Posted on 13 January 2017
New Year – that time of year when the financial press is full of forecasts and predictions; so perhaps I should add mine as regards company values and the M&A market? Well, maybe not according to fool.com which comments “No one … has any idea what the stock market will do over 12 months”. Apparently Warren Buffet has often said as much too.
Maybe a look at the track records of the broadsheet newspapers’ recommended portfolios will demonstrate the worth of carefully researched tips … well hardly. In 2016 only two of seven of these newspapers’ share portfolios managed to beat the 14% rise in the FTSE 100 … and three actually managed to lose money! For the record, The Sunday Times did best, returning just over 26%, and the Guardian was last with a shameful 13.5% loss.
I guess the truth is that 2017’s share value growth will depend on market sentiment as much as canny analytics – things like investors’ reaction to short term political and economic shocks or bouts of (unexplained) euphoria, and market confidence and mood in general. Very difficult to predict!
On that basis you’d perhaps assume the domestic and global political and economic turmoil of 2016 would have trashed share value growth. Not a bit of it; on the first day of 2017 trading the FTSE 100 peaked at over 7,200 having already risen 14% during 2016 (including 20% since the June Brexit vote.)
As for M&A, 2016 was the second best for global deals since 2007 – although, at $3.6trn it was 17% below 2015’s record $4.37trn. Because the US accounts for approximately 50% of global deals maybe Trump’s planned tax breaks and the shares rally following the election will encourage more deals in 2017. But on the other hand, maybe the likelihood of interest rate rises could throttle an M&A boom based on cheap borrowed money? Who knows? All I’ll say is that, at Smith Cooper, we’re seeing high values (although we can’t see why they should rise much further) and a plentiful volume of deals in our pipelines. So, we’ll see where that takes us!