Interim Management Statement

RNS Number : 6303K

Hansa Trust PLC

31 July 2013

 



HANSA TRUST PLC

INTERIM MANAGEMENT STATEMENT (UNAUDITED)

This Interim Management Statement covers the period from 1 April 2013 to 30 June 2013. It has been produced for the sole purpose of providing information to the Company's shareholders in accordance with the requirements of the UK Listing Authority's Disclosure and Transparency Rules.

The Directors are not aware of any significant events or transactions, which have occurred between 30 June 2013 and the date of publication of this statement, which have had a material impact on the financial position of the Company.

CORPORATE RESULTS

			Quarter to 30 June 2013		Year Ended 31 March 2013
STATISTICS
Shareholders' Funds			£243.9		£259.9m
Share Price
Ordinary share			760.0p		837.0p
'A' Ordinary share			769.5p		815.0p
Discount
Ordinary shares			25.2%		22.7%
'A' Ordinary shares			24.3%		24.7%
Net Asset Value  per share
Opening Net Asset Value			1,082.9p		1,117.5p
Dividends			(11.5p)		(14.0p)
Revenue and capital return			(55.1p)		20.6p
Closing Net Asset Value			1,016.3p		1,082.9p
PERFORMANCE
Net Asset Value Return			(6.2%)		(1.7%)
Performance Benchmark			0.8%		3.8%
Ordinary Share			(9.2%)		(9.0%)
'A' Ordinary Share			(5.6%)		(6.6%)
FTSE All-Share Index			(2.7%)		12.6%
Total Return (Dividends Reinvested)
Ordinary Shares			(7.8%)		(7.3%)
'A' non-voting Ordinary shares			(4.2%)		(4.8%)
FTSE All-Share Index Total Return Index			(1.5%)		17.4%

PORTFOLIO PERFORMANCE STATISTICS

		Quarter to 30-06-13		Year to 31-03-13
		%		%
Portfolio Time Weighted Return		(4.7)		(0.9)
-     ex Ocean Wilsons Holdings Ltd		(2.7)		5.3
Benchmark		0.8		3.8
FTSE All Share - Total Return		(1.5)		17.4

Weighting	Sector	Time Weighted Returns
11.9	Natural Resources	(4.0)		(5.9)
35.7	Strategic	(8.5)		(9.8)
6.0	Mid Cap	(2.2)		34.1
17.4	Smaller Cap / AIM	(8.8)		(14.5)
2.5	Utilities	1.0		22.0
8.5	Property	3.3		22.0
16.2	Large Cap	1.3		27.3
3.1	Investment Trusts	(4.9)		10.6
(1.3)	Current Liabilities	(0.3)		(1.7)
100.0	Total	(4.7)		(0.9)

Top Ten Contributors - pence per share
		Quarter to 30-06-13				Year to 31-03-13
Ocean Wilsons Holdings Ltd		(33.4)		Ocean Wilsons Holdings Ltd		(44.6)
NCC Group Plc		(7.7)		Hargreaves Services Plc		(14.6)
Andor Technology Ltd		(6.9)		BG Group Plc		(10.6)
Cape Plc		(4.4)		Galliford Try Plc		10.0
Lloyds Banking Group		2.8		Weir Group Plc		9.7
BHP Billiton Plc		(2.7)		Andor Technology Ltd		(9.3)
GalaxoSmithKlein Plc		2.2		Great Portland Estates Plc		8.3
Great Prtland Estates Plc		2.1		Experian Group		7.0
Kofax plc		1.9		HSBC Holdings Plc		6.4
DV4 Ltd		1.8		Cape Plc		(6.3)
Other Investments		(8.1)		Other investments		32.1
Before expenses and dividends		(52.4)		Before expenses and dividends		(11.9)

