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Stock market won't be rattled by pensions drama on our doorstep.


Here we have the great pounds 110 billion pensions crisis, suddenly threatening the dividend-paying - certainly the dividend increasing capacity of some of our most successful companies.

So it would seem.

And what does the stock market make of it? It stages a handsome recovery from the Tuesday's shake-out, itself a muted echo of the panic in Japan the night before.

True, the 100-share Footsie failed to hold on above 5700, but the 250-share index still finished 109 points to the good.

A 350-point rally on the Nikkei helped. It confirmed that the Japanese panic had been a false alarm, nothing much to fuss over 15,000 miles away.

But the pensions drama is on our doorstep. It has blown up out of the blue since the New Year and nobody has come up with a convincing reason why it should go away.

Yet the stock market is determined not to be rattled.

This sang froid was confirmed yesterday by the Association of Investment Trusts - whose members are among the he ftiest institutional investors other than the pension funds themselves. It rang round a string of investment trust managers, running investments worth $13.4 billion between them, to ask what they felt about it all.

Well, 73 per cent did agree that growth prospects will be affected if companies really are compelled to clear their pension deficits in full over ten years. But most cited more immediate worries as their prime concern.

One of the biggest hitters, Jeremy Tigue at Foreign & Colonial, did note that the stock market, as well as company profits, could suffer if pension funds are forced to sell more equities to buy bonds as companies are forced to clear their deficits quickly.

Most of his rivals focused on more workaday issues.

Lack of consumer spending loomed largest for 29 per cent.

Another 17 per cent cited rising - yes rising - interest rates, despite the near-consensus among City economists that the Bank of England's next move will be down.

That is a reminder that economists don't manage investments. Another 14 per cent were uneasy about the low growth of the economy generally.

As to issues that make glum headlines - oil prices and their impact on inflation, the spread of bird flu beyond Asia, the nuclear stand-off with Iran - they were nowhere.

Those with a nervous disposition don't become investment managers.

One, Colin McLean at SVM UK Active Fund said specifically that pension deficits had not deterred him from investing in companies like Rolls-Royce and Invensys, which are addressing the problem. His one caveat was that pension deficits may become a barrier to takeovers and restrict the recovery potential for some companies.

In the light of all this, one has to conclude that the pensions crisis on its own is not going to throw the stock market off its stride - and that its stride more determined and confident than some of us thought.

If the mood did change, though, it would rapidly become another matter. Then pounds 110 billion would seem rather a lot of money.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Jan 20, 2006
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