Comment: Experts aim to shed light in investment gloom

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BARELY a month ago it seemed “risk on” as the FTSE 100 clambered up to 5,900. Amid sightings of “green shoots” and a continuing absence of “euro crisis” headlines, could an assault on the 6,000 mark be at hand?

The burst of hope did not last long and we are back with a vengeance to “risk off” as disappointing earnings statements, worries about the US “fiscal cliff” and mass anti-austerity demonstrations across the eurozone reminded us of the highly fragile times we are in.

Last week the FTSE 100 lost 2.8 per cent to finish the week at a three-month low of 5,605.6. Will this prove a short-lived blip, likely to be rectified as markets look to the prospect of a business recovery, albeit muted, in 2013? Or is it symptomatic of much deeper problems about which investors have been complacent?

To help answer this key question, The Scotsman Investment Conference on Tuesday evening – Markets: Where to from Here? – could scarcely be better timed. The conference will be addressed by five leading investment figures, together representing funds under management in excess of £500 billion. The speakers are Sebastian Lyon, investment advisor to Personal Assets Trust; Katherine Garrett-Cox, chief executive of the giant Alliance Trust; Mark Connolly from Scottish Widows Investment Partnership; Alan Porter, manager of Martin Currie’s Securities Trust of Scotland, and Jim Wood-Smith, chief investment strategist at Investec Wealth & Investment.

Issues will include: Will America overcome its much-feared fiscal cliff? What is the outlook for fixed interest markets, and should investors be concerned over a “bond bubble”? Does the eurozone crisis present a further threat to western stock markets? Above all, what are the sectors to invest in – and which should we avoid?

There will be a wide spectrum of views, an opportunity for discussion and a chance to buttonhole representatives from leading investment houses: it is set to be a cracker of an evening.

Five years on from the eruption of the global financial crisis and we are still struggling with its consequences. Bank loan books remain in a terrible state. Household finances are perilous. The eurozone still looks like a blind walk along a cliff-edge. How can we dare hope to move on?

News from both Europe and Asia last week depressed sentiment, initially due to a worse-than-expected contraction in Japanese GDP. This, says Brewin Dolphin in a sobering assessment this weekend, was followed by more upheavals in Greece, casting a shadow over hopes of a solution to the country’s debt crisis.

Surprisingly, financials were among those making the most headway. The broader market movement was away from cyclicals as the European uncertainty, combined with weak GDP figures, hit the mining sector especially hard. A modest rally on Tuesday was snuffed out by worrying news from Spain and the Europe-wide strikes. The decline continued on Friday as nervous investors turned increasingly risk averse ahead of the US budget talks. Sentiment this week will depend on the progress of negotiations in Washington to try and avoid the so-called fiscal cliff.

But might we still be missing a bigger problem? Stephen Walters of Edinburgh-based Dexterity Momentum Investing said this weekend the West is heading back into the thick of its muddle, whereas the East is more settled.

“Our occidental problem”, he says, “comes from years of over-borrowing and over-spending, by governments and populace, so now we have national debts too big to repay. Conditions are ripe for a nasty depression and years of falling prices.

“That would be the swiftest remedy, but painful while it works. A lot of bad businesses (including many banks) would fail, but falling prices would help Britain make lastingly competitive relationships with new customers beyond the EU.

“Although that fate befell Iceland, and it is now recovering, our own government hasn’t the courage or the leadership to take that route. Depression and deflation are part of its worst nightmare, so instead it will create money electronically and erode the value of sterling.”

How are we to protect our capital, Walters asks. There’s no shame, he reminds us, in holding cash. And for the time being cautious investors will continue to huddle down in defensive funds and trusts offering a measure of dividend income protection from inflation.

Will our conference panellists agree with the stay-on-the-sidelines argument? Or will they have a quite different take? After the presentations there will be a question-and-answer session.

• The conference is at the Grosvenor Hilton, Edinburgh, starting with registration and buffet at 6:30pm. Some seats are still available (£25 + VAT, with a 10 per cent discount for previous Scotsman Conference delegates). For information visit, email or call: 0131 620 8656.