Equities set to be the investment choice for 2011

16th December 2010

It's good news for both dyed-in-the-wool investors and savers who are tired of minimal returns on their money and are now looking for something more.

Gavin Oldham, chief executive of The Share Centre, is forecasting the FTSE 100 index will end 2011 "at or above 6,750". UK shares are currently hitting two-and-half year highs with the index around the 5,880 mark.

He adds: "As businesses look forward to a leaner, more efficient post credit-crunch world, investment and earnings will rise on the back of continued low interest rates."

And he's not alone with his optimistic view. Some 92% of fund managers are predicting that markets will rise in 2011, compared to 74% this time last year.

The poll, carried out by the Association of Investment Companies, reveals that 77% of fund managers are looking for the FTSE 100 to end the year somewhere between 6,000 and 6,500. And 80% of them think equities will be the best-performing asset in investors' portfolios next year, followed by gold and then bonds.

Their positive view is good news for beleaguered savers and investors who want to see their money grow. Especially as none of the fund managers mentioned property or cash as set to be top performers in 2011.

But of course it's not all plain sailing. For the first time, geopolitical instability and the threat of terrorism have been cited as the biggest threat to equities in 2011.  These concerns were followed by the threat of global recession and high inflation. 

And Alan Brown chief investment officer at Schroders urges caution. "Equity assets are attractively priced as long as we can avoid Double Dip," he says.  Adding: "Any material increase in the likelihood of double dip [recession] should be treated extremely seriously indeed.

"Double Dip [recession] is surely unambiguously bad for equities. Earnings would come under severe pressure; the banking sector would rapidly find itself in crisis again, but this time without an effective lender of last resort."

Philip Poole, global head of macro and investment strategy at HSBC says he thinks a double dip recession is unlikely to occur: "In terms of fundamental drivers, both global economic and corporate earnings growth are expected to tail off next year but a double dip recession is likely to be avoided.

His favoured strategy is to focus on the emerging markets 2011 but not exclusively the likes of China and India. He also has an eye on developed markets that stand to gain from the growth in the emerging market economies.

"The shift in the balance of global consumption from developed markets to emerging markets will be a powerful secular trend. This theme should be played via both EM and DM companies that are exposed to it," he says.

"In markets like India, Indonesia and Russia there will need to be huge infrastructure spending if growth rates are to be sustained. Rapid urbanisation will also power the investment process. This theme should be played via both emerging markets and developed markets companies that are exposed to it."


What the financial community thinks

Prolific housepricecrash.co.uk poster The Masked Tulip, picks up on this theme,  citing the following Telegraph piece "Investors told forget savings accounts, think shares".

He says:

"This could be viewed as the final phase of the current stock bubble when articles like this appear in the mainstream meeja." (The Masked Tulip)

The sentiment is shared with many of the forum members, but in response to The Masked Tulip's comment, justthisbloke makes an alternative point:

"I'm surprised at the opprobrium being heaped on this article here.  Sure, shares are a risk of capital loss. But, just now, cash is a guaranteed loss.

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