PORTFOLIO ANALYSIS                                           NET ASSET VALUE 30 JUNE 2013                                                            

	Mkt.Cap		%		Mkt.Val		% of
	£		Held		£		NAV
Strategic and Unquoted
Ocean Wilsons Holdings Limited	328,876,272		26.45		86,980,761		35.7
DV4 Ltd			0.00		6,856,201		2.8
DV4 Commitment expiring 8 March 2015			0.00		1,999,000		0.8
DV4 Comm.to Loan expiring 8 March 2015			0.00		1,475,000		0.6
Consolidated Investment Funds Ltd			100.00		632,287		0.3
DV3 Limited			0.00		339,753		0.1
DV3 Commitment expiring 31 March 2014			0.00		327,438		0.1
					98,610,440		40.4
Remaining Portfolio
Experian Plc	11,507,666,781		0.1		10,287,000		4.2
Weir Group Plc	4,584,203,908		0.2		9,464,400		3.9
BG Group Plc	38,070,526,863		0.0		9,417,770		3.9
Hargreaves Services Plc	281,831,384		3.0		8,550,000		3.5
NCC Group Plc	234,015,766		3.6		8,456,250		3.5
Herald Investment Trust Plc	430,327,421		1.8		7,631,442		3.1
Great Portland Estates PLlc	1,827,967,482		0.4		7,344,363		3.0
Galliford Try Plc	765,069,365		0.9		6,849,885		2.8
GlaxoSmithKline Plc	80,969,794,967		0.0		6,592,000		2.7
Centrica Plc	18,583,808,366		0.0		6,189,219		2.5
Top Ten Investments					80,782,328		33.1
Hansteen Holdings Plc	517,135,516		1.2		6,181,636		2.5
Kofax Plc	304,057,966		2.0		6,106,500		2.5
HSBC Holdings Plc	127,014,991,061		0.0		6,037,652		2.5
United Business Media Plc	1,610,476,103		0.4		5,904,000		2.4
BHP Billiton Plc	35,501,071,755		0.0		5,633,025		2.3
Andor Technology Ltd	89,203,405		6.2		5,564,116		2.3
BP Plc	86,284,297,138		0.0		4,552,500		1.9
Cape Plc	293,038,741		1.4		4,235,000		1.7
Wolseley Plc	8,311,662,023		0.1		4,173,492		1.7
Eni S.p.A.	49,149,335,368		0.0		4,057,251		1.7
					133,227,499		54.6
Royal Dutch Shell Plc	55,326,569,173		0.0		3,125,454		1.3
Lloyds Banking Group Plc	45,017,156,678		0.0		2,944,981		1.2
Goals Soccer Centres Plc	70,932,615		4.0		2,835,000		1.2
Brooks Macdonald Group Plc	186,871,636		1.5		2,793,910		1.1
Qinetiq Group Plc	1,191,499,377		0.2		1,804,000		0.7
Cairn Energy Plc	1,526,266,345		0.1		1,345,500		0.6
Petroceltic International Plc	240,486,245		0.4		1,001,788		0.4
All Leisure	19,140,881		3.6		687,177		0.3
Immupharma PLC	30,982,336		1.5		475,000		0.2
Blinkx PLC	399,332,192		0.1		466,523		0.2
	104,009,237,477				150,706,831		61.8
16 Other Investments					1,645,658		0.7
Net Liabilities					(7,055,353)		(2.9)
Total Net Asset Value					243,907,575		100.0
Banking Facility  - £30 m Utilisation at 30 June  - Nil

INVESTMENT REPORT

The Investment Manager presents its report for the quarter ended 30 June 2013

BACKGROUND

June was a roller coaster of a month on the world's financial markets, with a massive spike in volatility and a great deal of noise. Since 2009 the Federal Reserve has adopted an extremely loose monetary policy, the greatest monetary experiment in the history of central banking, buying financial assets in the shape of US Treasury bonds and some types of corporate debt, all paid for by an expansion of the monetary base or so-called "printing money", generally known as quantitative easing or QE. Quantitative easing and ultra-low interest rates represent a policy of "financial repression" and are meant to buy time for public and private balance sheet repair and the reduction of budget deficits, as inflation erodes the value of the mountain of debt, as well as creating time for radical supply-side reforms to bolster productivity growth. QE also helps to prop up financial markets, as well as having the effect of transferring wealth from savers to debtors. A normalisation in the Federal Reserve's policy was to be expected given the better economic news coming out of the world's largest economy, and markets had been actively debating when QE might be withdrawn or "tapered". The era of cheap and abundant central bank money would have to end eventually, but it still apparently came as a surprise when Fed chairman Ben Bernanke said a tapering of the U$85bn monthly pace of asset purchases would begin this year, provided the US economy continues to pick up, and would continue until the end of the programme sometime in the middle of 2014, as the US unemployment rate falls towards 7%, at which point the US government deficit will need to be financed from private sector savings, rather than by the central bank, leaving asset markets to fend for themselves or function more naturally/normally. In the meantime short term interest rates will stay close to zero for a long time and are unlikely to be increased until a 6.5% unemployment target is in sight and then only gradually. Inflation is not a problem with US inflation at only 1.4% and the growth rates of both nominal GDPP and bank lending are declining. Equity markets aside, a combination of a strengthening U$ dollar and concerns over the availability of finance in China have served to accelerate the retrenchment in commodity pricing, including gold. The Chinese government forced a liquidity squeeze on the interbank lending market to rein in excessive credit growth in the shadow banking sector which relies on interbank markets for funding, as China shifts away from its growth model which relies heavily on credit and investment towards one which is more reliant on domestic consumption.

