Category: Financial Planning

A 90^th Birthday & tears in the House.

After an exhilarating first half of 2025, July got off to an, err…. eventful start with a 90th birthday celebration and tears in the House of Commons.

Although one of the oldest stock market indices in the world, few investors today pay much attention to the UK FT 30 index, if indeed they know about it at all. Its protracted erosion in status has been accentuated by the widely perceived decline in London’s stock markets following the financial crisis and Brexit.

Yet anyone who owned a portfolio of equity shares 50 years ago will vividly recall being mesmerised by the FT 30 index’s day to day gyrations in the vertiginous 1970s bear market-one of the worst in living memory. Back then the popularly known FT index which celebrated its 90th birthday on the 1st of July was the exclusive focus of attention for market performance.

The index was spreading unremitting gloom based on a global oil price shock, ailing sterling, soaring inflation and looming corporate insolvencies, not to mention a property bubble and an imploding banking system. From May 18, 1973, to January 6, 1975, the UK’s oldest continuous equity index fell by a scarcely believable 73 per cent.

Equally unforgettable was the panic engendered as the FT 30 index recorded a daily fall of 2 per cent or more on 50 separate occasions during the course of 1974. The market bottom seemed ever elusive, but the index’s low point came just after the collapse and state rescue of Burmah Oil, a staple holding in the most stolid of portfolios.

And yet in a true testament to the “lessons from history” theme which we often refer to when addressing stock market volatility, the FT30 index went on to record its’s best year ever in 1975 when it doubled in value and then went on to power its way to new highs through the late 1970s and early ‘80s.

The index is now being relaunched by the Financial Times for its 90^Th anniversary after many semi-dormant years. Part of the aim of the relaunch, and the interest for investors, is that it highlights the FT30 as a monitor of the British economy.

The FT30 index differs from the FTSE 100 and FTSE All Share in that its constituent companies are equally weighted rather than calculated by market capitalisation and are chosen for their Britishness. At a more fundamental level, the index reflects the dramatic evolution of the UK economy. With its unique long-term view that reflects market movements linked to events such as the fall of France in the second world war, the Cuban missile crisis, and the miners’ strike, the FT30 is a key barometer of market sentiment over decades and tells the story of the changing shape of British business.

On the same day that the FT 30 index celebrated its 90th birthday, Rachel Reeves was trying to hold it together but in the end her lip wobbled, and the tears began to flow. Distraught and exhausted, Britain’s chancellor of the exchequer sat in the House of Commons, a distressing symbol of a Labour government in deep trouble.

And then something strange happened.

As rumours swirled in the City of London that Reeves’s tears were a portent that Britain’s first woman chancellor was about to be sacked-Prime Minister Sir Keir Starmer had failed to explicitly guarantee her job-government bond prices started to tank with a corresponding rise in yields and government borrowing costs. The bond markets were making it clear they wanted her to stay.

The question the bond market was asking was can the iron chancellor also be a crying chancellor? Perhaps?  This is a rare example of financial markets actually enhancing the career prospects of a politician.

Reeves, a former Bank of England economist, has made plenty of mistakes but the City sees her as a firewall between the bond markets and the fiscally incontinent Labour MPs who had just forced ministers to abandon, in chaotic scenes, a £5billion plan to cut welfare costs. More tax rises now seem inevitable.

When the Prime Minister did eventually confirm her job as Chancellor was not in jeopardy, and that she would remain as chancellor for the duration of this parliament, the bond market applauded, government bond prices recovered and yields, and borrowing costs, fell.

Despite her mistakes, the bond markets seem to trust “Rachel from Accounts” to stick to her “iron clad” fiscal rules, allowing her to borrow to update Britain’s creaking infrastructure. For now, at least, she seems to have established economic credibility, and the City trust her.

Beware of money that grows on trees!

In 1271 Marco Polo set off from Venice to meet the Mongol ruler Kublai Khan in China. After four years of travelling, he reached Cathay and was welcomed by Khan who made him Ambassador to India and Myanmar.

The record of his travels contains comments on the sophistication of China compared to Europe not least in use of paper money. The bark of Mulberry trees was processed and used to replace gold or silver as currency. The incredulous Italian considered it as wondrous as alchemy, though he noted that any merchant who declined to accept Khan’s money faced execution. So perhaps not so wonderous after all!

Most of the time we all get on with using money without worrying about what it is—— or having to be threatened to accept it. However, today there is increasing concern in the media about the currency of global trade, the US dollar.

The big worry with currencies is whether they will hold their value. This is fundamental to their acceptance. The ease with which governments can print more money can be dangerous. With money literally growing on trees, Kublai Khan could just grow more trees, but the value of his bark money consequently diminished and his people learned about the challenges of inflation.

Despite our general faith in the principle of money over the past century, few currencies have convinced global savers that their value will endure. The US dollar is an exception. That is why it has reigned supreme as the currency of global trade for 75 years.

