By what I can tell, the template for being a mainstream financial journalist is like so: take one bad thing, link to other bad thing, link bad things back to the credit crunch (a very bad thing) and sprinkle adjectives liberally.
It reminds me of the six degrees principle. Any two items are linked by six degrees of separation and if you are prepared to look hard enough you will find these "chain-links."
That is what the press are doing right now, I should know, I’ve been guilty of it myself... that’s what 5 years in financial newsrooms does to you.
These tenuous links serve the purpose of reinforcing a general view that sells papers but that doesn’t mean it’s ok. Relentless negativity has a detrimental effect on us private investors, and we’re an easy bunch to spook!
In an oddly bearish report by the Association of Investment Companies showed that 2008 is "very likely" the worst year for fund sales ever. Talk about self-flagellation.
However, pockets of optimism are coming to the fore and things could even start to turn around.
Yesterday the Bank of England’s John Gieve, one part of the nine-man panel responsible for interest rates, believes that the correction in the credit markets has been overcooked.
The deputy governor’s comments, published in the bi-annual Financial Stability Report, claim, "While there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months."
The big investment bank mortgage assets now look cheap, according to the report. The implied message is that banks should start buying them.
This would be great news for the private investor. A revival in the credit market would lead to a lower borrowing rate, which could inspire a tempered come-back in the property and the M&A markets.
Now I don’t think that this is likely to happen any time soon. However, I do think the doom and gloom angle has been overplayed.
We also have to make an important distinction between the UK economy and the UK stock market. They are not the same thing.
The UK stock market is stacked with many of the world’s best firms, firms that do little or none of their business in the UK. Rio Tinto is an Australian mining company with interests all over the world, why would they care if the British consumer can’t get a mortgage or cuts down on spending? They don’t, and more importantly it doesn’t impact their bottom line.
Savvy stock pickers should think global. But more importantly we should start thinking positive... there are new opportunities all around us. The Fleet Street Letter has identified one stock that has really been gathering pace and it’s not too late to...
There are opportunities all over today’s market. Here are a couple of stocks to watch:
888 recession proof?
Fears in the economy are bypassing the gambling sector. The gambling sector has been upbeat despite macroeconomic fears, none more-so than 888 (LSE: 888).
The Gibraltar-based firm has already experienced a slowdown when it had 50 per cent of its business wiped out when the US government imposed a ban on online gaming in October 2006.
The company is fighting back and recently released results way ahead of forecasts.
"888.com's final results are 4.4 per cent ahead of our [profit before tax] expectation and with Q1 seeing further growth we feel comfortable nudging up our full year 2008 [profit before tax] forecast by 1 per cent," said brokers Numis, which recommends its clients buy the stock.
The stock is defensive too says chief executive Gigi Levi. The case is that as the economy heads south, people are more likely to stay in and log on than go out.
AVEVA expected ahead of forecasts
Britain’s tech firms are minnows on the global scene and have failed to inspire much hope with a broadly negative performance in the past 12 months. The sector is heavily dependent on financial services and thus is a victim of the credit crunch. Financials accounts for a quarter of IT spend. With government another big client to the industry, belt-tightening in the public sector could hit confidence.
AVEVA (LSE: AVV) counters many of these problems. A lack of exposure to a softening consumer and financial markets, it pushes into emerging markets with marine offices in China and contract wins with shipbuilders in China and Korea. Think of it as a clever way to play the boom in commodity and emerging markets and there is a lot further for this story to go.
The firm is set to report a full-year revenues to edge ahead of broker estimates. The firm expects revenue to be strong across all regions.
Given this buoyant trading update, a recent recommendation from Goldman Sachs and a truly global exposure which offsets recession risks, AVEVA remains a strong candidate in the FSL portfolio.
AVEVA have tipped the City that full year results, due out on May 27th, should be ahead of forecasts and highlight future prospects in the marine and power sectors.
