FTSE 100 a case for rebound
Mr Mike Lenhoff, the chief strategist at Brewin Dolphin, believes 2009 will see the FTSE 100 recover.
"A year of false starts, damp squibs, constant disappointment and much consternation, not to mention all that wealth destruction, is enough to make any stale bull hesitant about calling the upside to equity markets. That said, I think there is a case for thinking that equity markets could end 2009 on an upbeat note" said Mr Lenhoff.
Mr Lenhoff believes there are three reasons for thinking global equity markets could pick up and that the FTSE 100 could rebound up to the 5000 area by end-2009. "First, monetary and fiscal policies are expansionary, in some cases aggressively so. Not only have we witnessed the biggest financial upheaval of our time, we are also witnessing the biggest policy response from central banks and Governments the world over"
"Second, the Fed is preparing to roll out Plan C to help drive long term interest rates down by buying up financial assets. Plan B - the Fed’s purchases of commercial paper and certificates of deposit - has been in progress for several months. The intention to buy up agency debt and mortgage backed securities has recently been announced by the Fed but its programme of quantitative easing remains wide open, as discussed in a recent speech by the Fed Chairman (Federal Reserve Policies in the Financial Crisis, December 1, 2008). The likelihood now is that it will focus its efforts on driving long term interest rates down with a view to lowering those on risk assets too, thereby pushing down the cost of borrowing and related funding costs"
"The further this development goes, the more likely it is to give rise to an expectation of a recovery in economic activity and to a better outlook ahead for corporate earnings. This should also help support valuations in equity markets, which are more attractive today than at any time since the recessions of the early 1980s. It should also help the spreads in the credit markets narrow and, once this starts happening, a sustainable recovery in the equity markets is likely to follow"
"Third, falling inflation worldwide will boost real household incomes and this should provide something of a boost to the growth of consumer spending - worldwide. On the corporate side, commodity deflation should help profit margins -worldwide. Commodity price deflation could end up being a powerful stimulus for global demand growth. By the middle of next year, sentiment towards risk assets could be improving" exlpained Mr Lenhoff.
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