What does the market hold for 2010? Financial advisers consulted by The Telegraph are tipping further gains, with the prospect of headwinds rising
Dismal returns on deposits helped push share prices to a 14-month high this week, as rising numbers of savers switch out of bank and building society accounts, which are not only risk-free but all too often also return-free.
Only one-in-five savings accounts is offering taxpayers a real return – that is, interest in excess of inflation – after the Consumer Prices Index increased to 1.5pc this week. Basic-rate taxpayers need gross returns above 1.87pc and top-rate taxpayers need 2.5pc gross to preserve the purchasing power of their money against the corrosive effects of inflation.
But investors who held their nerve and hung onto shares after 2008's shocking stock market setbacks, have enjoyed the biggest rally in decades. The FTSE 100 index of Britain's biggest shares has soared by more than 50pc since its low point this year of 3,512 on March 3. With the FTSE trading above 5,360 last Thursday, millions of people's pension funds are being replenished by rising equity valuations.
By contrast, pessimists who warned against buying shares after prices plunged have been left feeling foolish as the recovery they dubbed "an office boys' rally" just kept on going. So, this week Your Money asked a selection of financial advisers what 2010 might hold – and which pooled funds, such as unit and investment trusts, will do best next year.
All of our sample forecast further gains – with one prediction of the FTSE hitting 6,000 – but most warned of rising headwinds for the British economy, with the best hopes of gains overseas. Steve Wilson, of Alan Steel Asset Management independent financial advisers (IFAs), was optimistic, but wary of complacency. He said: "I believe shares will continue to rise, however, don't be surprised if there is a setback along the way. That would be normal, as we've seen a strong rally. Trying to time the market perfectly, though, is a mug's game and investors should look to build long-term wealth.
"Right now the headlines continue to be negative, which from a contrarian point of view is a good sign. Bad news and pain means there's value out there. Good news and feeling better about things means paying higher prices. In the United States, there's 13 times more money going into bonds than equities; so not everyone's participating in this recovery.
"With economic growth continuing from emerging economies I'd look to have more exposure overseas. In particular I like First State Global Emerging Market Leaders, M&G Global Basics and JPM Natural Resources."
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Quote courtesy of The Telegraph Online
10.49 AM, Saturday 21 November 2009
