David Prosser: Is it time to return to the stock market?


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The Independent Online

Outlook "Sell in May and go away", runs the stock market adage, "don't come back until St Leger's Day." Well, with the FTSE 100 Index having lost 10 per cent if its value since the beginning of May, the first part of that advice certainly looks like wise counsel, this year at least. But what of the second part, given that tomorrow is St Leger's Day at Doncaster racecourse?

Well, amid the economic gloom, there are reasons to be positive. Broadly speaking, UK equities look cheap by historical standards – a forward price-earnings ratio of about 10.5 for the market as a whole would normally be considered good value. Yields look attractive too, especially in the context of the paltry returns on offer from cash in this ultra low interest rate environment.

There are other reasons to favour equities. Disposable incomes may be squeezed just now and households are focused on paying off debt rather than putting money by, but the savings ratio will creep up as caution remains. Then there is the demographic factor – the push to persuade workers to put more by for old age.

Still, it feels more comfortable expressing such thoughts this week, when there have been more "risk-on" days than last, when "risk-off" was to the fore. And with so much potential for risk-off to make repeated returns in thecoming days, weeks and months, investors would have to be brave. The St Leger's advice implies a time horizon lasting to next May, but don't bet on a return to shares proving anything other than hair-raising during that period.