China, technology and value: your stock selections

If the traditional year-end forecasts are a guide to the mood in stockbrokers' and fund managers' offices, we are in for another difficult year on the stock market, in which the expected general election is probably the most predictable event.

Interest rates should start to come down again, according to many predictions, but that is not enough to tempt some pundits.

Theo Zemek, New Star's head of fixed income, recommends increased exposure to money market instruments and shorter dated gilts.

But the tell-tale word that crops up time and again in the shoals of share forecasts is "stock-picking". This, we are told, will be a stock-picking year. Sadly, that all too often means that the forecasters don't have a clue about what is going to happen, so the best bet is to tell people to pick shares, unit trusts, commodities or whatever else that are going to go up in value. And which might they be? Aha, that is up to you.

Fidelity, Britain's biggest fund manager, daringly confesses to a liking for companies that pay dividends. Anne-Sophie Girault, Fidelity's senior strategist, said: "Investors with convictions built on an in-depth knowledge of individual companies are likely to stand out, as the profitable themes emerge at the corporate level." Thanks, Anne-Sophie. I'll bear that in mind.

Hilary Cook, at Barclays Stockbrokers, goes for companies that private-equity funds might want, selecting those whose shares have underperformed the stock market by 10 per cent or more over the past year, have traded in light volumes, have a market capitalisation of less than £2bn and have "the most attractive combination of fundamentals".

The resulting buy list is AGA Foodservice Group; Alphameric; British Polythene Industries; Game Group; Gleeson (MJ) Group; Malcolm Group; Molins; Morse; Novar; Rensburg; Senior; Wagon; and Woolworths Group.

Ms Cook is also a fan of the growing China miracle, tipping Aberdeen IF China Opportunities, Fidelity Funds Greater China Fund and the FTSE/Xinhua China 25 iShare, an exchange-traded fund which reflects a basket of shares.

Patrick Evershed, the manager of New Star Select Opportunities Fund, admits: "Consumers are likely to feel the squeeze in 2005. House prices have stopped rising, which will discourage borrowings. The five increases in interest rates are likely to have a dampening effect on consumer demand. Higher council tax, transport costs and utility bills are also going to weigh on consumers in the early months of next year. And the post-election government is likely to have to cut expenditure or raise taxes. Consequently, markets are likely to drift off at the start of the year."

So Mr Evershed is taking refuge in special situations or small companies capable of bucking the trend, especially those in high technology. He goes for the biotech company Neutec Pharma, which has successfully completed phase 2 trials on its superbug vaccine. But in Leeds, West Yorkshire, the stockbroker Redmayne Bentley refuses to be downcast.

Its senior partner, Keith Loudon, says: "UK share prices are set to go on growing at a healthy rate in 2005, with small stocks outperforming their larger brethren in the FTSE 100. At these growth rates, shares will attract investors who are finding lower returns in other asset classes such as bonds and property. Our forecasts are driven by the belief that plus points will outweigh negatives in 2005."

He picks these shares: Xaar, nCipher, Primary Health Properties and DS Smith.