Salomon Smith Barney is predicting strong returns for UK equities in April as a wall of Isa money com...
Salomons' UK Strategy Team points to this year's Isa season being more popular than the final year of Peps, ensuring strong short term returns from the market.
It estimates some £4bn could flood into Isas during March and April, compared with £3.9bn for Peps and Isas over the same period in 1999.
In 1999 the equity market fell back in May once the flow of Pep money fell off and the Salomons team believes the same effect could well take place in 2000.
Robert Buckland, analyst at Salomons, said: "Last year we suggested a trading strategy of sell in April, stay away until October. This strategy may be applicable again this year."
The £3.9bn invested in March and April 1999 accounted for 46% of the tax year's total Pep inflow of £8.5bn. That contrasts sharply to the £0.8bn invested in August and September.
Buckland said that so far this year the UK market had been a poor performer and the pick up in Isa money could well pave the way for some spring outperformance.
While Pep money was directed towards the UK and European markets due to the investment restrictions put on the tax wrapper, this is not the case with Isas.
Salomons does not think that the greater investment remit of the Isa will lead to total investment within the UK falling to any significant degree, although the group does predict an increasing flow of Isa money into pure technology funds, many of which have predominant overseas exposure.
Buckland said: "1999 was the year of tracker funds and the corporate bond funds. This year will still see success for tracker funds but tech funds are also set for a bumper crop.
"Given the current euphoria surrounding tech stocks, it would not be surprising to see up to 50% of Isa inflows in the next few weeks finding a home in the tech world."
In such circumstances the UK new economy stocks could well be beneficiaries. Salomons thinks low free float companies like BSkyB, Telewest, CMG, Kingston Communications and Energis, should have upside potential. Overall the Isa has been a big success, according to Salomons, confounding the critics who said it was too complex and would not attract levels of investment to match the Pep.
Buckland said: "Despite the various concerns, we believe that the Isa market remains healthy and the broadening equity culture and deepening retail interest in investments and savings will result in strong inflows in the last few weeks of the first Isa season."
This appetite for equity has been fuelled by the boom in a narrow range of shares, fuelled by media reports.
Buckland said: "High profile dot.com IPOs and the dramatic performance from many new world stocks has recently grabbed media and retail investors' attention.
"Retail investors' appetite for equity has not been greater since the large privatisations and demutualisations of the past two decades."
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