View more on these topics

Investment View: Good outlook but be realistic

You can tell we are approaching the end of the year by the number of forecasts in the financial press from pundits trying to peer into the murky months ahead.

Overall, 2005 has not been a bad year for investors. Equity investors are likely to see positive returns for the third year running and bond markets have not treated us too badly either. But how many were forecasting a year ago that Japan would be the developed market of choice for investors?

The research team at Barclays Investment Services did and their view that Japan had turned the corner and would reward equity investors has come home in spades. They could not have foreseen, of course, the general election that endorsed Koizumi’s position and gave impetus to his reform programme. Nor, I suspect, did they expect quite the recovery that has taken place.

But what are the themes to look out for in 2006? Among the expectations that should have a positive influence on equities is the continuation of the merger and acquisition boom, further rises in raw material prices and rising spending on information technology. Of course, there are risks as well.

Some believe a return to a period when markets are more volatile could be around the corner. Investors have indeed been fortunate in experiencing decreasing volatility in recent years. For example, US equities have not lost or gained more than 2 per cent in any one day in the past 12 months, whereas in 2002 there were 53 such occasions. I believe we should be prepared greater volatility.

I have also been struck by concerns over rising inflation and loss of momentum in emerging markets. The latter has been particularly rewarding for investors recently, with the MSCI Emerging Markets index up by more than a fifth to December. With political risk re-emerging, and developed markets playing catch up, the fun, if not exactly over, may be somewhat muted.

On raw material prices, it is important to remember that not all commodity prices move in the same direction at the same time. Indeed, while oil has been weakening, the Barclays research team believes the balance between supply and demand in petroleum products remains sufficiently finely balanced for the bull case for energy to remain. Arguably, any diversified portfolio should include commodities and it looks as though oil will continue to occupy centre stage as far as markets are concerned.

The overall message is positive. Valuation levels and the relationship with bond markets look set to support the case for equities. Realistically, we should not expect any more than single-digit total returns. It is when the returns become unrealistic that investors need to take care.

Recommended

FSA freezes out 600 rogue M&GI firms

The FSA says it has kept more than 600 unsuitable mortgage and general insurance firms out of the industry since the start of regulation. FSA records show that, at the first stage of the authorisation process, approximately 550 M&GI firms either withdrew or were refused permission to conduct business. At the second stage of the […]

TUC welcomes Denham’s job advert Bill

The TUC has welcomed former Pensions Minister John Denham’s 10 minute rule bill to force all job adverts to reveal details of the combined salary and pensions benefits.TUC general secretary Brendan Barber says if the bill becomes law the new job adverts would help good employers recruit and retain the best staff and encourage those […]

HSBC Investments appoints former DWS man as head of UK sales and marketing

HSBC Investments has appointed former DWS managing director Michael Warren as its managing director of UK sales and marketing. Warren will have responsibilities for all sales and marketing relating to intermediary and institutional business. He will report to HSBC Investments UK and Middle East CEO Dean Buckley. Warren left DWS following the merger of DeAM’s […]

Mothers missing out on millions

By Steve Webb, director of policy and external communications The ninth Royal London Policy Paper discusses how thousands of mothers are missing out on state pension rights when they don’t have to Earlier this month we published the ninth Royal London Policy Paper, entitled ‘Mothers Missing out on Millions’. It focuses on the thousands of mothers […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com