December 31, 2009 5:17 pm

FTSE 100 forecasts for 2010

Gary Reynolds, chief investment officer, Courtiers

6,748

The current FTSE 100 price/earnings (p/e) ratio is around 15 times. Assume profits recover their recent decline of around 25 per cent. That would put the FTSE 100 p/e at around 11.25 times. Then assume the p/e reverts to 18. That would give you a 60 per cent uplift. Knock off 20 per cent as a contingency and you get 6,748.

Nick Louth , My Portfolio columnist

6,000

I’m expecting 2010 to show modest progress on 2009. After the long rally we have seen in 2009, shares are much more fully priced, but an earnings recovery could propel some improvement over the course of the year.

Robin Geffen, managing director, Neptune Investment Management

5,930

I think the FTSE 100 will rise by around about 13 per cent by the end of 2010. This will disguise a much wider range of outcomes: in 2010 you will need to get both the sectors right and the stocks right. The range of outcomes for UK equity funds will range from -5 per cent up to plus 25 per cent. 2010 will not see a repeat of some of the relief bounces in the small cap and Alternative Investment Market area. Indeed, expect small caps to substantially underperform.

Simon Marsh, partner, Killik & Co

5,850

Our rationale is predicated on the yield argument. The forecast dividend yield for the FTSE100 for next year is currently 3.9 per cent. Unattractive interest rates on cash will remain. Equities continue to provide investors with an attractive return. As a result, more cash will be diverted to equities, which will drive up the value of the index and drive down the yield. We believe a 3.5 per cent yield is a reasonable return given the current 10-year gilt index yield. In order to provide a circa 3.5 per cent yield, the FTSE100 will need to increase to 5850.

Mark Dampier, head of research, Hargreaves Lansdown

5,750

Our guess is somewhere between 5500 and 6000. That said, looking at just one index can be misleading. In 2009, the small cap index is up over 50 per cent. The economic background looks awful and the tough stuff will come when we see the budget after the election. This should be a real stock pickers’ market, with fund managers seeking out companies with quality, visible earnings and growth companies that can prosper within a poor economic background. I like Luke Kerr at OM UK Dynamic, Neil Woodford at Invesco Perpetual Income & High Income, Philip Gibbs at Jupiter Absolute and William Littlewood at Artemis Strat Assets.

Martin Shaw, general secretary of the Association of Friendly Societies

5,750

I anticipate that political rather than economic issues will drive the performance of the FTSE, and my prediction assumes that whoever is the leading party in the general election, they hold an overall governing majority, as this will create confidence in investors, particularly those overseas, that the government has the proper mandate to tackle our economic woes. If instead the election results in a hung parliament and a coalition government , my prediction would be 1,000 points lower.

Kevin Gardiner, head of investment strategy, EMEA, Barclays Wealth

5,700

The UK market is the Chelsea of the Barclays Premier League of stock markets: most of its glamorous playmakers are overseas earners. This is one of the factors that will likely ensure a V-shaped profits recovery into 2010 even as the local UK economy remains one of the most fragile in the G20. With interest rates likely to stay at emergency levels for most of the year, and valuations subdued, we expect equities again to be the strongest investable asset class in 2010, though with a general election and fiscal retrenchment ahead the gains in prospect seem likely to be more muted than those seen (eventually) in 2009. If we are right, investors are starting to be paid for taking equity risk once more, having seen most of the excess returns of the 1990s and 1980s wiped out in what the history books may call the ’Panic of 2008’.

Simon Denham, head of Capital Spreads

5,700

The recovery in global equity markets has been stimulus-driven and, ever since March, investors have piled into stocks as the yield returns from other asset classes have been distinctly pitiable. For 2010 the outlook for equities remains relatively unchanged and positive; it will, however, be a serious challenge to repeat the sort of gains we saw in 2009. Equity rallies out of recessions are usually followed by a period of consolidation and this is what 2010 will most likely have in store for us. Modest gains with bumps along the way and a year end target of 5700.

Thomas Becket, head of global investment strategy, Psigma Investment Management

5,600

This is exactly the same prediction that I had for 2009. I expect equity markets to be highly volatile and overall returns to be almost flat. Within that there will be huge bifurcation of returns and plenty of opportunity for active investors. he reason the market is unlikely to make up more ground is that the battle between the inflationary actions of governments and deflationary behaviour of consumers is still yet to run its course. In addition, there are still question marks as to whether optimistic earnings forecasts are realistic and whether these are already priced into buoyant share prices.

Gavin Oldham, chief executive, The Share Centre

5,450

2010 will be the year when the United Kingdom parts company with other developed countries. It will be the year when all that overspending comes home to roost. Sterling bond markets will feel it most, but it is inevitable that some of the woe will rub off on the stock market: hence my forecast for year-end 2010 remains almost unchanged from this year’s, at 5,450.

Peter Temple, My Portfolio columnist

5,225

The equity market as a whole will go nowhere in 2010. Pre-election uncertainty, the high probability of a hung parliament(and the possibility of another election late in the year), a weak gilt market and weak sterling are all reasons to avoid equities, with the exception of those generating the bulk of profits overseas . Hard assets, including gold, plus defensive income-producing equities, and higher yielding corporate bonds will rule the roost.

Mike Hollings, chief investment officer, Matrix Investment Management

4,900

Overseas investors are likely to gradually lose faith in sterling over the next yeargiven the very dire state which the UK economy currently finds itself in . Clearly if we have a hung parliament then the “denouement” for Sterling will be painfully expedited. The fact that over 60 per cent of FTSE 100 companies earnings come from overseas will help mitigate the fall in the Index (as higher overseas earnings help boost the bottom line), but on balance the sell-off in Sterling will most likely be negative for UK assets. The first year of each decade is traditionally the worst for the stock market here and in the US. Since 1900, years ending in nought have been the only ones to produce a loss on average. With the FTSE having rallied strongly for most of 2009, the stage could be nicely set for a dramatic reversal in 2010. The resulting move should take the market far below its previous lows, although perhaps not entirely next year. Despite the uncertainty over timing, I would guess the FTSE will be 15 per cent lower in a year’s time.

Martin Bodenham from boutique private equity firm Advantage Capital

4,500

This country is in a mess. The budget deficit exceeds £180bn and total government debt is expected to exceed £1,000bn within three years.  With tax revenues of only £500bn this year, quite simply, we are living way beyond our means and drastic action is required. Imagine our economy after the election without quantitative easing, an absence of cheap credit, cuts in government spending and tax hikes for the majority and then consider the impact on markets.  It is not a pretty picture for investors. 

David Stevenson, Adventurous Investor columnist

4,500

As soon as the markets start fretting about inflation, or a central bank unnerves the markets with a hint of fiscal and monetary tightening, we could see a reversal.

Kevin Goldstein-Jackson, My Portfolio columnist

3,980

It’s just a gut feeling and I can’t explain it!

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