Mark Dampier: Is it time to go on the defensive?

The Analyst

At this time of the year newspapers are filled with predictions for the months ahead. The one prediction I can make with confidence is that they are mostly going to be wrong. Trying to forecast a market's level in a year's time uses up plenty of column inches but is really just a matter of pure guesswork.

Before I am called a hypocrite because I have done it myself, I have always told editors that they should take any forecast with a pinch of salt. However, from a private investor's point of view, market predictions can be quite interesting: in fact, they can actually be helpful. Why? Because if you can find a real consensus amongst the experts, you can often find the very thing not to do!

I note, for example, that many are keen on emerging markets this year. So am I, although I have been a fan of this sector for over 20 years and remain very positive over the longer term. Nonetheless, in the last couple of days I have grown a little wary of the sector in the very short term.

Valuations, as yet, don't look too demanding but the fact remains that they have had a tremendous run from the lows in 2008. (In some cases markets have risen 100 per cent or so.)

I would therefore suggest that if you are keen on this area you do one of two things: start a monthly savings plan, which will even out the fluctuations in the stock market over time; or, for those of you who want to invest a lump sum, why not just wait a little. With experts such as Mark Mobius from Templeton Emerging Markets suggesting a 20 per cent fall at some stage, that will be the time to invest.

Instead, might it be that the developed world surprises on the upside? Everyone has written off Europe, the UK, America, and obviously Japan, but in stock market terms they might do better than you first think.

The UK is a perfect example with the economy looking absolutely dreadful. If I had a brick laying next to my sofa at home, I probably wouldn't have a television anymore judging by the amount of time I spend screaming at the senseless politicians who talk about nothing other than how to spend money they don't have.

Sterling has had its biggest fall since we left the ERM in 1992 and, having just come back from holiday, I can certainly confirm that going overseas is very expensive. When a steak costs $25 in a very mediocre Australian restaurant, you know something is up.

However, a weak pound might not be so bad for the UK stock market where three quarters of earnings comes from overseas; there could be an increase in profits simply through the deterioration of sterling. It is therefore essential to divorce the stock markets of the world from their economies, because they can behave quite differently. Combined with the huge private sector cost-cutting that we have already seen, the fall in the pound could well provide hope for the UK stock market.

One area I think is particularly cheap within the UK market is blue chip, defensive shares. UK income funds have been hit hard over the last two or three years, yet funds such as Newton Higher Income yield some seven per cent.

The likes of Invesco Perpetual High Income, among others, are full of companies that will not only survive but prosper through a difficult recession in the UK. I believe they deserve, and will achieve, a re-rating. So don't write off the UK and put all your money in emerging markets just yet.

The UK is a cheap area and, on a global basis, so too are the big, blue chip defensive shares on high yields. Over the next few weeks you will see one or two funds in my column that reflect this theme.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Life and Style
tech

Company reveals $542m investment in start-up building 'a rocket ship for the mind'

News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

Sport
CSKA Moscow celebrate after equalising with a late penalty
football

News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Helpdesk Analyst

    £23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

    Senior Helpdesk Analyst / Service Desk Co-ordinator

    £27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album