As I write this, global markets are at record highs. But do people feel wealthy? Stockmarket strength tends to translate into a buoyant mood – not only among investors but for everyone. But today that doesn’t seem to be the case. Here in the UK, consumer confidence has improved only slightly from the doldrums of the cost-of-living crisis.
If UK consumers aren’t feeling the benefits of the bull run, it might be because global markets are more concentrated than they’ve been in decades. The so-called ‘magnificent seven’ of Microsoft, Apple, Nvidia, Alphabet (Google), Amazon, Tesla and Meta drove the gains for the MSCI ACWI in 2023, and continue to dominate in 2024. The success of a US chipmaker doesn’t trickle down into UK households the way it does when a local company is flying high.
This disconnect between the fortunes of the biggest companies and the realities of day-to-day life is one reason why governments around the world are taking an increasingly interventionist stance in their economies and markets. With the global rise in geopolitical tensions and onshoring in the wake of Covid also contributory factors, economic nationalism is back on the cards – and the UK is no exception.
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Starting with the post-Brexit Memorandum of Understanding between the Treasury, the Bank of England and the Financial Conduct Authority, and on through the Edinburgh Reforms to the most recent budget, the government has reiterated its commitment to using the second-largest capital market and investment industry in the world to drive growth in the UK economy.
The British ISA, announced in the budget but on hold until after the election, is intended to incentivise consumers to support the domestic market by allowing them to invest up to £5,000 tax-free in UK companies, on top of the existing £20,000 limit for stocks and shares ISAs. Under the Mansion House Compact, the UK’s largest DC pension providers have committed to allocate 5% of assets in their default funds to unlisted UK equities by 2030, supporting high-growth smaller companies and driving investment in infrastructure.
And the proposed Pisces (Private Intermittent Securities and Capital Exchange System) market will facilitate this by enabling the secondary trading of existing shares in private companies, opening up private markets to a wider range of investors.
One way to look at these measures is that a broader definition of good outcomes is emerging: one in which good consumer outcomes don’t only come from individual wealth, but from living in a prosperous society.
Read the rest of this article in the June issue of Portfolio Adviser magazine
