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Gloom and boom

If the pandemic is responsible for sparking a whole new way of thinking about work among employees, challenging the notion of when, where and how work is performed, it seems it is also encouraging companies to re-evaluate their own futures, and in the process giving the stock market its own recruitment headache. Beleaguered cinema chain Cineworld has had a dreadful lockdown experience, part of which has been spent looking enviously at the fortunes of its US peer AMC, and has now decided to try its luck with a dual listing as Arthur Sants reports.

Investors will still be able to trade BHP shares and receive dividend payments. But BHP’s accompanying change of direction will mean a very different looking miner (see Alex Hamer on 'BHP says hooroo to FTSE 100') and its exit from the index now that it will no longer have a primary London listing will mean a very different looking FTSE 100. For all the angst over the past few years about London’s heavy exposure to out-of-favour sectors such as mining, rebalancing the index through the removal of a globally significant player and rock-solid constituent was never envisaged as a solution, and it certainly won’t help a UK market rerating – the “loss” of BHP may in fact encourage investors to continue giving London a wide berth. 

Despite a reasonable recovery from March 2020, the UK market remains unloved and lagging other markets. The heavy focus of Lindsell Train Global Equity on the UK market has cost it dear as Dave Baxter highlights in his report on the fund. All the things that have counted against the UK for the past half a decade remain in place, and new quibbles and concerns have emerged such as this year’s growth being borrowed from next year and the lasting effects of the pandemic on productivity, as we interact with colleagues differently, and on certain sectors. I am shortly taking my first flight in ages, to a country on the green list (Germany) which means more lenient requirements but, even so, I am put off by the number of hoops I need to jump through. 

And while the inflation number this week was a positive looking 2 per cent, not many people are buying the Bank of England’s story that higher inflation will be transitory, rather than a lasting threat, especially with soaring petrol prices adding to the risks. It’s not a threat to be taken lightly and, as Bestinvest’s Jason Hollands pointed out in a note, Ronald Reagan once likened inflation, with good reason, to a hitman. Then there’s the looming withdrawal of the furlough support scheme this autumn when employers become fully responsible for the cost of their employees again.

But investors would be wrong to focus only on the negatives. We have now moved into a phase of living with the virus which is a huge step forward and that’s despite an ongoing high infection rate, in England at least, where the ONS puts it at one in 75. Recent UK economic growth has been strong, dividends payments are returning to pre-Covid levels, corporate profits have rebounded and earnings forecasts are generally rising. Crucially, the jobs market is incredibly buoyant. ONS data this week shows that employment numbers are rising strongly and employers continue to report difficulty recruiting staff. And that is good news for consumer confidence.