The FTSE 100 seems to have put May’s wobbles behind it: there is no shortage of new issues and the stock exchange routinely handles levels of business that would have been considered out of the question a few years ago, says Anthony Hilton in the Evening Standard. But blow away the short-term froth and there is a much less happy story to tell about the direction of British share prices and the UK market’s long-term health.
The earnings multiple of the market is currently between 12 and 13, its lowest in a decade. This could be taken as a sign that equities are cheap. Alternatively, it may be a signal that people have lost their appetite for shares, since the figure can also be interpreted as meaning the stockmarket is at a ten-year low. A comparison of the UK stockmarket’s performance with those of other mature economies suggests the second explanation is true; since Labour took office in May 1997 it has been one of the most disappointing developed markets.
Labour is at least partly to blame for the collapse of interest in stocks, says Hilton. For starters, consider Gordon Brown’s assaults on the investment industry, most infamously the £40bn in extra taxes from pensions schemes; his legacy here is “generally disastrous”, says Jill Insley in The Observer. But Brown has also overseen a slump in personal savings – to almost zero if you exclude statistical quirks, says Hilton. Much of our supposed economic growth has merely been increased borrowing. “We are now a nation in debt… such people do not have surpluses to put into the stockmarket.”
by Graham Buck