LONDON (Alliance News) - The chairman of Shires Income PLC on Tuesday said there are reasons for investors to be optimistic, amid the recovery of the UK and the US and "signs of life" in the eurozone.
"The falls in commodity and oil prices are providing a real stimulus for those countries that are net importers of these goods. Any change in the interest rate cycle is likely to be gradual with the authorities focussed on the dangers of moving too far or too fast," Chairman Anthony Davidson said in a statement.
"The portfolio contains good quality businesses with balance sheets that can see them through difficult periods and that over the longer term are expected to prosper," the chairman added.
Davidson said that investors are concerned by China's economic slowdown and the potential knock on effect on global growth, and the effect that is having on the timing of interest rate increases on both sides of the Atlantic.
"The Chinese authorities have options that remain available to them in their endeavours to deliver a controlled slowing of their economy. However, it would not be surprising to see further weakness in their growth and currency prior to the achievement of stability. Investors are concerned that the impact of this could become deflationary for Western economies," the chairman said.
"Interest rates have been very low for a prolonged period of time. Although market participants have known that they would have to rise at some point there is considerable uncertainty as to when this will happen and what the impact will be. Investors were surprised that US rates were not increased in September and some concluded that the deferral was symptomatic of the Federal Reserve's concerns that the outlook for the global economy was deteriorating. Uncertainty is unwelcome in markets and there is likely to be an enhanced degree of volatility until the outlook becomes clearer," Davidson added.
Davidson's comments came as Shires Income reported that its net asset value per share decreased by 9.9% to 233.8 pence in the half year ended September 30. The total return on net assets, which includes dividends, decreased by 7.7%, representing a small underperformance of the benchmark, the FTSE All-Share Index, which reported a total return of negative 7.2% during the period.
The total return of the company's share price was negative 8.5% and the discount at which the stock traded to net asset value widened to 3.9% from 2.9% in the half.
Shares in the investment trust were up 2.3% at 217.96 pence on Tuesday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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Shires Inc. (SHRS)