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“The FTSE 100 started the week modestly higher amid growing confidence the interest hiking cycle has peaked,” says AJ Bell Investment Director Russ Mould.
“Weak jobs figures from the US on Friday were the latest bit of news to underpin this status and with both Bank of England governor Andrew Bailey and Federal Reserve chair Jerome Powell due to speak this week, investors will be watching closely to see if they seek to counter or reinforce this narrative.
“For now, we’re still in a world where bad news equals good news because of the implications for rates. At some point though the market will turn to the implications of a significant weakening in the economy on corporate earnings.
“Prudential has had a very clear strategic direction of focusing on Asia in recent years and there are signs the unsettled Chinese economy and market are starting to weigh on the company, with a slowdown in new business in the third quarter.
“The challenges should be kept in perspective. Consumer demand has remained resilient for now and Prudential still operates in immature markets with more significant growth potential than those targeted by counterparts operating in the West.
“Scottish Mortgage was once the market’s leading investment trust, with great clamour to own its shares, but market dynamics have shifted and having large exposure to unquoted companies went out of fashion.
“The big fear stalking Scottish Mortgage is its unquoted holdings would see their value marked down aggressively.
“Interestingly, the shares’ discount to net asset value has narrowed somewhat since the spring, and today’s publication of first-half numbers may provide a measure of reassurance to shareholders as its net asset value fell, but only modestly.”
Hipgnosis Songs Fund
“Just when you thought it couldn’t get any worse for Hipgnosis Songs Fund’s shareholders, along comes another bit of bad news. The music royalty vehicle was originally pitched as an investment that was uncorrelated with markets, offering the potential for capital growth and a steady stream of generous dividends. It has now failed on both accounts.
“Having backtracked on a recently declared dividend to avoid breaching banking covenants after realising it would get less than expected cash flow from certain royalties, Hipgnosis has now said it will not pay dividends for the rest of its financial year as it needs to set aside cash to pay for bonus payments on some royalties triggered by meeting specific performance criteria.
“Understandably, investors will be peeved at this news, particularly as it has dragged the share price back close to its all-time low.
“The investment company is in a real mess and big decisions need to be made about its future. The board needs to act fast to determine whether some of the portfolio needs to be sold to raise cash to help pay down debt, new people need to be found to manage the assets or if the business should simply be wound up.”
These articles are for information purposes only and are not a personal recommendation or advice.
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