Financial analyst and Birmingham Post blogger Howard Wheeldon peers into 2010 and wonders what it holds for the UK markets.
With the FTSE100 index up well over 20 per cent on the year so far I suppose that we must see 2009 as having been a pretty good year for equity markets.
Of course, as a highly respected Edinburgh based fund manager pointed out on Radio 4 recently, the FTSE 100 index is still little higher than it was about 12 years ago!
Time then to ask the question: Is the UK market fundamentally overvalued?
Three months ago I readily admit to a belief that UK and indeed, US stocks were beginning to look more than overvalued.
However, despite the headline index level showing little more than flat performance over the past two to three months there has been a reasonable level of sector correction in important areas such as banks.
Whilst it would be wrong to suggest that stocks are cheap as we enter into 2010 and despite huge worries over the direction of the UK economy will take in an election year, I am not in the camp that believes the equity market will end 2010 flat – or even down.
Of course there are plenty of grey areas meaning a belief that sectors such as retail may be headed into a far more difficult year that the one about to end.
What about UK growth? Following something like a 4.5 per cent decline in GDP for the year, visible signs of specific Q4 ‘growth’ around 0.4 per cent should appear when the final figure for 2009 is announced late January.
For 2010 ‘growth’ my figure would be slightly less than 1 per cent for the year and with a gradual decline in growth to begin to possibly reappear in Q2 2010 or maybe not until Q3. I would be slightly more positive about growth in 2011 but much will depend on who wins the 2010 General Election. Regular readers will know that I detest the much abused word growth that is used so often by politicians as what we are talking about as in my book growth only starts when GDP has recovered to its past peak.
Is the UK headed toward being another Greece? Despite the £178 billion that New Labour has added to the national debt this year alone and the similar amount it plans to borrow in 2010 and despite the prospect of the UK national debt rising potentially to maybe £1.5 trillion I very much doubt that one either should compare Britain’s substantial budget deficit and overall debt plight to being comparable with that of Greece.
To be sure we are in a hell of a mess and one that will take the best part of a generation to work our way through. And even though I may have a particular loathing for how the Brown government has handled the post trauma economy (the period subsequent to the bank bail phase that began two thirds of the way through 2008) he bottom line is that I do not believe the UK economic situation is unmanageable – provided of course that a new government steps up to the plate.
Will there be more job cuts?
I am afraid plenty more job cuts are on the cards although outside of the public sector on a reduced scale from what was witnessed in 2009.
Job cuts as the CBI painfully points out are a lagging indicator. Maybe so but given the extent of public sector cuts necessary if Britain is to just go part way toward living within its means years into the future then I suspect the impact of public sector job losses late into 2010.
Worryingly I see no opportunities for wealth creation – new jobs being created through investment by the corporate sector in 2010 – and that includes banking and financial service industries and importantly, the legal profession.
And what of property prices?
I see house prices ending the year at around the levels they begin the year and perhaps just very slightly above in the mid-end range. Meanwhile during the year I suspect a small dip in the small house/flat end and also at the top end – £1 million plus – during the remaining months of winter into the spring before minimal levels of recovery might be seen. Overall I continue to see house markets being held up through deep-seated pent up demand although levels of general activity will likely remain at current [slightly more subdued] levels seen over the past month.
Will a General Election change anything? From a motivational angle and likely corporate sector belief that – assuming the Tories win – the next government will do nothing underhand that might further undermine already weakened industry and commercial sectors, I guess that we might see more of a swing in the step of those that have so far managed to survive the 2008/9 economic crisis. Of course, Rome was not built in a day and neither can the British economy be completely built in anything less than a generation. We have to re-base – accept our many weaknesses and our natural contempt of what has probably been staring us in the face for years.
That re-basing must somehow mean the government doing whatever it can to push for renewed investment including a reborn attitude to research and development investment and the importance of investment in and by the manufacturing sectors as well.
Of banks and other financial markets, I like many others are frankly appalled that our government has been allowed with all too little challenge to so easily to pull the wool over the electors eyes blaming all the current woes on the banks.
I am also appalled about what I am seeing in terms of the constraints being placed on banker’s remuneration and the huge damage that is being caused by our government effectively handing over regulation of the UK banking and financial sectors to the EU.
Just as we did 60 off years ago when we gave away the keys to the jet engine, we are allowing ourselves to be sold down the river by a far-from adequate government which, when it comes to running the economy with a degree of prudence has little clue.
Restrain the UK banking industry in the manner that has been laid down by this government and you are at a stroke choking the only goose left in town that can produce sustainable eggs.