Taking stock

By DAILY MAIL REPORTER
Updated: 19:00 EST, 11 April 2002

RECENT warm weather hopefully heralds the end of dark winter days and the start of summer, but is the same effect happening in the stock market?

The British economy is supposed to be recovering from a downturn that started before September 11 and was exacerbated by the terrorist attack. But while the FTSE 100 index of shares from leading British companies has recovered from its low of 4,433.7 on 21 September, it is yet to break through the 5,300 ceiling. This is a far cry from the all-time high of 6,930 on 30 December, 1999.

So what is really going on? All the economic indicators look good, according to Toby Thompson, fund manager at New Star. Share prices haven't improved yet because investors are concerned by future prospects, including the Middle East situation.

'The market is worried about whether the new growth is genuine, or if it is just firms getting back to normal before we go into another recession,' he says.

The fact that much of the growth in the UK is because of Britons shopping on their credit cards, while British manufacturing goes nowhere, is also a problem. The big bounce - almost 800 points or 17% up - since September resulted from interest rate cuts, according to Graham Kitchen, fund manager at Invesco Perpetual. The next uplift will take longer.

'There is always a lag before a recovery feeds through to company profits. That will drive the market from here, and there will be no movement until it happens,' Mr Kitchen says.

Julian Chillingworth, deputy investment director at Rathbones, says we will have to wait at least another six to nine months for better conditions, which will happen so long as interest rates stay steady.

'We need to see more confidence from firms. If interest rates go up dramatically, consumers could then start worrying and stop spending, and the economy could go back into recession.' With all this uncertaintyit is difficult to know whether now is a good time to invest in shares.

Ian Millward, at independent financial adviser (IFA) RJ Temple, says it is impossible to get the timing exactly right, but at least share prices are much cheaper than two years ago. 'The market can't go much lower, but there won't be sharp rises. We won't get the 15% a year returns of the Nineties, either,' Mr Millward says. 'It's more likely to be 7% or 8% a year as inflation stays low.'

If investors want to go ahead now, he recommends funds run by experienced managers such as Jupiter Income, Invesco Perpetual Income and New Star Higher Income.

For the more cautious investor, the new Jupiter Distribution fund may well suit, he says, because it has a large proportion of less risky bonds and some shares.

At IFA Chartwell, Tim Cockerill says: 'On a five-year view, investors won't go too far wrong if they invest now.' Mr Cockerill recommends the conservative HSBC UK Growth & Income, or the more risky Old Mutual UK Select Smaller Companies, or a combination of both.

• CARD shop owner Tony Wade, 57, pictured with wife and co-owner Christine, 44, invested £1,000 into the Schroder UK Mid 250 fund a fortnight ago.

The investment was to top up his existing Individual Savings Account (Isa) in the fund, which now stands at £4,000 for the last tax year, and which he chose on the advice of independent financial adviser Bestinvest.

Normally, Mr Wade, from Blackpool, would have put in the full allowance, worth £7,000, but he has held back from investing all his money. He says: 'The downturn in the stock market has made me cautious, but this fund has held up quite well, probably because the UK has been sheltered from a major recession.'