Stocks pass the test of time

Unlike other asset classes, well-run equities have what it takes to survive in the long run, says Merryn Somerset Webb. So where should we all be buying?

In our interview this week, Russell Napier notes that for the first time in his career he is finding that fund managers are "flummoxed". They have no idea what is going on, or what to do about it. The point is nicely proven by Alex Hammond-Chambers in the annual report of the Hansa Trust (a niche special situations trust heavily invested in a marine services company operating in Brazil).

Alex has been knocking around the City for 40-plus years and never has "the outlook been more uncertain, the tea leaves more difficult to read". The fundamentals of markets are constantly being trumped by politicians and central bankers, making it all but impossible to know how to invest.

But in all the mess, Alex thinks there is one safe haven. It isn't gold or wine or bonds. It's equities. In times of both deflation and inflation, good companies have the "ability and flexibility" to protect their balance sheets, profits and dividends in a way that other asset classes don't. Russell agrees. Equities, he says, are run by people, and if they are run by good people, that makes them adaptable enough to survive over the very long term.

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Remember the bit in Catch-22 when a US soldier argues with an old man in a whorehouse, says Russell. He's lived through poverty and a couple of world wars, through Mussolini and through the arrival of the Germans and the Americans with really very little changing in his own circumstances. The soldier thinks he is a "shameful opportunist". The old man just knows "the secret of life": he is 107 years old. The same goes for a good many Italian corporations, says Napier. They've made it through the last 100 years. They're still there.

So if you are going to up your equity holdings (note the risks remain huge), what should you buy? It isn't US or Chinese equities: in the States, firms are beginning to miss earnings forecasts and in China "stagnant export markets", overcapacity and the over-influence of the state make the market all but uninvestable.

However, as we have said before, it might be Europe. A recent report from BCA Research has a chart showing that, relative to the US market, European equities are near a 40-year low, which suggests a "once-in-a-lifetime buying opportunity" is close.

Those Italian corporations? They are, says Russell, "decidedly cheap". And as for the Hansa Trust? I'm told by Simon Milne of Aubrey Capital Management that we should buy shares in that too. Its A' shares are non-voting and are soon to exit the FTSE All-Share. As a result, they have been sold off by index trackers and now trade at a 32% discount to the net asset value of the shares.

That seems cheap, given it's a good trust and its other class of shares trades at a smaller discount of 22%. But I wouldn't go in too heavily. Why?Brazil might be about to suffer a "nasty hangover of its own".

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.