Will Donald Trump tarnish that record and damage the dollar’s standing? He is certainly giving it a go. The dollar has fallen 10% against most currencies this year. A weak dollar is part of Trump‘s policy despite this being unusual for a right winger and despite making Americans poorer in sterling, euro, and renminbi terms. Improving export competitiveness is more important.

Does this matter for investors? There are reasons to be concerned. We have seen the dollar weaken at the same time as long-term bond yields are rising. Media commentary around this might be causing those holding US equities and US government debt to fret.

Here is the issue. Donald Trump‘s big bad (sorry—“beautiful”) signature tax bill will add significantly to US borrowings and only modestly to tax receipts, so the US government has a lot of bonds to issue and their riskiness is rising.

Credit agencies have recently downgraded the US sovereign debt rating. Nobody thinks the US will fail to pay its bills but if you add the impact of a falling dollar to tariff-induced inflation, then investors are potentially being shortchanged on the value of their US treasury holdings.

Could other currencies replace the dollar? In Europe the Deutsche Mark was strong, but the euro has not achieved that reputation although ECB head Christine Lagarde believes it has the potential to become more important in global trade.

In 2005 Beijing moved from managing the renminbi against the dollar to using a basket of currencies. US Federal Reserve economists have noted that the renminbi’s role in international trade is increasing and is likely to grow. But it seems unlikely that any of these currencies will challenge the dollar’s status for a while given the breadth, depth and ubiquity of dollar denominated financial structures.

That should ease some of investors’ current worries around the safety of the dollar. Yet a currency’s reputation as a store of value is undoubtedly undermined by undisciplined economics.

A weak currency deters overseas investors from buying a country’s bonds. There is a concern that recent events may lead Beijing to buy less US debt which could be quite a problem given how much needs to be issued. That could cause the yield the US has to pay to attract investment to rise substantially which would be a downward force on the value of existing Treasury holdings.

Unsurprising many long-term investors are reducing the amount of their assets in dollars. Currency risk is part of the rationale and there is concern that the US administration no longer plays by the rules. It is quite a statement of governance and trust when investors switch US assets into Chinese, Asian and Emerging Market ones.

There is also a perception that US equities should not represent 70% of the global index when their valuations look high. Valuations are a strong argument for rebalancing equity portfolios away from the US.

In 1716, 400 years or so after Marco Polo returned to Venice, the first paper money was issued in Europe when a maverick Scot by the name of John Law, printed paper money in France. When the French cottoned on to the fact that this money was not backed by noble metals, rip-roaring inflation and a banking crisis soon followed.

History rings too many warnings for us not to accept that the US dollar and US dominance may one day be superseded.

“If you are not confused, you don’t understand what’s going on”.

The US stock market has staged a sensational recovery from the lows of early April, following Donald Trumps “Liberation Day”. The low point of the S&P 500 on 8^th April was 21% below its February all-time high and yet in the following 55 trading days the index mounted its fastest ever recovery to set another record high.

Trump’s delay in implementing tariffs, along with the signing of some trade deals, notably with the UK and Japan, and now Europe, helped to calm investors nerves. The apparent success of the US bombing raid on Iran’s nuclear facilities did no harm. Iran’s response was muted and oil prices settled in the mid $60s per barrel.

The Nato summit was another triumph with members agreeing to increase defence and security spending to 5% of GDP by 2035. The children responded to daddy’s admonishments. Whisper it quietly but some commentators are beginning to think that Trump’s unorthodox, some might say bully boy, economic tactics might be working. The next stage in the journey is the significant tax cuts included in the ‘big, beautiful bill’.

There are many reasons to feel confused by current American policy. If you want to feel even more baffled just look at the markets. Bond markets are predicting modest rate cuts from the Federal Reserve which normally implies lower growth and lower inflation.

However, equity prices suggest an improving economy. American stock markets are at record highs and Wall Street analysts are projecting continued gains amid strong earnings forecasts.

The scene is set for the second half of 2025 to be as exhilarating as the first half. Buckle up and be prepared for more volatility but you have nothing to fear. Volatility is normal and brings opportunity. Just remember 1974 and April 2025.

Please click here to access the Clarion Investment Diary for July which provides a snapshot commentary of recent economic and political events and also full details of the Clarion Portfolio Funds.

As always, we thank you for your continued support and we look forward to updating you regularly throughout 2025. Please get in touch if you have any questions.

Keith W Thompson

Clarion Group Chairman

July 2025

Risk Warnings

Any investment performance figures referred to relate to past performance which is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments, and the income arising from them, can go down as well as up and is not guaranteed, which means that you may not get back what you invested. Unless indicated otherwise, performance figures are stated in British Pounds. Where performance figures are stated in other currencies, changes in exchange rates may also cause an investment to fluctuate in value.

The content of this article does not constitute financial advice, and you may wish to seek professional advice based on your individual circumstances before making any financial decisions.

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