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Bullish experts see the bright side

After some concerns from Money Marketing readers that we were concentrating too heavily on the grim tidings of market bears, we have found that some analysts are confident that the markets will pick up as we move into 2011.

The most bullish of the bulls are Morgan Stanley, which has predicted that the FTSE 100, which fell below 5,000 this week, will rally to 5,800 by the end of 2010.

The US investment bank says the FTSE may have already reached its trough and will rally as the second half of the year bringing bigger profits and yields. Analyst Graham Secker says there are many similarities between today’s market and that of early 1998, which saw a big rally by the start of 1999.

Secker says: “On our assumption that the global economy isn’t going to double dip and that the market isn’t therefore heading back into a 2008/09 bear market.”

The FTSE 100 has rallied since its lows of 4,900 on Tuesday to 5,229. The Dow Jones, which fell to lows of 9,800 on Tuesday has since rallied to 10,258.

“The debt crisis is all rather marginal and the impact of the Euro’s recent devaluation is likely to be much more significant and more positive.”

Andrew Dalton, Dalton Strategic Partnership

Dalton Strategic Partnership chief investment officer Andrew Dalton is equally bullish. He says the struggling Euro nations will not dent the economic abilities of the whole continent.

He says: “Strange as it may seem, we are not overly concerned about the negative impact of fiscal tightening in Europe. The fiscal tightening projected in 2010 relative to 2009 in Ireland, Spain, Greece and Portugal will reduce eurozone GDP by about 0.49 per cent. This will be offset by a fiscal easing in Germany so the net impact in 2010, which is likely to boost eurozone growth by 0.48 per cent.

“The debt crisis is all rather marginal and the impact of the Euro’s recent devaluation is likely to be much more significant and more positive.”

F&C head of asset allocation Paul Niven says the market has become too pessimistic of late and says equities are offering good value against competing asset categories: “Yield on equities once again surpasses that on where bund yields have fallen to new lows.”

Niven says there has not been the panic that typically signify a major market bottom and believes there is potential for significant pickup in corporate investment spend and ongoing signs of improvement in labour markets, combined with a soft landing in China and improving inventory cycle.

He says: “Markets may well push further into negative territory in the short term, flushing out any remaining optimism, but contrarian investors may also look for a signal that European authorities really are looking to aggressively tackle their problems as pressure will be mounting on the European Central Bank to move towards more robust intervention.”

Evolution Securities chief economist Ian Harwood, who was a lone voice of calm earlier this week, says equity markets have begun to take a more balanced view of life and says the Office of National Statistics revision of UK GDP to plus 0.3 per cent alongside the rising employment numbers and growing export figures is proof that the UK is on the right track.

He says: “I think the UK’s true underlying performance was even more robust in the last quarter and the GDP data is likely eventually to show this. Looking ahead, my basic contention is that the UK economic recovery is on a firmer footing than many suppose.”

But Charles Stanley analyst Jeremy Batstone-Carr is still cautious. He says he may be willing to concede that his year-end FTSE prediction of 4700 may have been suitably reached half way through 2010 but warns that the global economy is far from “out of the woods”.

“The UK economic recovery is on a firmer footing than many suppose.”

Ian Harwood, Evolution Securities

He says: “We are now left wondering when might be a good time sensibly to dip a toe back in the water but it’s never a good idea to pick up dropped coins in front of oncoming traffic. To reiterate, we firmly believe that we live, work and invest in fundamentally deflationary times.

“The problem for the perma-bulls is, not to put too fine a point on it, that unlike the corrections of 1987 or 1998, this is not just a financial crisis but an ongoing global economic crisis in a post-bubble highly fragile state. If we are experiencing a recovery it is only very nascent and might easily be blown off course.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Paul McCormick 28th May 2010 at 1:53 pm

    That’s really brave of Morgan Stanley to go out on a limb and predict FTSE 5800 by end 2010..
    …in other words back to where the market was about a month ago. This doesn’t seem very inciteful. Clearly with a decent run of positive news we could be there in <6 weeks.

  2. But at least some space for those who are taking a somewhat more optimistic longer term view and from the above there is clearly evidence to support that cautious optimism.

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