The FTSE 100 target is widely expected to post positive growth by the end of 2002 after 18 months of...
The FTSE 100 target is widely expected to post positive growth by the end of 2002 after 18 months of contraction.
The index fell by some 17% over 2001. After starting the year at 6162, it had slipped to 5,118 as at 20 December, following a 4433 low on 21 September.
Consensus points to a market rally pushing the FTSE 100 up toward the 6,000 region by the end of this year.
Mike Bishop, head of pan-European equities at Morley Fund Management, says the past 18 months have seen the market slide from exceptionally expensive to cheap on the back of recession in both the US and Japan.
He says: 'With value returning and the worst of the economic news hitting right now, we anticipate a far better year ahead with our year end FTSE 100 target for 2002 at 6000.'
Bishop expects the bulk of the outperformance to come in the second half of the year as equities price in early the improving global economic outlook expected by the end of the year.
John Henderson, a director of investment management at Rathbones, anticipates similar returns, although he errs a little more on the side of caution, projecting a 5,800-6,000 closing price for the index at the end of 2002.
Henderson expects redundancies and revised-down earnings predictions to remain a feature of the economy in the first half of the year.
He says: 'A lot more bad news will come in the earnings season, which will keep the market volatile between now and then. By the end of December 2002, the index should reach between 5,800 and 6,000, which is not a spectacular gain but is sustainable.'
Historic annual equity returns have typically stayed within the 8%-10% range but since 1975 equities have averaged 14.5% growth, Henderson notes. This anomalous period of outperformance may be drawing to a close, with returns reverting to the mean, he adds.
Edward Bonham Carter, chief investment officer at Jupiter, concurs, adding that many investors will have little choice other than to enter the equity markets as low interest rates compress returns from cash and gilts.
Bonham Carter says: 'In the context of continuing low inflation, the medium return for UK equities is likely to be 5%-7% per year on average.'
Jupiter is expecting the bulk of the outperformance to come from small and mid caps, with cyclical sectors, such as housebuilders, also expected to benefit from the low interest rate environment.
Henderson is bullish about housebuilders and other cyclicals in the shorter term as interest rates are likely to rise in the second half of the year after another possible 25 basis points cut in the first half.
On a longer-term view, he favours those companies with stable and dependable earnings flows, such as food companies, as well as financials and pharmaceuticals.
Neil Dwane, chief investment officer at Dresdner RCM Global Investors, also anticipates a hike in interest rates as the exceptional external stimuli that prompted the co-ordinated global cut start to melt away.
Dwane says: 'We believe interest rates will dip to a low of 3.5% in 2002 but will start to rise in the second half to close the year around the 4%-4.5% mark.'
Index expected to end 2002 at 6,000.
Small and mid caps to outperform.
A further rate cut is likely.
Sluggish first half of 2002.
Interest rates to climb by end of 2002.
Market volatility expected to remain.
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