Will investors revisit small caps? asks analyst Zak Mir

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Given that I am a “wise old head”, or at least someone who has been involved with the stock market for nearly 30 years, the cycles that shares go through, is something I take note of.

What is interesting as far as small caps/growth companies, is that unlike the blue chips the good times only roll occasionally.

In living memory, the early 1970s, the mid-1980s and then the late 1990s were the real boom times, with the last “bull run” going into the global financial crisis of 2007-8.

Now in the wake of the election of President Trump we have seen the “bump” take the Dow to 21,000 and many other indices follow to record levels, even the FTSE 100.

 

This may or may not be sustainable, especially if the Federal Reserve gives us two or three interest rate hikes this year.

However, the big question is whether this is sustainable, and indeed, if the view of James Helliwell at the Lex van Dam Trading Academy comes to pass?

“The risk if that this year the Fed could raise interest rates faster than people expect, in an attempt to achieve their normalisation objective at any cost. With Trump at the helm, they may attempt to ‘pass the buck’ in terms of the potentially negative consequences that this would have for the US. economy.”

Here in the UK, we are looking forward to the Spring Budget from Chancellor Hammond.

Ahead of the Budget, investors need to be reminded of just one thing, according to Sam Instone, CEO of AES International: ” Investors should ignore pre-and-post-Budget market noise. They can also ignore noise about Trump, Brexit and whether property, bonds, infrastructure, commodities or equities are going to crash, surge, peak or correct.”

He adds, “The noise is just the opinions of those in whose best interests it is to sell newspapers, or scare investors into using their over-priced, under-performing investment solutions.”

The question is perhaps what we should be looking at when it comes to the Spring Budget?

As far as Instone is concerned: “Investors should commit to regularly investing into exit-penalty free, low cost, index funds – ideally on payday. Pound cost averaging will help their money compound over time – without any need to worry about market uncertainty either side of a Budget!”

But in the meantime, it would appear that the equities bandwagon is still in motion, and especially at the minnows end, is gathering momentum.

The latest poster child for the phenomenon has turned out to be Independent Resources (IRG) where fans of the company will be hoping that the baton of share buying interest will be transplanted by the present CEO of Sound Energy (SOU), James Parsons.

He has been responsible over the past couple of years from raising the share price to nearly £600m with canny dealmaking, first in Italy, and later especially in Morocco with its very significant gas resource at Tendrara.

This is in the process of being de-risked. In the meantime, the new action is to parachute Mr Parsons into Independent Resources as the non-executive Chairman, and bing in new funds.

So far the market clearly likes the idea, which smacks of the “rock star” deals of the 1980s and late 1990s.

Parsons comments that, “We are a classically upstream, high risk/high reward exploration company, done properly. The new assets have been studied carefully and should turn Independent Resources into a mid cap company, like Sound Energy.”

More dealmaking which could potentially turn a minnow into a mid cap in the past week came from Legendary Investments (LEG), an investment company which has a stake in Virtualstock, which provides supply chain and inventory management solutions. Already being used by an NHS trust, the latest news regards John Lewis using Virtualstock.

Interestingly enough, the share price of Legendary is still not much higher than it was before these announcements were made. It remains to be seen whether this year’s new found enthusiasm for smaller companies on the part of private investors will give the ‘Cinderella’ plays the boost which has been evident higher up the stock market ladder?

Zak Mir is the author of chart topping books, including 101 Charts For Trading Success and 49 Golden Rules of Technical Analysis, and is generally acknowledged as being one of the most experienced independent technical analysts in the UK.

Disclaimer: The content on this page does not constitute financial advice and is provided for general information purposes only.  Nothing on this page should be regarded as an offer to conduct investment business or to buy/sell any investment.

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