The sun rises in the East

Having worked for seven years in the Far East, I take more interest than most investors in what is happening on the Pacific shores. We should not think of this region as far away lands of which little is known. This is where the global recovery is likely to start.

We should note, therefore, a useful piece of research from Andrew Beal, the highly regarded fund manager of Henderson TR Pacific Investment Trust. He points out that markets in the region bottomed in early March as the flood of poor economic and company news, together with a renewed crisis in the global banking system and credit markets, forced many investors out of equities and into cash.

The turnaround since then has been very sharp. By the middle of June, Asian markets had rebounded by around 40% in sterling terms.

While the weakness of sterling meant this bounceback has benefited any brave UK investors who piled in at the bottom (as Beal did) more than most, the improvement is genuine enough.

Beal says government intervention in the developed economies of Europe, the US and Japan means global investors have rediscovered some of their appetite for risk and started to return to the markets after selling US$70bn of Asian equities in 2008.

But he adds: "Asian governments have also played their part. China has embarked on a massive programme of fiscal and monetary stimulus to support growth. Many governments in the region have implemented similar programmes of public spending to boost infrastructure, provide credit to struggling companies and support domestic spending."

"These measures are starting to produce results with stabilisation already achieved and recovery becoming apparent in a range of economic measures for the region such as industrial production, fixed asset investment and retail sales. This has occurred despite continued weakness in the region’s exports to the developed world suggesting that Asian economies, to a degree, are decoupling from the West and beginning to drive growth domestically rather than relying on external sources of demand."

I have quoted Beal at some length because I feel this is important, more important than most people in the UK realise as the press has consistently underplayed the Asian economies. A genuine recovery in Asia that does not depend on the US economy pulling itself together first is our best hope of ending the recession.

They don’t learn nuthin’

Of the two candidates for Speaker of the House of Commons who might have begun sorting out the mess, one (Frank Field) did not make the starting line and the other (Ann Widdecombe) scarcely survived the first round.

Just to prove how out of touch they are with public outrage, Government whips attempted to impose their choice on the House. Mercifully there was a secret ballot and enough Labour MPs found sufficient courage in anonymity to ensure the martyrdom of Margaret A’Beckett.

Having had one Speaker accused of being a government plant, we hardly needed another. Yet what we have got is no better. John Bercrow is widely distrusted by Conservative MPs who fear he will favour Labour and he should also be distrusted by voters as an abuser of the expenses system.

Reports this week suggest that MPs will continue to be allowed to censor their expenses claims. Bercrow has the opportunity to stamp his authority by ending the abuses and insisting on transparency. Unless he acts soon it will be too late to save him from the same fate as his predecessor.

EU turn

One of the great joys of writing this weekly missive is that although I write it with less experienced UK investors in mind, I receive feedback from all over the world, often from readers in key positions in a wide variety of companies.

My uncomplimentary comments on the European Union a couple of weeks ago brought an equally forthright response from a reader who has been auditing companies in the UK private sector for 20 years and who passed an open competition to become an auditor of EU funds, checking all stages from the Commission granting the funds, down to the final beneficiaries (farmers, NGOs, government organisations, training providers, universities, etc) who receive them.

In the interests of fair play I quote from his email:

"My experience of 15 years auditing EU funds managed by both the Commission and national ministries does not suggest that the Commission is an "undemocratic, wasteful, corrupt, extravagant and inefficient organisation (rearrange the adjectives in your preferred order) that makes our own worst MPs in Westminster look positively virtuous".

"Some 85% of EU funds are handled by national authorities. The Commission officials just carry out occasional checks to make sure that they have complied with the agreed rules and recover funds if they have not.

"You write that "While over here the politicians decide policy and the civil servants carry it out, in the EU it is the European Commission that decides what happens rather than the MEPs." It is the MEPs and the national governments in the Council who have to approve anything the Commission proposes.

"Do you really think that they act as puppets and say yes to everything? My impression, from occasionally acting as an observer at meetings, is that it is quite the opposite: the Commission only proposes policies which the MEPs and/or national governments have called for and are likely to be approved. If any policies turn out to be unpopular, the national governments can always blame Brussels instead of explaining that it was in the overall interest of European countries and (probably) that they voted for it themselves.

"Even within the Commission, it is the Commissioners who decide what the officials work on. And who appoints the Commissioners? The elected governments.

"Past scandals have usually involved Commissioners or MEPs and their expense claims. It doesn't seem to me that there is such a "massive difference" with what was happening in Westminster.

"The UK media (especially the part owned by an Australian) appears to object on principle to being part of Europe and any excuse is good enough to bash it. Frauds, when uncovered, are made to look like the norm and typical of how the EU is managed. Any achievements are simply ignored."

Because I deserve it

Apart from New Year and Easter, I have not had a break from this column so far this year. The time has come to recharge batteries. I am taking a two week break and my next column will be on July 17th.