OVERALL PERFORMANCE

During the Quarter under review, the Ordinary and "A" Ordinary share prices fell by 9.2% and 5.6% respectively compared with a fall of 2.7% in the FTSE All-Share Index, with the discount to net asset value narrowing on the "A" Ordinary Shares and widening on the Ordinary shares. The time weighted return of the portfolio was -4.7%, compared with a rise of 0.8% in the Company's benchmark and a fall of -1.5% in the FTSE All-Share Index- Total Return.

PORTFOLIO REVIEW

SECTOR WEIGHTING AND PERFORMANCE

	Sector Weighting	Sector Weighting	Quarters' Performance
Sector	at 30 June 2012	at 30 June 2013	to 30 June 2013
	%	%
Strategic	37.4	35.7	(8.4)
Smaller Cap/AIM	17.8	17.4	(8.8)
Natural Resources	11.8	11.9	(4.0)
Property	7.8	8.5	3.3
Large Cap	15.1	16.2	1.3
Utilities	2.4	2.5	1.1
Mid Cap	5.8	6.0	(2.2)
Investment Trusts	3.1	3.1	(4.9)
Current Liabilities	(1.2)	(1.3)	(0.3)

UPDATE ON THE PORTFOLIO'S TOP HOLDINGS  

OCEAN WILSONS HOLDINGS LIMITED

Economic growth in Brazil has slowed sharply over the last couple of years but is forecast by the IMF to stage a recovery in 2014 against the background of a continued expansion of middle class wealth and rising consumer demand, on-going development of the pre-salt offshore oil fields, and then of course the football World Cup and next Olympics. Ocean Wilson's main asset, the 58.25% holding in the Brazilian logistics and maritime services company, Wilson Sons, has navigated its way through a tough few quarters of trading, while executing on its investment programme for the future. Wilson Sons has good access to low cost and long-term finance to fund expansion, with some 80% of debt long-dated and due in three or more years at a weighted average cost of 3.7%, as 75% of the total is subsidised debt, provided through BNDES and Banco do Brasil as agents for the Merchant Marine Fund, used to finance shipyard capacity and vessel construction and the development of the two container terminals and equipment for logistics. The Tecon Salvador container terminal capacity has been increased by 80% and is ready to take on new contracts, and the new shipyard in Guaruja has been completed, doubling shipbuilding capacity and allowing for increased third party vessel construction and maintenance services, helping to keep utilization rates high, as well as significantly enhancing the ability to grow the Wilson Sons Ultratug Offshore (50% owned) fleet of offshore platform supply vessels. The joint venture fleet now comprises 5 offshore vessels under construction and 17 in operation, 14 of which are owned. The acquisition of the Briclog offshore supply base in the city of Rio de Janeiro has been completed, and with the expansion of Briclog, Brasco will further consolidate its position as one of the largest operators of support bases for the Oil and Gas industry in Brazil.

The wholly owned investment portfolio was principally invested in global equities, 52%, at year end, with 21% in private assets, 10% in market neutral funds and the balance of 17% in bonds, cash and liquidity funds, with emerging markets accounting for 44% of the portfolio net asset value. The portfolio contains a high level of investments which would not normally be readily accessible to the average investor, with a large number of holdings now closed to new investors.

EXPERIAN GROUP

The leading global credit information and marketing services Group, providing data and analytical tools to clients around the world, helping businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. It remains a long-term growth story, as it continues on a journey of cash generation and expansion into new geographic markets and verticals, with a strong culture of innovation to develop new products and move in to new customer segments. Management "continue to expect mid-to-high single-digit organic revenue growth, modestly improved margins and cash flow conversion of at least 90%". Given the visibility of cash flows, management will likely continue to hand back surplus cash to shareholders.

