We have turned to the state to protect us in a most extraordinary way, note John Micklethwait and Adrian Wooldridge in their latest book, The Wake Up Call. We have given up “our most cherished liberties”, including the right to leave our own homes. Terrified on the one hand of death, and on the other, economic ruin, we have allowed the state to regulate – and finance – our every move.
This could have been nice for those who went into politics to control others: the whole thing has made them very important and very powerful. The problem is that it has also revealed they aren’t very good at using said power. In the UK, it seems we have a substandard health service; an inadequate bureaucracy; and a decision-making system that is both too centralised and too localised. Our government has been growing bigger for years. It has most definitely not been growing better (something Dominic Cummings has long been pointing out). Perhaps we might end this crisis thinking about how to do less, but better, rather than continuing the long-term trend of doing more, and worse?
That said, the UK state is hardly alone in this dismal performance (acting too slowly, then too heavy-handedly, behaving as though the science on the prevention of new viral pandemics can be settled in a matter of months, failing to test, messing up equipment orders, etc). Most European countries have poor records too. By mid-year, even Germany “had a mortality rate that was roughly 20 times as high as South Korea’s and Japan’s”. Almost no one comes out looking good.
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Given all this, while it is fair to price a degree of government incompetence into the UK stockmarket, things may have gone too far. UK equities have underperformed both the US and Europe this year, and have lagged the MSCI World Index by 43% since 2000. The FTSE All Share is on a price/earnings ratio of about 17.5 and the FTSE 250 on 15.1. The US is on 27 and most European markets are over 20. If the UK market were a fund, says William Dinning of Waverton Investment Management, “it would have been closed down or merged with another by now”.
It’s not just about Covid of course. There’s Brexit (which we remain convinced too many people are irrationally gloomy about); the fall in dividend payouts; and the perception that we are low on high-growth and tech stocks. So what, bar a vaccine, might be a catalyst for change? A trade deal with the EU would cheer a lot of investors up fast (possibly not just in the UK). Failing that, so might the start of next year: the waiting is likely to prove to have been much more worrying than the event itself. Clarity over dividends might help – many companies have already reinstated them or indicated that they plan to, but the removal of all restrictions would be good – as might a realisation that some of our unfashionable big companies are still capable of making real money. The analysts at Stifel like Fidelity Special Values and Edinburgh Investment Trust. On page 26 Max looks at his favourite smaller company trusts – with plenty of growth, plenty of tech, plenty of value and crucially, plenty of good management.
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