Hrkn to .. The Financial Outlook for Personal Investors

Russ Mould of A J Bell points out that supposedly risk-free 10-year gilts and corresponding instruments have risen despite interest rate cuts from central banks. At the same time, equities have been generally strong. In the US, the 10-year Treasury is now equal to the earnings yield on the S&P 500. Investors might be taking the extra risk anticipating upside potential but it could be seen as an early warning sign. In the UK, the earnings yield is double the 10-year gilt yield, making the domestic market look cheap, explaining all the takeover activity.

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Neil Shah of Edison Group says that since the Trump victory, Tesla's shares have added $300 billion. The market is betting that US policy will be supportive of Elon Musk and his company, which could benefit from a more protectionist approach. Although the fundamentals are challenging (the PE is 90-100), it relatively cheap compared to some AI stocks.

In the UK, shares in Dowlais Group (spun out of GKN) rose on their trading update. As well as metallurgy, they are in the automotive components business and benefit from EVs as well as old-style vehicles. The forward PE is only 5 or so and the company should come increasingly into focus.

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Russ Mould of A J Bell explains that US markets are strong in the wake of Trump's victory from a sense of relief that Harris didn't win. Trump wants to boost American growth, perhaps using tariffs, while at the same time wanting a weaker dollar. As the world's reserve currency, the strength of the dollar is of massive important. Russ discusses the Triffin Dilemma, which explains why the world needs a weak dollar and a continuing US trade deficit. Gold, he says, weaker on the stronger dollar, will be the ultimate tell.

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Neil Shah of Edison Group looks at Rachel Reeves' Budget. In advance, many peole were withdrawing money from investments but, although the gilts market has seen yields rise, there's a general air of relief that it isn't more draconian. He feels things should normalise in the coming weeks and that, with the UK still forecast to grow, it's a good investment climate. Low-margin, high-workforce sectors like hospitality and retail might suffer but with declining interest rates, real estate and housebuilders could benefit, as could companies associated with increased government spending in health, social care and education.

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Russ Mould of A J Bell looks at the UK's main banks now that we're in the midst of results season. He points out that while the big five account for 11% of the FTSE's market cap, they produce 1/5 of pre-tax profits and 1/5 of total dividends. There remains a good deal of residual scepticism. They may yet be worth a look, despite the many possible adverse factors. Russ notes that cashbacks and dividends will see HSBC on a yield of almost 15% this year, with the others on 10-12%.

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Neil Shah of Edison Group finds London Tunnels' project fascinating. Despite the name, they are listed on Euronext and aim to turn the network of tunnels under Holborn Underground into a major tourist attraction. Although intended as air raid shelters they became a home for MI6 and ended up being used by the GPO. Details of a forthcoming presentation are on the Edison Group website.

Card Factory is demonstrating that a combination of bricks and clicks could be more effective than a pure online operation. The company is expanding its product range, stores and its online business and is trading at a larger discount than it should be.

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Russ Mould of A J Bell discusses the UK 10-year gilt yield rising over 4%, despite the Bank of England governor saying that interest rate cuts could happen more quickly. Why are equity markets both here and in the US more optimistic than fixed interest investors? In the UK we owe £2.5 trillion and have a £100 billion interest bill, so the government faces very difficult decisions. The only way to reduce the burgeoning debt/GDP ratio is through growth or inflation. It will probably be a combination of both and 2% may soon be the floor for the inflation rate rather than the ceiling. Russ discusses what this may mean for equities, with 28 of the FTSE100 companies yielding more than the 10-year gilt.

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Neil Shah of Edison Group sees little to disappoint with Greggs' Q3 results. It remains a hugely efficient machine which is great at understanding consumer needs. Opening new stores aggressively in the wake of Covid and expanding into evening service, it remains attractively priced. He also looks at the collective investment vehicle Gresham House Energy Storage Fund. It has performed poorly of late. But the long term opportunity is great as we pivot to renewables, which need battery energy storage and it is an interesting opportunity as it is at a significant discount. More information is on the Edison Website. (https://www.edisongroup.com/research/rising-revenues-and-big-plans-for-the-future/34011/)

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Russ Mould of A J Bell discusses the Fed cutting rates by half a percentage point – rather high for the start of a cycle – and China's latest attempt at stimulus. In the UK, cyclical sectors are leading the way and the market benefits from being lower-rated and having more political stability, at least more than the US. The FTSE-350 also has an effective yield of 7.5%. Financial markets were not keen on Brexit but the pound is now almost back to pre-Brexit levels against the dollar, which will help suppress inflation, even if it crimps earnings and dividends.

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Neil Shah of Edison Group says that tech-focussed, early-stage venture capital company IP Group is worth taking a look at. With a market cap of £460m, some of the businesses it invested in are now quoted and, while the interim results reflected a difficult period, things are now improving. With some facinating things in the portfolio, the long-duration investor IP is at a 56% discount to net asset value.

Discoverie creates and sources electronic designs and components and has just moved into security. It's an attractive long-term business with high returns yet is at a 27% discount to its peers. More info is on the Edison website (https://www.edisongroup.com/).

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