WEIR GROUP

The global engineering solutions provider to the mining, oil & gas and power markets has been saying for over a year that 2013 would be more about the aftermarket, which now represents over 55% of group revenues, rather than new projects. Global aftermarket activity continues to benefit from the growing installed base, with high margin spares volumes increasing. The mainstay products are slurry pumps for mining and pressure pumps for hydraulic fracturing of shale gas and shale oil, both with high wear rates and in the case of mining the beneficiary of higher mine production levels as ore grades decline. Keith Cochrane, Weir's CEO, sees the UK's experience in the oil and gas sector making it "the obvious choice as a hub for Europe's nascent shale gas industry".

BG GROUP

2012 was BG'S annus horribilis, with production growth stalled for 2012 and 2013 amid production problems, project delays and capex inflation in Australia. The series of deferrals or delays centered  on projects in the North Sea, USA, Egypt and Brazil. The latest strategy update not only reaffirmed the ability to deliver growth from its assets in Brazil and Australia but also confirmed the Group will be focusing on value rather than volume/production, which will involve taking a more active portfolio management approach to monetize its resources. BG plans to create a focused portfolio of 10-15 high quality material assets, as well as increasing its exploration spend. Most of BG's growth is expected to come from Brazil and Australia, which have high margins, so it is expected that earnings will grow faster than production. After 2015 when capital expenditure falls from U$12bn p.a. to U$8-10bn p.a. the Group should be in a position to return cash to shareholders.

HARGREAVES SERVICES

The UK's leading supplier of solid fuels and bulk material logistics has been through a difficult period with the mothballing of Maltby Colliery following geological problems and stock irregularities at its Belgian facilities. Hargreaves has subsequently repositioned its production assets, regarding surface mining in the UK as an attractive sector with a more manageable risk profile than deep mining, as new projects can be planned and steps can be taken, such as fixing coal and fuel prices, to reduce the risk profile on these projects. Hargreaves raised £42.3m in April to pursue UK open-cast coal mining opportunities and invest in developing a profitable and sustainable surface mining business in Scotland. Following the acquisition of assets from ATH/Aardvark and Scottish Coal, Hargreaves has added 2m tonnes p.a. of coal production at a cost of £48m. Hargreaves starts the new financial year in a good position, with the core UK coal trading and distribution business continuing to perform strongly, while the newly acquired Scottish surface mining assets provide further opportunity.

NCC GROUP

The international, independent  provider of Escrow and Assurance offers a mix of high levels of recurring revenue and cash generation as well as structural growth. The Group's Escrow businesses have always been and will continue to be, the cornerstone of NCC's profitability, producing a substantial margin and very strong cash conversion as well as a high degree of recurring revenue, due to the consistent contracts renewals rate of over 88%. As the mix of business continues to change due to the increase in Assurance revenues, the cash conversion ratio of operating profit before interest and tax is expected to fall to 100-110%. The compound annual growth rate of the dividend has been 29% since the Group's flotation in July 2004. The group's global reach and product range provides a platform for sustained long term growth, although recently the good growth track record was slowed briefly by a number of unrelated issues, all of which have now been addressed.

HERALD INVESTMENT TRUST

The Trust was launched in 1994 to invest in smaller quoted Technology, Media & Telecom stocks. About two thirds of assets are invested in the UK market and the portfolio is very diversified with some 240 holdings, so individual stock risk is relatively low. Little interest is being shown by institutional investors in this area of the market as reflected in very little IPO activity, leading to low valuations, thereby leaving the door open to takeover activity, particularly by US companies.

GREAT PORTLAND ESTATES

A fully exposed London offices and retail REIT, with an 80% weighting in the West End and the balance in the City and Southwark. Management remain confident on the outlook for Great Portland Estates' markets, pointing to increasing imbalances in both the occupational and investment markets, while showing that the delivery of new space into such a market has proved to be fruitful, and suggesting that the outlook for both rents and capital values remains favourable for the next three years or so. Development has been and will remain a key driver of NAV growth going forwards, with the five currently committed schemes now over 60% let against a backdrop of improving rental values. The success of these schemes should give management the confidence to press ahead with further projects, including Rathbone Place, where a planning application has recently been submitted that enhances the existing planning permission to provide 155,000sqft of residential and 216,800sqft of office space. "Our portfolio, 1200% in central London, is rich with asset management and development opportunity and is well placed for further growth".

