De Tusch Lec: Re-invest cash before it’s taxed away

Many global companies have paid down their debts and hoarded cash since the financial crisis first erupted in 2007-08, and they remain wary of making investments in the face of the ongoing uncertainty that has now seen the crisis spread to sovereign markets.

Mr de Tusch Lec, manager of the £45.4m Artemis Global Income fund, said the ongoing dearth of corporate spending could bode well for employment figures as well as machinery and technology stocks, because low spending levels were not sustainable in the long term. “Corporates will have to start to re-invest in their business or do something with their cash before the politicians figure it out and tax the excess cash away,” he said.

Mr de Tusch Lec said this scenario could be damaging for investors as it could diminish the amount of dividends companies are able to pay.

He said he expected companies to pay dividends that are 5-10 per cent higher in 2012 to avoid the threat of rising taxes.

He said that “ultimately the whole market and whole sector are at risk” rather than any single company.

He said utility companies in Germany and Italy had already been hit with heavy taxes, while the UK had enacted “windfall taxes” in the energy sector.

He added in Israel, the government had strapped potash producer Israeli Chemicals with higher royalty fees, while the Polish government was singling out gas and precious metals producers with a “hefty” resource tax.

He said the government was the biggest consumer of these two sectors which meant the government could “dictate the pricing environment” and demand price declines even in an inflationary scenario.

“If you look back 10 years ago, eurozone corporate tax rates were on average 10 percentage points higher,” he said.

“It is by no means inconceivable that this decline in corporate tax rates will be reversed and that 10 years of falling rates can be offset in three to five years.”

The manager warned that potential tax increases posed the greatest risk to pharmaceutical and defence companies.

The fund, which launched in July 2010, delivered a loss of 1.7 per cent in the one year period to January 13, compared with an IMA Global Equity Income sector average loss of 0.6 per cent, according to Morningstar.