Only a fool would call the bottom to the current lunatic market, but trading this week has a calmer feel — so far.
There’s a pick-up in the number of brokers recommending clients buy shares, and not just in the thriving supermarkets. Tate & Lyle, Lloyds and sausages group Cranswick were among those tipped as “buys” today.
Big pension funds may start snapping up shares in a big way soon.
When the markets crashed, they sold some stock to bring in cash in case investors demanded redemptions. But most punters held their nerve, believing the markets will bounce back. Looming ISA deadlines will bring in more cash — albeit less than usual.
So funds have money to spend.
Some of it will go into new stocks as managers adjust their portfolios for the next phase of the crisis.
Some will go into supporting equity raises from their existing portfolio players; the strongest, most deserving businesses in bombed-out sectors like travel. Upper Crust airport cafés group SSP was ahead of the curve, raising £216 million last week.
Other decent companies are in talks now, advisers say.
Most companies are reluctant to raise more equity.
They’ll lean on their revolving credit facilities or the bond markets to get them through.
That makes sense in many cases — equity is permanent, debt gets paid back. But what if, in six months, you’re still in trouble and you’ve used up the overdraft?
For those wanting to avoid a crisis further down the line, a quick equity raise — perhaps combined with new debt — will be the best option.
The old adage, “go big, go early” springs to mind.
