A Monthly Publication

By Robin Sainty 

 “It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change”

 The words of Civil Liberty lawyer Clarence Darrow seem particularly apposite after one of the strangest investment years that I’ve seen in over 25 years in the industry. We started January with everything looking bleak, saw the FTSE Index slump in mid March amidst talk of a Depression akin to that of the 1920’s, and then witnessed a recovery in the Spring and Summer which experts were queuing up to denounce as a bear market rally with no real legs to it. At the time of writing this article at the end of November, the FTSE is up around 50% from that March low point, corporate bond funds are showing significant gains over the year (for example, the M&G Corporate Bond fund which I recommended earlier in the year has posted a return of 24.3% over the last 12 months (source Trustnet 27/11/09), and cash, as also predicted, has stayed well and truly in the doldrums.

However, it’s one thing to look back, but quite another to look forward and make accurate predictions, so what does 2010 have in store for us? Well, here are my tips:

Property

This can be split into two areas, residential and commercial. We are already starting to see a slow recovery in residential property, but it will be hampered by the continuing refusal of the banks to increase lending facilities (presumably they need to keep enough back to pay those fat bonuses!), so I don’t see any sign of a new boom. Commercial property has had a huge slump and is still to show clear signs of reaching a turning point, although I believe that the market is close to bottoming out.

Fixed Interest

This sector has been a real success this year on the back of low interest rates and inflation. Both gilts and corporate bonds have shown good returns, certainly way in excess of the norm for the sector. While I believe that there is still mileage in this area, I suspect that a bubble is building and that any significant rise in inflation will signal a significant correction. Timing is everything in this sector.

Cash

The Bank of England continues to hold the base rate down, and it seems unlikely that anything other than a leap in inflation will trigger any significant rise. The wild card here is the huge National Debt figure. The Government would benefit greatly from a rise in inflation, which would reduce the real value of the debt. However, a rise in rates would significantly increase the repayments on it, and under the current mandate to the Bank (which is to control inflation at all costs) one can’t happen without the other. One solution, which may well be seen next year, is to adopt the American approach of striking a balance between rates and inflation, wherein a certain amount of inflation is seen as a good thing.

Equities

2010 will be an interesting one. China looks capable of continuing its surge, pulling Japan, which provides much of its heavy machinery, with it, along with much of the Pacific Rim. America, already out of recession, should continue to perform well. Emerging European markets such as Russia, Poland and Turkey also look attractive, as do India and Brazil. Of the mature European economies, France and Germany look well set, but the UK, I’m afraid, is the poor man of Europe at present with poor GDP figures and a huge debt burden. Fortunately, from a stockmarket perspective the fact that most leading shares in the FTSE do much of their business overseas means that we can still expect the index to benefit form recovery elsewhere, and there is some evidence which points towards us entering a new bull market. However, I believe that the crisis of 2009 will result in a change in the world economic order with China replacing the US as the economy that the worlds looks to to lead us forward.

              I can’t really believe that I’m writing the last article of the year. Time seems to have flown past, but at least will be entering the New Year with much more positivity than last year! I hope you have enjoyed the articles and I wish you all a Happy New Year.