Pru predicts equities to rise by 8% a year

Prudential is predicting around 8 per cent growth on equities over the long term despite believing that the economy overall will be subdued.

Director of portfolio management Martin Brookes believes that there will not be a concerted market recovery just yet but says equity valuations are more “soundly based” than they have been for some time following the major reduction in equity values in the 1990s.

He says there is a general consensus in the marketplace that 8 per cent is “about the right number” for long-term equity growth.

However, he believes that below-trend growth and inflation will continue, constricting corporate sales and growth margins.

Brookes says US equities are still overpriced but there are some promising emerging markets in Asia and also South Africa. He considers bonds are expensive but property is promising.

The Pru holds around 34 per cent in fixed interest, 32 per cent in UK equities and 17 per cent in property and Brookes says it is not planning to make any changes to this life fund mix. It reduced its equity exposure four years ago.

He say: “I think equities are fairly priced at the moment and can deliver a reasonable outcome but we are not going to get big windfall improvements because of a one-off improvement in the valuation.”

Norwich Union chief actuary Mike Urmston says: “I do not think we would disagree with what he is saying. We expect no big sudden jump in the share market but a crawl back upwards.”