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Resolution Asset Management CIO bullish on market high

Resolution Asset Management chief investment officer for UK equities Peter Reid believes that the FTSE 100 will break it’s all-time record of 6,930 next year with the bull market set to continue until at least 2009.

Reid says this is likely as firms are still enjoying supportive valuations, good investment returns, strong profits growth and large amounts of free cash flow.

He points out that the market has remained inexpensive over the last four years due to minimal re-rating, with valuations rising in line with profits growth. Although he expects the pace of profits growth to slow, Reid believes valuations will remain supportive for the short term. He also expects the surge in merger and acquisition activity to continue unabated, with firms using their strong balance sheets to fund deals.

Reid points to inflation as the only reason for investors to be cautious, with rising house prices and consumers remaining highly indebted. But he believes high inflation will dissipate as utility prices slide and interest rates rise, slowing consumer spending.

Reid says the poor state of the US dollar is likely to impinge on UK profits, with a third of them coming from across the Atlantic, although he feels that US interest rates are unlikely to climb with the world’s largest economy “having a soft landing”. He also does not expect the US sub-prime crisis to spread to the wider economy.

Reid says: “We are about two-thirds of the way through the current bull market and there is probably another two years remaining. There is still upside to go, and I think we’ll see the market push through the old high of 6,930 at some point next year. As the bull market matures we should expect occasional corrections after rapid periods of gains but these should, for the time being, be viewed as buying opportunities.”

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