Stimulus packages and high public sector deficits not sustainable in 2009

by Ashik Shah on 31 October 2009

A consistent approach to stock market investment as investment in pieces of businesses has meant that the fund does not get caught up in the momentum of the markets.  Nevertheless, the fund did suffer when the global financial system went into “melt down.”

Markets have continued to rise driven partly by optimism and partly by liquidity and cheap money.  Some economic activity was temporarily boosted by stimulus packages and quantitative easing.  This will have inflationary consequences.  Indian and Chinese economies have grown well, assisted respectively by domestic demand and exports.

However, there is a danger that current markets may be experiencing a bubble, and there is room for caution.  Kurm Investments’ investments in public markets are still at low valuations relative to intrinsic values, based on cash flows or underlying asset values.  In addition, Kurm is maintaining a degree of cash so as to take advantage of any possible volatility.  With this in mind, Kurm has increased its exposure to Asia a little in December, but in portfolios which are far from overvalued.

In the private equity space, Kurm has increased its exposure by investing in December in Jon Moulton’s new vehicle, Better Capital.  Zeus has done well with XLN Telecom, although we should not count our chickens before they hatch.  Alchemy is still under observation.

Low interest rates, government stimulus packages and high public sector deficits are not sustainable.  Growth which is based on them, as we have experienced in the “western” economies recently, is thus not sustainable.  To the extent that emerging economies and government bond markets have risen based on these factors, investors need to be cautious.

However, having said that, there are still opportunities available for long term investors in all markets.  Kurm will continue to be advised to add to its investments in the Americas and in the UK, as well as in Asia, and elsewhere, on an opportunistic basis.  The approach will be driven by a focus on business fundamentals and realistic valuations and not by macro-economic factors or investment fads.  It is this approach which has enabled Kurm to preserve and grow investors’ capital over the long-term.

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The views expressed and comments made on this website are not personal advice based on your circumstances. The purpose of this website is to provide information and analysis to help you make your own informed investment decisions. If you are not confident making your own investment decisions you should contact a firm which is authorised and regulated by the Financial Conduct Authority (such as Ashik Shah & Co. Ltd.) so that a qualified financial adviser, after considering your personal circumstances and investment objectives, can make personal recommendations of investments which are suitable for you. Whether you make your own investment decisions or prefer to follow the recommendations of a financial adviser you should always remember that your capital will be at risk and that investments can go down in value as well as up.

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