Footsie should greet 2000 at 7,000 points

Stock Market Week

SHARES HAVE enjoyed an exhilarating run, with Footsie striding confidently to new highs. The second quarter opened strongly and another record was established on Friday.

Although the stock market remains blissfully wedded to blue chips, the long-neglected second and third-liners have maintained their revival but are still not within hailing distance of their peaks.

The burning question, as always, is whether the rip-roaring display can continue. Strategists anticipate a more subdued performance in the spring and summer months but some are cautiously raising their year-end Footsie forecasts.

My guess is the index will greet the millennium at around 7,000 points, with much of the advance occurring in the last quarter of the year.

I believe that the sheer pressure of money will force institutions to add to their blue-chip hoards. But it will again be a market of two halves, with the real action concentrated firmly on the top Footsie stocks and the rest having to be content with the occasional crumb from the fund managers' table.

Institutional cash flow this year should be a heady pounds 65bn against pounds 60.3bn last year; interest rates will keep on falling and companies will continue to return significant amounts of cash to shareholders.

And, of course, the pool of shares continues to evaporate. Shares are being absorbed by buy-backs of various types and on the undercard, management buy-outs and overseas cash bids are a regular feature of market activity.

Corporate action will also fire the market's imagination. Glaxo Wellcome has let it be known it nurses acquisitive ambitions and, as well as drugs, there should be further consolidation in the banking, financial, oil, media and telecom industries.

London remains a favourite stamping ground for overseas investors. And this fascination must intensify following the increasing number of cross- border deals, such as the creation of BP Amoco (with Atlantic Richfield currently being taken over by the new oil behemoth) and AstraZeneca, the Anglo-Swedish drugs group.

Wall Street could spoil the party. But the Dow Jones Average has a habit of defying gravity and, indeed, the predictions of many observers. After the breakthrough past the 10,000-point milestone, some brave souls are talking about 11,000 by the end of the year although a more realistic 10,500 may be enough to keep Footsie happy.

But, of course, clouds hover. The growing Balkans crisis has so far been steadfastly ignored on both sides of the Atlantic. If it continues to escalate, investment confidence will be damaged. The strengthening oil price and the threat of a tighter US monetary policy also provide reasons for concern.

The threat of a UK recession seems to have died, although the so-called soft landing could be hard enough to leave a few bruises.

The hectic stampede into unproven companies could be another inhibiting influence. The ratings accorded some alleged growth stocks are "dangerously high" in the view of the investment house Merrill Lynch.

And there is something which does not quite add up when four Footsie constituents - Colt Telecom, Energis, Orange and Telewest Communications, with combined capitalisations of pounds 33bn - have yet to make a humble penny of profit between them.

The big test for the market could lurk in the lower regions. The present two-tier market, with Footsie constituents and a few others being chased to heady heights and the rest, by comparison, largely neglected, is causing anxiety.

A healthy stock market needs a bright and breezy undercard. The shares of well-run small companies should not be rated so low that they hesitate to raise new capital in the market.

After all, some of today's tiddlers may grow into the giants of tomorrow, but to ensure that they do so, they need the ability to raise cash on realistic terms.

Although there are indications that the institutional investors are beginning to venture more actively among the smaller fry, for so long the preserve of private shareholders, they still have a long way to go to make up for their earlier shabby indifference.

One of the fund managers' favourite blue chips dominates this week's results announcement schedule. Tesco may have fallen from its 202p high but it still enjoys heady support in the market with, as far as I am aware, not a solitary analyst sell recommendation in sight.

Dave McCarthy at investment house BT Alex.Brown is one of the researchers in love with the superstores chain. He predicts year's profits tomorrow will be up 7 per cent at pounds 870.2m and rates the shares a "strong buy".

Although worries about supermarket price wars and the Government's probe into the supermarket groups' profits have caused unease among investors, Tesco sales serenely on. Its overseas expansion has yet to produce much of a return.

Mr McCarthy said: "As the seed corn overseas starts to bear fruit, the share price will reflect the underlying quality of the management and the corporate strategy."

But the analytical optimism has not prevented Tesco shares hitting a 12-month low. They finished on Friday at 155.5p.

But as a long-term investment the shares have proved their worth; they were around 20p in the early Eighties. Arch-rival J Sainsbury is expected to produce a trading statement on Friday.

Associated British Foods, checking in today with interim results, is likely to have found its pounds 1.4bn cash pile something of a drag. Operating profits should have risen by 8 per cent but lower interest rates are expected to reduce the half-year gain to some 2 per cent at pounds 197.5m.

Suggested Topics
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
premier league
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
fashionAlexander Fury's Spring/Summer 2015 London Fashion Week roundup
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
people''Women's rights is too often synonymous with man-hating'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam