Mayday signals keeping shares in the doldrums

TODAY is 1 May, and with demonstrators on the streets, the stock market in the doldrums, the dollar on the slide and the economy flat, the temptation to 'sell in May and go away' can scarcely have been stronger.

True, the London market has not been as jittery as Wall Street, but it is a mess all the same. There is no confidence, no enthusiasm, no appetite for risk. In America, people believe the economy is growing again, but they also think they have been comprehensively misled by the investment community in recent times. They do not believe analysts, they think company profits are overstated and do not trust Wall Street or any of its works.

Even if the economy does grow, they think shares will still be overvalued because of the past excesses. Small investors are pulling more than $1bn a day out of the market and putting it into cash. Institutional investors are sitting on the sidelines.

Foreign investors in the US economy also seem to be getting nervous. A recent IMF report suggested that Europe and America should prepare for a dollar fall, and this week the greenback hit its lowest for six months. So far that is not significant, but it could easily become so.

America needs an investment inflow of $1.5bn a day to compensate for its trade deficit - its excess of imports over exports. If Wall Street continues to disappoint and the cash inflow dries up, the dollar will plunge. The US will import much less and pain will spread rapidly round the world. Even the mild adjustment of the dollar everyone thinks is long overdue will cause a dislocation of world trade that will deliver a blow to many of the world's exporting economies.

Nothing undermines stock market confidence more than uncertainty and that is what we have in abundance. That is why no one wants to buy shares now, and why they are unlikely to do so for the next few months.

France chance

VODAFONE'S Sir Christopher Gent knows how to show a market a good time. His bold and dramatically executed deals two years ago made the mobiles company one of the most powerful in the world.

Since then, though, it has been all downhill in stock market terms as people fretted about the cost of new technologies and licences and the paucity of good old-fashioned profits. The shares, at 111p, are just a quarter of the peak they hit in the glory days.

Sir Christopher is apparently tempted to try investors' patience even more. The big gap in Vodafone's European presence is France, where it just has a 20% stake in SFR, the major rival to France Telecom's Orange in that market, and a 15% stake in Cegetel, which owns the remaining 80% of SFR.

But troubled French company Vivendi owns 44% of Cegetel, and its board is under pressure to start selling its way out of trouble. Even its treasured investments - including Cegetel - could soon be on the block. That would give Vodafone its opportunity, and no one times or executes these things better than Sir Christopher. The blood is in the water, the sharks are circling - and the stock market is just going to have to watch.

Rail realities

ONE of the lead indicators for the economy is the number of season ticket holders travelling into London on the trains. Thus a few weeks ago when Chancellor Gordon Brown was being upbeat in his Budget speech, the evidence on the ground - or rather on one of the key lines into London - told a different story.

For the first time since privatisation, Connex, a major operator of services from the south, was seeing passenger numbers fall. In part it blamed this on job losses in the City. But it was also a reflection of economic uncertainty and a tightening jobs market - which has been underlined by the subsequent publication of almost zero growth figures for the economy in the first quarter of the year.

No one these days has much sympathy for anything to do with the railways, but the train operating companies deserve some. Most businesses faced with a downturn would trim back a bit, but TOCs cannot do this. Their timetable and train frequencies are written in stone in their franchise agreements. They are not allowed to reduce the service. If trains carry fewer passengers and income drops and profitability vanishes, that is just tough.

It makes you wonder why anyone would want to run a train company - and indeed how many of the current incumbents will persist beyond their current term without a massive increase in subsidy. They carry the risk of economic slowdown and that the regulator might change policy, Their franchises are too short to encourage long-term thinking and anyway can be cancelled with immediate effect for often quite trivial reasons.

Connex's problems are a timely reminder that Railtrack is only half the story. Even when it is sorted out - if it is - there will still be the train companies to deal with. No wonder many in the industry think things will get worse before they get better.