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Your Money > Investing Comment Articles > 2009 - A look ahead
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By Richard Hunter, Hargreaves Lansdown
Given the economic uncertainties and almost certain ongoing volatility, the first half of 2009 in particular is likely to be a rocky ride. Quite apart from the "apples and pears" comparison of year end forecasts (the FTSE100 is 16 stocks different to this time last year), there is a possibility of an aggressive spike towards the end of next year. Allowing for this year's volatility however, the FTSE year end could just as easily be 3000 as the figure of 5000 which we are predicting. Economic themes In the UK, the early part of year will give some very important gauges for the rest of the year - in January, the trading updates from the retailers on the Christmas season will begin to filter through and give some indication as to how "challenging", to use the usual word quoted by the retailing Chief Executives, the period was. Then, towards the end of February and in early March, the crucial round of annual results from the UK banks will provide a barometer to general economic health (or otherwise) and whether another round of writedowns (and therefore, potentially capital raisings) are necessary. Whilst inter-bank rates such as LIBOR remain central to the freeing up of credit markets and the health of economies globally, significant interest rate cuts should begin to wash through. Indeed, general government fiscal packages, almost globally, should also start to kick in. The debate between deflation (falling prices) and inflation (rising prices) will remain central for investors. Whilst deflation appears to remain firmly in the driving seat, massive monetary policy and fiscal stimulus could eventually not only pull us through the threat of deflation, but lead to inflationary pressures again (many Centrals Banks are now printing money). Sector to watch The recent weakness in global markets has focused investors' minds once more on the "safe haven", or defensive nature of the pharmaceutical sector, where the long term outlook for an ageing world population needing specialist medicines is encouraging. In addition, there has been an increase in takeover activity in the sector rumoured and actual. On top of this, the recent earnings figures from the sector were robust. And for the larger pharma giants in particular (it is estimated that Glaxo and AstraZeneca gain two thirds of their earnings from the US), the recent strength of the US dollar has given a currency tailwind which has further propelled the shares. Over the last six months, for example, the FTSE100 has suffered a 26% decline while the shares of Glaxo and Astra have posted gains of 10% and 21% respectively. Shares to watch BP remains a cash generating giant which has benefited from both the general strength of the oil price and a number of production facilities coming back on line. At the same time, the change of management at the top is already beginning to bear fruit, whilst the stock has become an investment destination for investors seeking yield as well as growth - for example, BP currently has a dividend yield of 4.3%, which means that it has attracted the attention of income seekers who had been left scratching their heads following the withdrawal of dividend payments by the UK banks. Tesco's share price decline has masked some of the strengths of its underlying business, particularly in the UK. In the US, of course, the launch of its Fresh & Easy stores could not have come at a more difficult time, even though there have been some reasonably promising signs. Meanwhile, international expansion has continued apace, whilst increasing competition in its home market has not yet been able to halt the march of the Tesco juggernaut to any large degree.Despite the likelihood of continuing economic woes, the company is still largely regarded as a core holding in its sector, with the added benefit of now almost being a recovery play. For British American Tobacco, not only is the group increasing sales in the emerging economic regions in order to counterbalance threats to its traditional marketplaces, but it is also looking to benefit from the lower-cost wages of such regions. The more recent strength of the US Dollar (40% of revenues are generated here) has also helped, whilst the sheer size of its operation means that the likelihood of its having to acquire other companies for expansion is considerably less than some of its competitors. Over the last six months the shares have shed just 12% against the wider FTSE100, which has dropped 26%. Richard J Hunter is Head of UK Equities at Hargreaves Lansdown Stockbrokers Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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