Deficit danger for equities

Article Abstract:

The United Kingdom has seen its trade gap widen in 2nd qtr 1999, and this may have continued in Jul 1999. Equity valuations have often fallen when trade gaps have widened. Output growth could be hit by supply side constraints, and inflation could rise, though the deficit is still small given that unemployment is low. This could be due to low wage inflation and better industrial efficiency, which may have helped the supply side to improve. The deficit may also shrink as economies in Asia and elsewhere in Europe recover and exports rise. There is a debate as to whether the deficit will rise in 2000, or whether it will decrease.

Balance of Payments, Economic aspects

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Uncertain prospects for quality in value stocks

Article Abstract:

Investors seeking value may find that the United Kingdom market changes rapdily. Value stocks have tended to give a strong performance in the months to Jun 1999, and better economic conditions with a drop in interest rates may mean that investors have reduced the quality of their acquisitions. Inflation could become a problem if the business cycle is on an upturn. Cyclical companies could then increase prices and push up their margins. Slow growth and low inflation may mean that many value stocks do not see an earnings recovery.

Portfolio Management, Business cycles

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