Latest issue of MoneyWeek magazine
Issue 1006, 3 July 2020. Subscribers: read the digital edition here
From Merryn Somerset Webb, MoneyWeek's editor-in-chief
There’s a lot of pessimism about at the moment. Unusually, not much of that pessimism is on show at MoneyWeek. I am still fairly convinced that the economic recovery from the Covid-19 virus will be V-shaped – a view now shared (somewhat surprisingly) by the Bank of England’s chief economist Andy Haldane (read his views in full at bankofengland.co.uk). The recovery, he says, has already been “materially faster” than expected.
We have also been reasonably impressed by the government’s economic response to the crisis so far (the building of a financial bridge over the crisis via grants, loans and furloughing is the key to the “V”). Parts of Project Speed also look like something of a silver lining. Of course it should be easier to make shops into houses. And while we aren’t mad for more government intervention into everything, if you have already identified £5bn of capital projects that are happening at some point anyway, why not get on with it? We’ll leave aside for now the question of why – when there is no very obvious crisis – things have to be done so slowly.
Good news: equity is back in favour
Still, my favourite positive thought at the moment involves none of these things. Instead I am thrilled by the number of equity raises we have been seeing recently. By 26 June, says broker Peel Hunt, 89 firms – many small – had raised £13.5bn in the UK market. You could argue that the fact that all these firms need cash is a bad thing. You could also say that it is wonderful that so many firms – and small firms in particular – are discovering what a wonderful thing it is to have an equity listing. To need cash; ask for cash; and have cash from long-term supporters of your business almost immediately.
Before Covid-19, debt was the thing (except of course for in Japan, where cash has long been the thing). Everyone wanted an “efficient balance sheet”. Equity was old hat – the number of listed companies was falling and the management of small firms spent much time complaining about the onerous demands of regulators and their shareholders. They aren’t complaining any more. That’s a very good thing: the more listed companies there are, the more chance we all have to share in Britain’s very good corporate growth, rather than to see it increasingly focused in private equity hands. Listen to my podcast with Laura Foll, co-manager of Lowland Investment Trust and Law Debenture. We discuss all these things.
Got money? Spend it
Finally there is good news in the way households have been rebuilding their balance sheets during lockdown: it looks as if the household savings rate could have hit 20% in the second quarter of this year (against 8.6% in the first). A lot of us will now have some money to spare. If you do, maybe you can give a helping hand to my conviction on the V-shaped recovery. Spend it on a holiday. Spend it on a new house. Spend it on a motorbike. But whatever you do, if you can afford to, spend it. Think of it as your duty to the rest of us.