Money Marketing

by Paul Farrow

Wednesday 1 December

Can UK equities continue their recovery into 2011? Paul Farrow finds positive sentiment despite the storm clouds on the horizon

Britain may well be officially out of recession but the outlook is, arguably, as uncertain today as it was when Northern Rock was saved from collapse in September 2007.

The coalition government's raft of tough measures, announced in its emergency budget and its Spending Review, have led to concerns that the UK economy may yet suffer a double-dip recession.

Add in Europe's sovereign debt crisis, which still looms large following the problems in Ireland and concerns over the strength of the influential Chinese economy and you can understand investor nervousness.

But UK shares have bounced back from early spring, when markets slipped back following the biggest oil spill in US history, and dividends are also returning after a disastrous couple of years that saw companies cut payouts or ditch them completely. ......

Not surprisingly, many investors have been in a cautious mood over the past three years. Many fund groups have been championing the move away from relying on equities, instead advocating the wares of diversified growth funds. Yet, those investors that by luck or judgement remained invested to the hilt in UK equities will have done better than most. .....

Not surprisingly, with clouds still hovering over the UK economy, it is those FTSE stocks that derive a significant chunk of their earnings from overseas that have also been getting attention from fund managers. ......

As the year draws to a close, the sovereign debt crisis has reared its ugly head again and contagion across Europe cannot be ruled out, while concerns continue to hover over China.

The full impact of the Consumer Spending Review is also unknown. If confidence takes a dive so too could share prices and for that reason, despite the bullishness of many fund managers, uncertainty still reigns supreme.

What the experts think 2011 holds for equities

Alan Steel says

"I've got no idea what evidence people have to predict a bubble bursting in China because we haven't seen a bubble developing yet. I know you might find that hard to believe but the Chinese stock market is still a fair bit below what it was at its high a couple of years back, and on any valuation basis you won't find any evidence of bubbles bursting or other scary monsters.

"We've been hoping for a little correction just to get a bit of common sense back into expectations for equities and it may well still happen over the next couple of weeks. But we believe this is a time to embrace equities, not only in emerging markets and the Far-East, but in other places including the UK and, surprise surprise, the US."

Quote courtesy of Money Marketing
Wednesday 1 December 2010