
One caveat: share valuations and economic outlook collide when profits fall. UK profit margins are at the high end of their range and not many firms will be able to maintain them if Osborne continues with austerity in his March budget.
Credit to optician for its vision
WELL done Specsavers for its “Should’ve gone to…” ad poking fun at Chelsea footballer Eden Hazard kicking the ball out from under a ballboy during Wednesday’s match with Swansea.
The company – the UK’s biggest optical retailer, with some 16 million customers worldwide – is known for its cheeky ads and ability to grab attention by responding instantaneously to high-profile gaffes in sport. Their last coup was in July after the South Korean flag was wrongly flown at the women’s football match between North Korea and Columbia.
Specsavers was founded in Guernsey in 1984 by Mary and Doug Perkins. It remains privately owned, though individual shops are a hybrid of franchise and partnership with the main company.
The company’s ads are produced in-house, not by an outside advertising agency. So well done Graham Daldry, Specsavers’ creative director, who used to be group head at Ogilvy and Mather.
Specsavers’ UK annual media spend is put at circa £39 million, compared to a global turnover of £1.5 billion. When you figure a typical marketing budget is 5-to-10 per cent of sales, I hope Mr Daldry is on a bonus.