UKs risky economy is the last place investors want to be just ask Prudential

Jeremy Warner Published: 6:15AM GMT 02 March 2010

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City of London - UK"s unsure economy is the last place investors wish to be ? usually ask Prudential Photo: Daniel Jones

If successful, that seems probable, the understanding will rivet a thespian change in collateral from the mired disaster that is the British economy to the fast flourishing rising markets of the East.

Prudential"s swoop on the AIG resources shouldn"t exactly surprise. The understanding has been in the creation ever given the US Government was forced to rescue the American word hulk from the consequences of forward derivative trade a year and a half ago. But the last time Pru tried, the share cost was as well low and marketplace certainty as well vexed to concede such a large financing to take place. It is sworn statement to usually how far marketplace certainty has recovered from the disaster of the promissory note predicament that it is even remotely probable to rivet in the largest equity issue ever seen in the London market.

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To be raising the income in a diseased promissory note to buy resources in stronger ones raises questions about the timing of the transaction, and, of course, still others are lifted by the philharmonic of a immature and as nonetheless unproven arch senior manager creation such a big gamble in an industry scandalous for cursed mega-deals.

Despite AIG"s distress, this is frequency a glow sale price. Tidjane Thiam, the arch executive, has got a little explaining to do, both about the cost and the expected benefits. Even so majority will see this for what it is a once in a era event to benefit marketplace streamer positions in a little of the fastest flourishing economies in the world. The underlying plan is tough to fault.

Yet as the promissory note markets usually as well vividly spell out , there are a little really worrying messages for the UK in this contract to one side the jubilant ones.

Together with Kraft"s �12bn bid for Cadbury, Pru"s attack on the Far East gives the sense of a renewed conflict of partnership mania. The being is really different. These are exceptions, rather than the rule. The debt fuelled in isolation equity takeovers that fed the mergers and acquisitions bang of the pre-crisis years have gone. And as nonetheless there is not most pointer of them being transposed by an conflict of the some-more required association to association M&A that you would design at this theatre of the cycle as the clever find to gain on their value over the financially spread out and diseased with consolidating, cost slicing takeovers.

Why haven"t we seen some-more of this? The answer can be voiced in a singular word, and it is the same thing as is pushing the bruise reduce uncertainty. Limited expansion prospects in multiple with a jot down open necessity and difficulty over the opinion for open process has resulted in a form of stoppage so debilitating it competence pretty be characterised as strictness mortis. Companies cite to feed on grass down the hatches, compensate down debt and await developments to receiving the risk, investing and acquiring.

The difference is anything that involves the rising markets of Latin America and the East. Gaining larger entrance to these markets underpins both the Kraft bid for Cadbury, that is flourishing strongly in Asia, and the Prudential acquisition.

As far as Britain is concerned, you competence as well dont think about it. Few are rebuilt to take risks here in the UK, at slightest until there is larger domestic clarity, and even afterwards it is a indecisive point as to how most collateral companies will wish to allot to these shores when there are improved expansion opportunities abroad.

The Pru understanding says it all. What this is about is the company"s last transmogrification from the bowler hatted British convention in to a wholly fledged Asian tiger. For Clive Cowdery"s Resolution and others anticipating that the Pru competence be swayed to sell the UK commercial operation for a knockdown cost in office of the Asian adventure, Mr Thiam has a elementary message. He doesn"t need to sell the commercial operation and he won"t.

But the over-riding design is transparent enough. The UK is a long, despite utterly essential tail of runoff for the Pru, and no more. The collateral and courtesy will in destiny be streamer East. Regrettably, the Pru is not alone. Part of the downside of globalisation is that the income follows the growth. The complaint we"ve got in mature, modernized economies is that weighed down by debt and alternative bequest costs, that expansion is increasingly expected to be somewhere else.

Can anything be finished to delayed or even retreat this phenomenon? In the early stages of globalisation, it looked as if the West would be a net winner. Big rising marketplace companies such as HSBC sought to variegate themselves afar from the viewed mercantile and domestic risks of the building universe by shopping up resources here in the West.

HSBC acquired Midland Bank here in the UK and afterwards in the destiny Household in the US. Midland has valid a beating whilst Household incited out to be so poisonous that for a not as big primogenitor it would have been terminal.

In strong approval of where the destiny lies, HSBC"s arch executive, Michael Geoghegan, has relocated behind to the Far East. With the modernized economies still struggling with the consequences of the monetary crisis, Middle East is once again the widespread source of HSBC"s profits.

What goes around comes around, and any one who thinks that Asian expansion will ensue in a true line upwards is pang from the same delusions as those who used to disagree that securitisation had done promissory note wholly risk free.

China"s trade appurtenance has combined a vital overcapacity complaint that threatens to wreak happy massacre with the universe economy in the years ahead. It seems rather doubtful that Asia, however expertly it manages to come to terms the approach from outmost to inner sources of demand, can wholly shun the consequences of this genius glut.

To hold it"s all over for the modernized economies, that still enclose strong pot of imagination and wealth, is roughly positively a wrong headed approach of seeking at the expansion of the universe economy.

Yet for Britain to be means to take value of any destiny instability in the East it needs to reinstate the certification as a place to do business. Right now, we appear to be streamer at mangle neck gait in the alternative direction.

It"s no consternation that the bruise is being hammered. Deadlock in the polls gives each reason to hold that Britain lacks the domestic finalise to understanding as fast as it contingency with the mercantile deficit. Like Prudential, investors are choosing by casting votes with their feet.