Gervais Williams, Co-Fund Manager of Miton UK MicroCap Trust plc (LON:MINI) caught up with DirectorsTalk for an exclusive quick-fire interview to discuss US stock market trends, their impact on the London Stock Exchange, and how further rate cuts will stimulate financial markets.
Q1: Gervais, I’m keen to get your views on the US stock market and whether any patterns are emerging for certain types of US stocks?
A1: Yes, obviously, probably a bit early to say for certain, but clearly there is instability in terms of some of the very largest mega cap share prices. We don’t know how far it’s going to lead.
Most particularly, we would argue that it’s going to be a feature which is probably leading to a widening of a past dissipation, which is excellent. It may lead to a change in market leadership, which is also excellent. It’s early stages, but we’ve been looking forward to this moment and it’s good to see some smaller companies beginning to outperform, not just in the US, but across the rest of the world.
Q2: How will trends that we’ve seen in the US translate to the London Stock Exchange?
A2: What’s interesting about the US Stock Exchange is obviously very much driven by companies which are growing capital, rapid growth companies, companies well positioned for ongoing technology leadership. But of course, that’s not a whole portfolio.
The portfolio includes lots of other companies, equity income stocks, capital intensive businesses, companies which are able to not just survive, but thrive at times of uncertainty.
The UK market is very different from the US, and that’s a huge advantage. If we are going through a period of transition in terms of market leadership, we would argue that actually some of the UK stocks are quite well placed to be the renewed area where people become involved.
We’ve already seen a little bit of those coming into the UK market. We’ve started seeing the FTSE 100 breaking out on the upside, and from that point of view, I think that’s, again, something which we’ve been looking forward to. This may be the start of what may be not just, a new short term trend, but something which actually develops over time to be something which actually is very persistent.
Q3: The Bank of England announced a 0.25% interest rate cut to 5%. How will this and any further rate cuts slowly stimulate financial markets?
A3: The nature of interest rates is they are quite a blunt weapon, really. Clearly, we’ve had an inflationary times, interest rates have been raised. I think they were last raised by the Bank of England in August of last year.
Going forward, we’re now looking at interest rates not just coming down, but potentially coming down quite a long way as their effect tends to be lagged. We’ve had interest rates high now for the last year. They’re having their dampening effect in terms of demand and so if we are going into a slowdown, and that’s really what the markets are beginning to sense in terms of bond movements, if we are going into potential recession – we don’t know, but it could do – then clearly, we’ll need to cut interest rates.
Cutting early means not only so much that you can start to actually get some change, but actually that the impact of that change, which is always lagged, will start to have an effect as we go into the downturn. So I’m very pleased to see the UK cutting interest rates.
I noticed others have started cutting interest rates as well. We believe the Fed will cut interest rates again or will start to cut interest rates very shortly. So I think this is a new pattern. But interest rate cuts in themselves are just really telling us that there’s a global slowdown. There will be profit warnings. It may be a more unsettled market for the next 3-6 months.
Miton UK MicroCap Trust (LON:MINI) intends to invest primarily in the smallest companies, measured by their market capitalisation and quoted or traded on an exchange in the United Kingdom.
