Expert view: Guide to selecting stocks in a recession

By Elissa Bayer, September 9, 2009

As we look forward to Rosh Hashanah next week, it is startling to think it will be a year since the fall of Lehman Brothers and the virtual collapse of the financial system as we knew it. The events of the last quarter of 2008 have been well chewed over but the effects are still with us and will be for some years to come.

The worry is that this government seems intent on ignoring the debt pile that it created and an incoming government of whichever party is going to have to raise taxes for all, and that includes income tax and VAT. This will happen as corporation tax receipts are falling, so it will be a short honeymoon.

However, if one looks at stocks in the UK, the USA and Western Europe, one might be forgiven for thinking that there was not a crisis at all.

The FTSE All Share Index has risen over 25 per cent in the past six months and corporate bonds are now reaching prices of over 110. One needs to remember that they are repaid at 100 so there is quite a lot of froth about.

Share prices in the UK are rising and an index of 5000 seems a perfectly reachable figure on current form. However, while the mining stocks and the banks recover, is anyone else benefiting from the current situation?

The current government seems intent on ignoring the debt pile it created

With unemployment at nearly 2.5 million and an undergraduate sector that cannot get a job in the first place, what are people spending their money on?

If you look at the prices of Domino Pizzas, BSkyB for home videos and Halfords for bicycles — these are the companies that have benefited.

Iceland, whose economy and banking system went into freefall, has just announced its birth rate, and it is at an all-time high — and so is that of the UK. So sales of babygros from Mothercare are booming. Even in a recession, people spend on their children and cut back themselves. Constructing a portfolio in the second half of 2009 is challenging and one has to be aware of the changing trends, but spending less clearly means home pursuits. This includes the new word in our vocabulary, the “staycation” — don’t invest in holiday firms or airlines.

Finally, spread the net wider and look to the Far East. China and South East Asia have the money; they will lead the world out of recession and it continues to be China’s buying power that is fuelling the commodity rise.

It has been quite a year. No one in the financial sector could foresee a world without Lehman Brothers but, as always, there are opportunities — just stay in.

Elissa Bayer is the director of private clients at Charles Stanley

Last updated: 4:46pm, September 9 2009