Every reason to be cheerful, says top fund manager

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Although layoffs and falling profits help to create a sense of gloom, leading fund manager Mark Costar believes that there is every reason to be optimistic.

As long as we continue to have relative stability, there is plenty of scope for sustained economy recovery,’ said Mr Costar, a partner and fund manager at JO Hambro in London.

‘Stability in the market allows companies to take stock and make sensible, strategic, long-term investment decisions.

The last couple of years have been driven by consumer spending, but the next few years will be more influenced by corporate spending as companies invest in research and development, in software and IT, in their people and in physical resources.

As well as stability, Mr Costar – who was recently voted one of the top three fund managers in Britain by Investment Week magazine – sees another driver as the stock market.

Particularly compelling evidence is a big increase in bid activity,’ he said.

‘That is demonstrable proof that companies are putting their hands in their pockets and buying strategic assets at low and depressed prices.

We are at the bottom end of the stock market cycle and there are plenty of opportunities for investors to make some good returns.

Importantly, the economic cycle and the stock market cycle are two different things.

It is possible to have a depressed economic cycle but a rising stock market – the two are distinct but obviously influence each other.

The reason for this is that the stock market is a discounting mechanism which is always looking forward.

Now it is beginning to anticipate corporate profits in 2004/05, which are predicted to rise as long as the markets remain stable.

The last couple of years have been driven by consumer spending, but the next few years will be driven by corporate spending.

If the stock market does rise – and I think it will – that will drag up the financial services industry as a whole.

Mr Costar’s optimism extends to Jersey, which he visited last week to talk to intermediaries about a UK growth fund he manages.

The key issue for Jersey is staying competitive by continuing to offer a value added service provided by a highly skilled workforce.

Competition will have a big impact on the Island, and allowing outside companies to compete against established monopolies will prompt the consumer to get better deals and spend more money.

It could also help to dilute Jersey’s reliance on the finance industry.

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