What will 2010 hold for investors?
During tough financial times it's hard to know what lies ahead - to help you along, Moneywise presents a round up of expert comment on where (and where not) to put your money in 2010.
James Fairweather, chief investment officer at Martin Currie, says current attention directed towards is "well deserved" - but adds it shouldn't overshadow the opportunities on offer in Brazil and India.
"At present, the consensus seems to be that emerging markets will outperform again in 2010 in both economic and stockmarket terms," he says. "There is a consensus that developed markets will, in comparison, be rather dull, particularly as fiscal stimulus and monetary support are withdrawn."
In terms of the UK, the economic outlook looks increasingly bleak, says Richard Buxton, head of UK equities at Schroders. "We are therefore facing very limited levels of growth, with global interest rate rises posing the biggest challenge."
However, Buxton believes that UK equities offer more than pure UK-based profit streams. While
stockmarket volatility is bound to increase over the next six to nine months, he adds that valuations on UK equities are "completely supportive and in no way stretched".
"This should limit the downside during periods of volatility," he concludes.
David Jane, head of multi asset at M&G, agrees that UK equities are looking positive, considering their status as a real asset offering attractive long-term returns as well as the very international nature of the UK stockmarket.
"Most FTSE 100 companies are large global blue-chips which generate significant revenue outside the UK and are not dependent on the UK consumer, nor are they overly exposed to the pound’s value falling," he explains.
However, Jane does add that both sterling and US dollar-based assets are likely to suffer next year - due to the risk of further quantitative easing, the indebted state of public finances and the poor economic outlook.
Tom McPhail, head of pensions research at Hargreaves Lansdown, doesn't expect investment markets to "settle down" next year.
"Predicting the next source of volatility is by definition unreliable but contenders could include a sterling or dollar crisis, natural disasters, central Asian political instability, international debt default, final salary scheme defaults, a hung parliament in the UK, an energy crisis, or all of the above, consecutively or concurrently," he adds.
2010 will see the introduction of a new 'super' rate of income tax and the removal of personal allowances from higher earners. The changes will make tax wrapper selection for investments even more important in financial planning, according to Dan Clayden, director of Clayden Associates.
He explains: "The introduction of higher rates of tax will widen the effect on returns seen between the most and least tax-efficient wrappers."
Gavin Oldham, chief executive officer at The Share Centre, says: "2010 will be the year when the UK parts company with other developed countries. The markets which will feel it most will be the fixed-interest bond markets, and particularly government stocks.
"The likelihood is that the stockmarket will be subjected to a ‘tug-of-war’ contest between the bearish domestic outlook and the bullish international one. Global GDP growth is forecast to be in the region of 4% - so while the larger companies in the FTSE 100 may be cheered by this opportunity, smaller domestic stocks could be less fortunate."
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).