'For the brave buyer – one who is prepared to buy when no-one else is – there are lots and lots of opportunities.'
BY NAOMI CAINE
The financial world will not be sorry to say goodbye to 2008, which was probably one of the worst years in recent memory. But can we expect a brighter future? It's tricky - or even foolhardy - to make predictions, especially in such uncertain economic times. But the Sunday Herald has managed to persuade a number of experts to forecast the financial future.
Stock markets
It was was a turbulent year for the stock market as shares were buffeted by the global financial crisis. But what of 2009?
Alan Steel, of Alan Steel Asset Management in Linlithgow, has high hopes for the UK stock market next year, forecasting returns well in excess of 20%. "A new bull market is just around the corner," he says. Steel advises investors to get back into shares at today's low prices - and as a profitable alternative to savings accounts.
He adds: "Interest rates are low, so savers are earning next to nothing on their deposits. So why not buy into equities now, when they are so cheap? It's a once-in-a-lifetime opportunity."
A poll of fund managers by the Association of Investment Companies (AIC) reveals they too are broadly optimistic, with just under two-thirds expecting markets to rise in 2009. About half of the managers predict that the FTSE 100 will end 2009 somewhere between 4500 and 5500. But 23% are more gloomy, forecasting the index to close below 4000. Fund managers tip blue-chip stocks as their top sector - for the third year running. Shares in the resources sector, including oil, take second place.
If you are brave enough to back individual shares, Mick Gilligan, head of research at Killik & Co, recommends companies with strong balance sheets and visible earnings, including AstraZeneca, GlaxoSmithKline and Imperial Tobacco. But investors are warned that markets are likely to be extremely volatile during the year. Trevor Greetham, portfolio manager of Fidelity's Multi Asset Strategic fund, says: "The watchwords for investors in 2009 will be caution and diversification. With attractive returns likely in the bond market and the potential for sharp bear-market rallies in the riskier asset classes, investors will be best-protected from unexpected swings by holding a balanced portfolio."
Investors might also have to wait some time for the markets to pick up. Bruce Stout, manager of Murray International, says: "Companies will be reporting bad news for months to come as the financial crisis hits the real economy. Most stock markets around the world will not start to recover properly until the second half of 2009. However, in the case of the UK it may take longer, being hindered by a huge debt mountain, rising unemployment and weak currency. That said, for investors willing to take the pain of short-term fluctuation, attractive long-term investment opportunities are appearing around the world."
Perhaps surprisingly, the American stock market is a favourite for 2009 as interest rates are cut and the oil price falls. Jeremy Tigue, fund manager of the Foreign & Colonial Investment Trust, says: "US gasoline prices have fallen by more than 50% in the last six months, which is a huge tax cut for American consumers. The US went into recession at the end of 2007, earlier than anyone realised. By late 2009, hopefully there should be signs of recovery."
Economy
Economic forecasts for 2009 make grim reading, as recession grips the country. Threadneedle anticipates that GDP growth will be negative in the UK in 2009 at -2%. Capital Economics expects the economy to contract by about 2.5% next year, worse than its previous forecast of a fall in GDP of 1.5%.
A recovery is also some way off. John Greenwood, chief economist at Invesco, does not expect the economy to recover until 2010. He says: "From a starting position as one of the most heavily indebted household sectors in Europe, it is hard to see how the UK householder will quickly regain an appetite for more debt and hence vigorous spending. This means that growth may not recover until 2010. Meantime, unemployment is likely to rise rapidly."
Interest rates are also predicted to come down, possibly to zero. Vicky Redwood of Capital Economics says: "Recent developments have underlined the likelihood that rates will fall to extremely low levels. The Monetary Policy Committee has been even more aggressive in bringing interest rates down than we had expected, cutting them by 300 basis points in just three months. It might be argued that this means that rates won't ultimately have to fall as far. But we see the moves rather as an acknowledgement that rates need to be very low indeed. The bottom line is that UK interest rates are heading to zero."
Falling interest rates are likely to lead to falling inflation. Sarah Arkle, chief investment officer of Threadneedle, says: "The authorities have demonstrated their determination to support the global financial system and are also doing much in an attempt to stimulate growth. The effects of this stimulus will take time to be felt, but in the shorter term, we expect falling interest rates combined with rapidly falling inflation. The headline rate of inflation will drop to 0% by the end of the year."
House prices
Experts agree that 2008 was a tough year for the housing market, with activity almost grinding to a halt. Jamie Macnab of Savills in Edinburgh says: "October and November were the two slowest months in living memory. House sellers either took their properties off the market or were forced to drop their prices by between 20% and 30%."
But he is cautiously optimistic about the coming year. "There are already signs that the market is going to pick up again early in 2009. If we can secure some early sales in the first months of 2009 it will give other buyers confidence that the market has bottomed out."
In fact, 2009 could be the year of the bargain. Macnab says: "For the brave buyer - one who is prepared to buy when no-one else is - there are lots and lots of opportunities. The advice is for buyers with funds in place to move quickly. The supply of decent houses on the market will dwindle in coming months and there will never be such a good choice of Scottish country houses again."
Graeme Hartley, director of RICS Scotland, hopes the cuts in interest rates, along with the extended stamp-duty holiday, could draw first-time buyers back to the market. Falls in house prices could also revive the market as buyers move to pick up bargains. He says: "November saw the highest number of buyer enquiries in one month in Scotland for the last two years - most likely because cash buyers and those able to get loans now have access to properties which until recently were out of their price range. To keep the housing market moving in 2009, sellers need to price their property sensibly and buyers need to be realistic about the level of lending they can obtain."
Hartley also points out that Scottish property prices have increased by an average of £10,000 a year for the last five years, so it's not all gloom. "I believe Scottish house prices will remain more stable in 2009, with fewer areas of the country experiencing a drop," he says.
Few people are brave enough to make a definite prediction for property prices in 2009, but David Carmichael, head of Savills Private Finance in Scotland, is prepared to stick his neck out. He says: "2009 will continue to be a tough year for the housing and mortgage markets, but we believe we will see the first shoots of recovery in the second half of the year. House prices will fall by 6% over the year on average, following a 14% drop in 2008. In other words, property prices will drop 20% from their 2007 peak to the trough."
Energy prices
Energy prices are widely tipped to come down next year, a boost to many families struggling to pay bills this winter.
Ann Robinson of uSwitch expects a price cut of about 10% in the first quarter of the year as utility companies pass on recent falls in wholesale gas prices. There might be even more good news on the horizon. Robinson says: "If wholesale prices stay low, there could be another energy cut later next year, too."
Scott Byrom of Moneysupermarket anticipates a price cut of between 15% and 20% in March. He also predicts energy companies will at last respond to consumer pressure for more consistent pricing, so people with prepayment meters are not charged significantly more. Byrom says: "People with prepayment meters are often on lower incomes so are the least able to afford higher gas and electricity prices."
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