GALLIFORD TRY

The house building and construction group which set out a strategy in September 2009 to transform its house building business. £125m was raised by way of a rights issue, while setting the ambitious objective of doubling the size of the division by the end of the third year and targeting a significant increase in profits and return on capital. The plan was to create a business that could deliver around 3000 units a year with a deliberate focus on the south of England where the market is more robust. These objectives have been exceeded, and in addition, the group has maintained a high quality and profitable construction order book. The current strategy is to enhance the quality of earnings and improve cash flow, enabling the group to pursue a progressive and sustainable dividend distribution policy. The house building division is being supported by the government's Help to Buy scheme, and achieved a record land bank and year- end sales carried forward position along with good margin improvement , while the construction division is performing well in difficult market conditions and is now seeing increased opportunities.

DV4 LIMITED

A £10m commitment to this fund of which 83% of monies are committed, while there is significantly more capital committed to existing assets in DV4 which will increase that committed percentage materially. The main focus of acquisitions for the DV4 portfolio in the recent past and going forwards has been towards London and the South East, in the two principal markets where momentum exists, namely prime offices and residential. The Olympic Village (50:50 joint venture with Qatari Diar) will require substantial equity at completion due March 2014 following retro-fitting of units post the Olympic and Paralympic Games. The Alpha Plus Group is the premier private education platform in the UK, with a London focus, which successfully issued a 5.75% 2019 retail bond with an aggregate nominal amount of £48.5m. The assembled portfolio very much reflects the original thinking behind the fund, namely it is opportunistic in nature, has considerable potential for value enhancement through asset management initiatives and has a theme of underlying quality.

GLAXOSMITHKLINE

GSK delivered Q2 2013 core EPS growth of 4% on sales growth of 2% and net cash flow from operating activities of £3 billion in the first half of the year, while continuing to forecast core EPS growth in 2013 of 3-4%, on turnover growth of around 1%. GSK has now received approvals for three of the six key assets recently filed with regulators, and with Phase 111 data expected on 13 assets during 2013/2014, remains confident of R&D's productivity and the ability to deliver valuable new product flow on a sustainable basis. The Q2 dividend was raised by 6%, while total share repurchases for the year are expected to be in the range of £1-2bn, and the divestment of Lucozade and Ribena are on track. Some impact to performance in China is expected as a result of the current investigation, although it currently only represents about 3.5% of Pharma sales, and almost certainly accounts for a lower percentage of group EBIT

CENTRICA

The UK's largest energy supplier with some 70% of operating profit arising from two divisions, Centrica Energy, the upstream business, and Centrica Residential, the downstream business, with a continuing trend towards vertical integration between the two. This strategy of increased vertical integration and improving operational efficiency has enabled Centrica to continue to grow, while strong cash generation and a good balance sheet underpin significant spend on organic capex and acquisitions as well as future dividend growth. North America is becoming a more material part of the Group. The Group has commenced a £500m share repurchase programme.

HANSTEEN HOLDINGS

Invests  in industrial properties, primarily in Continental Europe, with a heavy weighting in Germany (55%), with a strategy of buying high yielding properties at less than replacement cost. Industrial properties are simple, flexible and economical, characteristics which guarantee that, as long as there is economic activity, there will be a need for this type of property. The Group's portfolio is substantial and diverse, both geographically and occupationally, and there are management teams in each core region which are clearly focussed on extracting value from the properties they manage. The key is price, financing structure and management approach. In particular, Hansteen believes that when purchased carefully, financed prudently and managed in a vigorous and hands-on fashion, a large and diverse industrial portfolio can combine secure high current returns with a resilient and growing income. Since 2005 the company has paid a covered dividend which has grown 50% over the period, and the Board intends to maintain a progressive dividend policy, helped by the fact that there is still nearly 18% of the existing portfolio vacant and available to improve earnings and NAV.

KOFAX

A leading provider of smart process applications for the business critical first mile, which has just realised record software license revenues for the second half of its financial year, after making selective acquisitions to fill technology and product gaps in conjunction with a programme of intensive organic R&D, while strengthening its sales organization and improving execution across all geographies and product lines. The addition of mobile capture capabilities and business process management to capture forms gives the company a competitive advantage which represents a significant and positive turning point in the company's performance, while cash generation remains strong.

HSBC

Q1 results were helped by a drop in the bad debt charge, particularly in the US unit, and decent revenue growth in the Global Banking and Markets business. HSBC is well into its three year restructuring plan to simplify the business, re-directing the emphasis of its business towards higher growth regions, and with annualised savings of U$4bn intends to increase the first three quarterly dividends in 2013 by 11%. Revenue growth exceeding cost growth is a pre-requisite for earnings growth unless bad debts are falling.

