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Plenty of shares fall in a bull market

John Redwood, Charles Stanley’s Chief Global Strategist, looks at how the bull market has been driven by technology and innovation.

by
John Redwood

in Features

11.09.2018

Over the last ten years to the start of September, the Eurostoxx index of leading European shares has stayed around the same level. It did fall a lot from September 2008 to March 2009 during the banking crash then rallied strongly. Over the same time period Nasdaq, the US technology index which just happens also to be the world’s second-largest stock market, has risen about 250%. This has meant the largest market, the complete US stock market, has also been a strong performer, thanks largely to those high-flying technology shares within it. We need to understand this astonishing divergence, and think about whether it can continue.

It is no wonder many investors and commentators have not believed in this long and substantial bull market worldwide that began in the spring of 2009. The world started to mend the damaged banking systems of the US, the Euro-area and the UK and markets recovered a bit from the spring of that year. For many, there has been no great bull market since then. Economies have in the main recovered and exceeded the levels of output they reached before the crash, but there has been substantial industrial change and a technical revolution. Consumers spend less on the consumer items of the age including music centres, TVs, radios and mobile phones, and more on home computing, smart phones, music and film downloads and social media.

More importantly the all-conquering worldwide web holds consumer attention and forces massive change in business models. This week we hear news that Debenhams has called in KPMG to help it cut costs as it battles internet competition for the retail pound. House of Fraser went into administration before finding a new buyer. Many high street groups are looking for ways to cut their rent bills, reduce their staff and reduce the number of stores. M&S, the traditional anchor tenant of many a High Street, has a store closure programme. All this change has driven the Debenhams share price down from over £1 a few years ago to 12p today. The M&S price has halved from the higher levels reached in 2015.

The High Street pressures fan out into the supplier base. The Mulberry share price is down from a high well over £10 and languishes at under £4 today, following bad news from House of Fraser who were an important customer. These difficulties are replicated in many other business areas. This week Dignity, the UK-quoted funeral business, is back in the news as it spends the year cutting prices and improving its “digital marketing and brand strategies”. The company presses for more regulation, as it strives to deal with growing web-based competition. Its shares reached a past high of well above £25 but now trade at under £10.

Banks and utilities have also been struggling in recent months. They themselves are subject to competitive forces, and to regulatory interventions as governments seek to offset the perceived market power of the larger players. Their share prices have also been under pressure.

The winners are clear. Consumers get cheaper prices and more choice from the comfort of their own homes, as they shop on the web. The Amazon share price has tripled from 2015 to today as they hoover up more and more of the retail dollar and pound spent. A good traditional brand can survive in this new world, but to do so it needs to spend on its internet offer and its digital presence, and may need to accept lower margins.

Meanwhile the winners themselves are approaching that point where they attract more regulatory interest and maybe additional taxes. These are more likely to do damage to the share success stories of recent years than any concerted fightback by traditional businesses. So far, governments around the world have talked tougher than they have acted, but it is possible the year ahead will bring some changes which adversely affect the profitability of the new economy companies. We need to remember just how central the digital revolution is to the bull market, and how it can still do more damage to older business approaches.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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