William Kay: Is the worst yet to come?

Just as Jonathan Davis argues in his new column that the stock market's worst may be yet to come, so the influential American, Ken Fisher of Fisher Investments, is convinced that the bottom of equity markets has not yet arrived.

It is often said that no one rings a bell to tell us it's time to invest again. But Mr Fisher sets out some useful signals to watch for.

He divides these into three types: sentimental, fundamental and technical. Among the first, he says we should look out for the stage when everyone thinks the market is going down for ever, and magazine covers will headline The Death of Equities. Fundamental signals include major companies going bust. We have had Marconi (almost) and Railtrack, but Mr Fisher wants to see a big bank and a major securities house go under too. And on the technical front, watch for 10 times more share prices going down than up in the daily statistics.

Mr Fisher says this bear market is conforming to his two-thirds/one-third rule: that in the first two-thirds of a bear's duration, the market suffers only one-third of its eventual fall, and vice versa. If that happens, we are in for a truly awful time, for it implies that the FTSE-100 index will fall to virtually nothing. That makes mild what I pointed out two weeks ago, that a repeat of the 1973-4 fall would take us below 2000.

Much will depend on the terrorist conflict, and the precise nature of the next moves by Osama bin Laden.

* Where should we turn in such uncertain times? One type of fund that could be well-suited to the present climate is the venture capital trust. The latest, the Premier VCT, comes from Gartmore, following offerings from Aberdeen, Close and Electra. VCT investors can get 20 per cent income tax relief on the money they put it in, if they hold the shares for three years, and there is no income tax on VCT dividends. But VCTs have to invest in AIM, Ofex or unquoted shares of companies with assets of less than £15m, which trade mainly in the UK. So investors are committed to the fortunes of small companies, which could be buffeted by economic squalls.

Much hangs on the ability of the VCT managers. They have three years to invest at least 70 per cent of the VCT's money into so-called qualifying shares that meet the above conditions. Gartmore's Gervais Williams intends to put Premier's £25m into gilts while he looks for likely prospects, there is nothing to stop him doing that until well into 2004. Anyone who wants to put money into a VCT should discover their investment plans.

William Kay is Personal Finance Editor of 'The Independent'

w.kay@independent.co.uk