Analysts expect better year for investors

After a tumultuous year on the stock market UK analysts are predicting better news for investors in 2003.

But they are cautious in forecasting major gains for the market and warn that there are significant risks it will fall for a fourth year in a row.

Investors have endured a turbulent ride over the past few years, as share values plummeted during the bursting of the tech bubble, the economic slowdown, September 11 attacks and corporate scandals such as WorldCom and Enron.

At the beginning of 2000 the FTSE 100 Index was nearing the 7,000 mark but today it is languishing below 4,000.

Alex Scott, analyst at Seven Investment Management, said he thought the Footsie would end the year above 4,000 but added that there were risks that it could fall.

The most likely scenario was the FTSE 100 ending the year at around 4,400 or 4,500, he said.

He went on: “Our most optimistic forecast is that it rises to 5,500 but we are only putting a 5% to 10% chance on that happening.

“The second scenario is much more pessimistic, of it going down to 3,300 - and we are forecasting a 25-30% chance of that happening.”

That could happen if consumer confidence collapsed, corporate profits failed to recover, there was a prolonged war with Iraq or if there was increased international terrorism.

He added: “I think the market will veer from one (scenario) to the other, but where we end up is anybody’s guess.”

Mike Lenhoff, chief strategist at Brewin Dolphin, said he was broadly expecting the market to end the year at about 4,700.

But that was dependent on any confrontation with Iraq being short, and on corporate profitability picking up.

David Page, economist at Investec, was predicting a rise of between 6% to 7% - which would take the index to about 4,200 – but said that this was dependent on a short confrontation with Iraq.

Hilary Cook, director of investment strategy at Barclays Private Client, believed the top flight will end 2003 at 4,400.

She said: “Based on where the Footsie is now, that’s just under a 12% rise and that’s quite attractive.

It does underlie our faith in equities although the political situation is such that there will remain a lot of volatility.

“But we believe we’re near the bottom. In three months time we should be looking at more peaceful times and then we could see markets rally really rather hard.”

Martin Dobson, head of dealing at NatWest Stockbrokers, was more cautious, however.

He predicted that the FTSE 100 would end at 4,200 and said: “There’s not going to be anything bullish to take hold and grab attention. A lot depends on what happens on the political front. If there’s a short, sharp war that is resolved quickly, we might make more than 4,200.”

However, Mr Dobson also said there needed to be a solid improvement across the corporate sector before the Footsie made any serious, long-term gains.

“If the corporate can’t turn things around, we’re in for a very long, slow recovery,” he warned.

City bookies Financial Spreads is offering punters a spread of between 3,940 and 4,350, with most of its traders currently optimistic the top flight will see out 2003 at the top end of the range.

Volatility is expected, however, with Financial Spreads predicting the difference between the lowest and highest level reached during during the year will be about 1,125 points.

The high point is expected to be achieved in August as opposed to January, as has been the case in the last three years. A spokesman said: “It will be a slow uptake but we feel it will then really get going by August.”

Among individual stocks, mobile phone group Vodafone is predicted to drop to between 95p and 96p but is also expected to hit highs of between 141p and 142p.

Another market giant, oil firm BP, is expected to touch a low of around 400p and a high of around 521p.

Not all in the City were bearish about next year, however, and one commentator from a major bank predicted a close of 4,850.

“The thing about markets is that when they get going, they really go,” he said.

Supporting the rise will be a “soft but steady” economic recovery, a very modest improvement in corporate profitability and an improved appetite for risk among investors.

:: In 2002, the FTSE 100 Index started at 5,217.4 but poor corporate updates, bad news about the global economy and mounting expectations of a US-led war against Iraq pushed it lower.

At its nadir it reached 3,671.1 on September 24, a 30% slide from its starting point.

By mid-morning on Christmas Eve, it was hovering around the 3950 mark – a 24% decline from the start of the year.