Equities to eclipse bonds in '07

The head of asset allocation said the UK equity market is looking particularly inexpensive at the moment in terms of both forward earnings ratio and valuations relative to interest rates. Urwin said the main driver of returns in 2007 would most likely be dividends and profit growth. “While we expect a slowdown on earnings growth, possibly to below 10pc,” he said, “a continuation of earnings increases should warrant a further rise in the overall market.” He admitted this would, however, be on a lesser scale than the rise seen in 2003. Equities would fare much better than bonds, w...