COMMENT: As confidence slowly but surely returns, companies can begin to rebuild margins

THE CELEBRATION in September of 250 years of Guinness in Dublin stood out in that it was one of the few positive events in an otherwise gloomy year.

It brought some respite to thousands of people the length and breadth of the country, from the significant challenges and pressures of the year.

Now that 2009 is behind us, let us look at 2010, and what that might mean for Iveagh LLP and for the potential drivers behind equity markets.

Iveagh LLP is the wealth management business of the Guinness family.

Based in London it has carefully steered a tight course over the past 24 months, managing to avoid the nightmares of falling equity markets, banking and liquidity crises and currency fluctuation.

In 2008, the Iveagh Wealth Fund declined by 2.1 per cent, which was somewhat better than most other funds in what was a terrible year for markets and investors.

Up to the end of November 2009, the Iveagh Wealth Fund, which is now £146.1 million (€162 million) in size, had achieved a positive return of 6.8 per cent over the previous 12 months.

There is reason for cautious optimism in 2010, fuelled by the current belief that the world is going to undergo a healthy level of economic activity and regeneration.

This is likely to herald a trend that demonstrates growth across economic and industrial benchmarks and indices, possibly ahead of predicted outcomes.

Iveagh LLP’s forecasts are for economic growth of 5 per cent and 3.5 per cent for the developing and developed worlds respectively.

Leading the charge will be Asia and the euro zone, where economic performances will help to rally equity markets around the world.

Our thinking is simple. Unemployment levels are beginning to level off. In fact, unemployment across Europe has not reached the level experienced elsewhere.

And while European governments don’t have the same funding requirements, they have benefited from the monetary and fiscal response of a world in economic crisis.

European consumers are in a pretty good state, benefiting primarily from low interest rates.

Now, as confidence slowly but surely returns, companies can begin to rebuild margins as consumer spending starts to pick up. Remember, that until the onset of the credit crisis, corporate profit margins were the highest that they had been in a generation.

As confidence returns, companies will begin to see the benefit at the bottom line.

In turn, the equity markets will begin to rally from a rejuvenated economic and commercial environment.

There have been calamities with Dubai, Greece and Ireland experiencing major deficit problems.

We believe these are being managed through a range of measures that have been set in place; obviously Nama (National Asset Management Agency) in Ireland’s case.

This, however, leaves the problem child of the UK, which doesn’t have rich neighbours, wealthy relations or a strong disciplinarian aunt to help bail them out. So what is going to happen?

The UK has the potential to cause a further major economic headache for Ireland.

The UK government is filled with intransigence about tackling the country’s monetary problems, and certainly won’t do anything substantial this side of the 2010 general election.

Meanwhile, the UK’s problems keep growing.

If Labour continues to rise in the opinion polls, the chances of a run on sterling will grow commensurately.

This election could be the first since Margaret Thatcher’s win in 1979 that actually moved markets. Unless there is a radical change in fiscal and monetary policy, the world’s confidence in the UK will be fundamentally undermined.

Bond investors will think more than twice before buying British government debt.

The Irish Government and businesses will be carefully watching events across the water, as a run on sterling will be bad news for Irish exporters, bad news for Irish retailers as experienced by the Newry phenomenon, and bad news for incoming tourism from Britain.

With the proper implementation of corrective measures in the UK as has happened elsewhere and a more decisive stance by the British government, there will be stability rather than apprehension for Irish trade. On a more positive footing, while the credit squeeze will be ongoing, certainly in the short term, if not into the medium term, the credit crisis is largely over.

If you still have a job, your chances of being made unemployed are steadily decreasing.

If you are unemployed, opportunities are likely to emerge as the year progresses.

In terms of investments, if you have cash or a pension, think positively about getting back into equity assets as the opportunity at present is a very good one.

We’re about two-thirds invested in equities at present.

But give your investment careful consideration and choose your markets carefully.

Iveagh are also bullish on commodities.

While the Guinness 250 was a rare reason to celebrate this year, hopefully there will be greater cause for celebration in 2010, as slowly, but surely, economies and businesses rebuild in Ireland and elsewhere.

Rory Guinness is a director of strategic investments at Iveagh LLP