By Jane Wallace Barings frAAA rated UK manager Richard Buxton thinks the FTSE 100 will reach 10,000 ...
By Jane Wallace
Barings frAAA rated UK manager Richard Buxton thinks the FTSE 100 will reach 10,000 before the next bear cycle begins.
Buxton has based his prediction on the revolutionary impact of the internet, enhancing economic and stock market growth in the UK.
He said: "GDP in the UK will be 2% this year, as it was the year before and the year before that. We are still in a disinflationary boom with inflation running at 0.8% currently.
"Interest rates will keep going up until growth fears ease or the MPC runs out of excuses. There is no sign of the competition or productivity gains fading away. We are on the cusp of an upturn in productivity."
The equity investor appears unconcerned by interest rate rises, said Buxton, as the appetite for risk-taking is rising, particularly as there are plenty of growth opportunities in the new e-economy, the potential scale of which is huge.
Buxton pointed out that the number of micro-processors, or chips, now exceeds the number of people in the world. As capacity grows, prices will fall so that chips will eventually replace bar codes. He said: "All items will be data points awaiting connection. Your shirt will be able to communicate with your washing machine and tell it what temperature to wash it on. Relate this to ordering and inventories - the impact is huge. If you have enough information, you don't need an inventory."
Buxton predicted that the UK will move to a networked economy. In this scenario, traditional business models do not work.
"Networks are not linear, their value rises with the number of people added to it," he said. "It requires huge upfront costs but, after that, production costs per unit are marginal. In addition, barriers to entry in this new world are nil, as both small and large companies stand an equal chance of succeeding."
Now that traditional growth and inflation models appear broken down, as have traditional yardsticks, new methods for valuing companies are required. Buxton said: "We must think like venture capitalists, focusing on the business model for revenue growth and the quality of management. We must bear in mind that share prices tend to peak before earnings growth."
Stocks which will benefit in this new scenario according to Barings are telecoms, media and tech shares and 'e-insensitives' like resources which will gain from the pick-up in global growth. The losers include most other sectors. Buxton pointed out that the biggest opportunities were to be found in traditional companies which could "use the alchemy of the networked economy to create gold".
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