UNITED BUSINESS MEDIA

Following the disposal of Data Services 75% of adjusted EBITA comes from Events, and UBM is No 1 in the ASEAN market as well as being the leading independent Events organiser in China. UBM has quietly closed its print businesses, and there has to be a good chance that it sells PR Newswire, which would leave it a 100% Events business, while reducing debt levels, providing the flexibility to return cash to shareholders or make acquisitions. It would also drive a re-rating of the stock as it became to be seen as a pure-play Events business.

BHP BILLITON

Showing good production growth on a year on year basis across most commodities in its portfolio, providing some strength to a sector where selective investments are coming through in volume growth. Record production and lower spending are likely to lead to the Group seeing a stronger free cash flow over the medium term. This raises the prospect of capital discipline and  cash returns to shareholders, something investors in the sector have wanted for years, rather than the frittering  away of money on expensive acquisitions. There is a chance of a re-rating here because for diversification, quality of earnings in terms of consistent and high margins, and security of the dividend, BHP pretty much stands alone, with a 4.2% current yield and an embedded protection against inflation.

ANDOR TECHNOLOGY

A global leader in the development and manufacture of high performance digital cameras for academic, industrial and government applications has said the first half of the year would be in line with revenue expectations, but the second half would be more challenging, specifically in relation to the availability of funding to support scientific research, which is causing delays in purchasing decisions. Cash generation will continue to be strong. The company is making good strategic progress, driving sales of the newest products and further investing in the next phase of innovations that will secure the company's long-term growth. Andor is maintaining its margins, gaining further market share and identifying new opportunities for its market leading products.

CAPE

The international provider of essential, non-mechanical support services to the energy and mineral resources sectors. Cape is fundamentally well placed to benefit from the rise in global energy demand over the next few years, but poor execution threw a spanner in the works. In May 2012 Joe Oatley, former CEO of Hamworthy was appointed CEO and the interim dividend was maintained. The recent AGM statement said the Board remains confident that the business overall is on track to deliver in line with expectations for the current year ending December, albeit with lowered Australian expectations offset by a stronger than previously expected performance from the Middle East/North Africa.

LLOYDS BANKING GROUP

Has made a decent start to 2013 and has the wind in its sails, benefiting from falling loan loss charges, a pick-up in the outlook for revenue growth based on a stronger UK economy with rising mortgage approvals and continued good cost control. It appears the wheels are in motion for the sale of the government's stake, which suggests the dividend could be restored with the 2013 final results.

OUTLOOK

Given the unprecedented scale of the Fed's monetary experiment, the consequences of its unwinding are impossible to predict, but June's market turbulence shook investors' nerves despite nothing having changed in the economic fundamentals. What it does tell us is that markets remain jittery about the ability of the US Federal Reserve to engineer a smooth exit from its quantitative easing programme, even though the Fed has made it clear that all bets are "off" if the US economy does not hold up. Bernanke has underlined some of the risks that could prompt the Fed to maintain or step up the current pace of asset purchases for longer, including persistently low inflation, higher mortgage rates, a bigger drag from fiscal policy, and a slower global recovery, while stressing that "a highly accommodative monetary policy will remain appropriate for the foreseeable future", even after the asset purchases end and interest rates eventually rise. However, the Fed does not change direction often, and volatility is inevitable when a policy change is in the offing. In addition world economies are on different trajectories, so while the US is recovering to the point where some "tapering" is warranted, China appears to be choking off a credit bubble, Japan is loosening monetary policy, while Europe remains in mid-recession. Normally monetary policy tightening arises against the background of a generally improving economic outlook, and is a healthy background for equities. Long-term growth indicators generally look OK, but with some short term disinflationary pressures in the developed world, and it currently appears that advanced economies are expanding fast enough to compensate for China's slowdown. If these improving economic prospects are confirmed, it could turn out that equities welcome the normalisation of interest rates and more naturally functioning markets. The rhetoric of central banks can have an impact on valuations and equity multiples in the near term, but it is growth that is the ultimate arbiter of share prices over longer time horizons. Earnings trends will be closely watched, to see if self- sustaining growth manifests itself in top line revenue and bottom line earnings forecasts which can be revised higher, rather than leaving investors facing another false dawn in which central bankers have to keep manning the pumps.

 

END

 

 

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