In an Association of Investment Companies (AIC) poll of fund managers, 92% predicted that the UK stock market would rise in 2011, compared to 74% this time last year.Managers are far more optimistic about prospects for the FTSE 100 then they were last year too, with 77% predicting it end 2011 at between 6,000 and 6,500 points – 10% higher than its current level of 5,900.
The fund managers surveyed, who collectively control £31bn worth of assets, overwhelmingly (80%) tipped equities as the best-performing asset for 2011, followed by gold (12%), with bonds receiving just 4% of the vote. No managers voted for property or cash.
Emerging markets (20%) was the favoured sector for 2011, closely followed by Japan, the Far East excluding Japan, frontier markets (all 16%), Latin America (12%), the UK (12%) and the US (8%). Among UK equities, 28% of managers chose resources (including oil) as the best performer, followed by blue chips (16%). Here's what the experts also said about the 2011 investment outlook:
■UK equities Jane Coffey, head of equities at Royal London Asset Management, believes strong corporate balance sheets generated by good cashflows should allow companies to raise dividends or buy back shares. "We have already seen a revival of the latter with several of our holdings (SSL, Delta, Dana, BSS) bought by industry peers," she said. "Additionally some of our holdings are due to generate good synergies from their own acquisitions (Travis Perkins, Reckitt Benckiser) increasing their profitability and growth prospects."
Simon Brazier, co-head of UK equities at Threadneedle, thinks attractive valuations, recovering growth and corporate activity will lead to "numerous opportunities". He believes the big reason for optimism is that the market is valued well below its long-term average and has forecast double-digit gains for the UK market next year. He says: "Yes, there are still risks and these risks will produce bouts of volatility, but I would not be surprised to see the FTSE 100 at 6,500 before the end of 2011."
Henk Potts, equity strategist at Barclays Wealth, tips Tesco (undervalued given all the floor space it will create next year), Tullow Oil (very active drilling calendar) and Vodafone (continued improvement in its core markets and higher growth from emerging markets).
■ Global equities Dr Stephen Barber, who advises broker Selftrade on economics and market trends, says Germany will have a solid year of growth. He adds: "Chinese growth has been near phenomenal in 2010 but the economy must not be allowed to overheat and inflation remains a risk. Meanwhile, the US seems at last to be awakening. Provided confidence returns, investors with American-exposed assets could see good progress."
But Adrian Lowcock of Bestinvest said his firm is reducing its exposure to the US and Europe. "Given the ageing populations in developed markets, their longer-term growth prospects are dented," he says, adding he is beginning to like Japan on the back of how cheap it has become. "But its currency, the yen, is strong, so we favour currency-hedged funds".
Tom Walker, manager of the Martin Currie Portfolio Trust, says the world economy is polarised but, as an asset class, large-cap equities are exposed to better global growth opportunities and thus offer some of the best potential.
■ Emerging markets Dr Slim Feriani of Advance Emerging Capital, says the outlook in 2011 is solid. "Reasons to be positive include: healthy and improving fundamentals; superior growth; compelling valuations; positive structural change; and supportive technical factors. The downside risk to emerging and frontier market equities is in the form of rising inflation and political/trade/currency tensions with the US and west in general."
Despite China's powerhouse performance boosting the emerging markets in recent years, Feriani says global equity funds are still only 7% weighted towards emerging market equities, compared with a benchmark of 14% in the MSCI All Country World Index. "All the hype and perception of a bubble having already been formed simply cannot be the case," Feriani claims.
On the flipside, Legal & General Investment Management economist Tim Drayson says the emerging economies have begun to slow as global trade growth has eased. "Next year, long-standing tensions over trade imbalances and exchange rate policies could escalate."
■ Bonds Jonathan Platt, head of fixed interest at RLAM, says global growth will slow in 2011 but that major economies will not re-enter recession. "Against this backdrop we expect that long-term UK interest rates will be broadly unchanged over a 12-month period, although volatility will remain high." With that in mind he prefers non-UK index-linked bonds, particularly those in the US.
■ Commodities Adrian Lowcock, senior investment adviser at Bestinvest says that while his firm supports the long-term "commodity story", he does not see much upside in this area for 2011. "We are not increasing our exposure," he says.
But Ted Scott, director of UK Strategy at F&C, remains positive on gold for 2011 as an excellent each-way bet when yields on low-risk assets offer investors so little. He says the potential risks that persist in the financial world add to its lustre. "Until the global economy is on an even keel, gold will continue to be a safe haven."
■ Property In its UK housing market forecast, the Royal Institution of Chartered Surveyors predicts that house prices will finish 2011 2% lower, and that transactions are likely to remain flat, while repossessions will decline marginally.
James Wyatt, senior partner at Barton Wyatt, says mortgages for those with deposits of 25% or more will become much more readily available, while interest rates will remain at or about their current level.
He says: "New house builds will remain at a very low level, creating a restricted supply which is likely to remain at a low level for many months. The supply of houses for sale will continue to be limited, which will have the effect of forcing up prices."
But Howard Archer, chief UK and European economist at IHS Global Insight, is much gloomier. He says house prices will fall by about 7% next year, while Capital Economics believes house prices will drop by 10% next year and by 10% again in 2012. For the latest updates PRESS CTR + D or visit Stock Market news Today
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