It’s been a benign week for global stock markets, led higher by Asia’s partial rebound from its preceding weekus horribilis.
Given the lack of action in the immediate past, most commentators have turned instead to the immediate future. Specifically, they’re commenting on what they imagine might be said at the Jackson Hole meeting of central bankers today (Friday), and what they imagine markets might do in response. I haven’t yet seen any comment about what they imagine central bankers will do in response to the markets’ imagined reaction to their imagined meeting though. I suspect that’s because, much as it reflects what happens in reality, it sounds silly in a newspaper.
We’ll come back to that meeting, because it will matter, and it does feel like this week’s drifting markets has been a holding pattern, with investors waiting to see what’s said later today.
Not everything drifted though. Shares in UK supermarkets have had a bumper week – so much so that my mum emailed me for the inside line. Sadly, she emailed the wrong person: my speciality is picking good fund managers, who then pick the stocks for me. But I can read the FT as well as the next man, and it seems it’s due to speculation that there’s a takeover spree heading their way.
WM Morrison is already the subject of a spiralling series of bids, and this week it was Sainsbury’s turn to take centre stage, with takeover rumours causing its share price to spike by more than 15% on Monday. So, who is buying them? The answer, certainly in the case of Morrisons, is private equity.
The term “Private Equity” is bandied around a lot, but perhaps not all of us know exactly what it is. The simplest answer is what it’s not: “Public Equity”, which is shares that are listed for anyone to buy on a stock exchange. So private equity is, instead, shares in companies, or often the whole company, held off the market by individuals or, in this case, funds run on behalf of individuals.
Which brings us back to those central bankers who will be chinwagging (albeit virtually) at Jackson Hole today. Loads of money has flown into private equity funds in recent years, just as loads of money has flowed into almost every financial asset you can think of (including ones that have only just been invented, like cryptocurrencies). This coincides with central bankers creating loads of money through quantitative easing (“QE”) which they use to buy financial assets.
I use the word “coincides” with a wink, because it’s no coincidence: Their actions are pushing up asset prices everywhere. Hence the focus on their comments today – any indication that they might stop QE, or even slow it, may mean less future money to buy stuff and push up prices. Now I’m speculating on imagined future events myself – something I promised myself I wouldn’t do (at least not publicly, anyway) – which means it’s time to stop imagining and get back to real life.
Have a great weekend,
Simon Evan-Cook
(On Behalf of Raymond James Barbican)
With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.