L&G puts its head on block with 1997 Footsie forecast of 4,000; STOCK MARKET WEEK
Monday 16 December 1996
So when David Shaw and his team at the Legal & General insurance giant produced a head-on-the block forecast for next year's Footsie performance it was only natural to insert cautionary qualifications.
L&G expect shares to romp ahead in the first three months and suggests that Footsie will hit a 4,400 points peak.
But from then onwards it will be downhill and the guess is that the index will then dip to 3,800, ending the year at 4,000.
With an election looming, such a forecast has to be hedged.
The direction shares will take must be highly problematic and Legal & General built four key assumptions into its forecast.
1) Labour will win the election with a working majority; 2) sterling's strength will be partially reversed; 3) world markets will fall back; and 4) institutions which have been betting against equities will pump some of their cash pile into shares.
L&G believes one of the first acts of a Labour government will be to cut ACT relief on dividends to 15 per cent which could clip 5 per cent from shares.
A Tory election victory would, of course, prompt a rapid rethink.
In the short term shares would shoot ahead with Footsie at something like 4,600 at the year-end.
L&G's view is a Conservative victory is only a 20 per cent probability against 50 per cent for Labour.
The L&G 1997 year-end Footsie forecast is at the lower end of expectations.
Some houses, including Chase, are looking for 4,400 and HSBC James Capel is on 4.350. Kleinwort Benson and UBS rest on 4,300. Nomura is banking on 3,800.
The rush by building societies and others to demutualise could have quite a significant impact on the stock market.
It is estimated that conversions will produce a pounds 21bn windfall, making tax cuts look rather trivial.
As building society members cash in their rewards, a great deal of cash will be pumped into the economy. But as the windfall from conversions is spent over the nation's counters, many institutions will dip into their cash coffers to buy shares in the new crop of quoted financial groups.
The rush to convert from mutual organisations into public limited companies will create huge waves of market activity; such action should be rewarding for market occupants as they bank their commissions. It could also help sentiment, providing the boost to confidence which often goes with heightened investment interest.
L&G makes it clear that 1997 will be far more difficult to call than this year. Besides the election there is also the realisation market values are looking stretched; hence the volatile reaction to US banking chief Alan Greenspan's worries about overheated share prices.
But if this year was less difficult to read 12 months ago a great many alleged experts managed to get it wrong. Remember as the year started there were high expectations of a flood of takeovers, driving shares powerfully to new peaks in the first half-year with the second six months much more subdued.
In the event the flood was little more than a steady flow and if action among utilities is stripped out the flow subsides to nothing more than a gentle trickle.
To the surprise of many the market enjoyed a golden autumnal surge, taking Footsie through 4,000 points.
No doubt this time next year, when many of the brave forecasts are being re-read, the perils of peering into the future will be once again played back.
But one thing is clear. The temptation to forecast at the turn of the year will remain as strong as ever. After all it can be very rewarding.
This week, as befits the nearness of Christmas, is long on hospitality - but short on company results.
MFI, the flat pack furniture chain reporting interim figures today, was once in the same corporate camp as Asda, the superstores group which has its half-year results on Thursday.
A management buyout from Asda nine years ago, MFI came to the stock market under its own banner in 1992 when shares were placed at 115p. They ended last week at 193p.
With talk of boom times ahead prospects should be encouraging with interim profits nearly doubling to pounds 39m.
Asda faces a challenging time. Under Archie Norman it has made an astonishing comeback but has already enjoyed the benefits of recovery and is now deep into the hard slog of building on its revival.
NatWest Securities estimates profits will emerge at pounds 153m, up from pounds 138.3m. But the headline figure should look much more impressive with Asda adding in the pounds 80m profit it made from the flotation of Allied Carpets.
Securicor has year's figures tomorrow. The security and parcels group which embraces a 40 per cent interest in Cellnet (said to be worth pounds 2bn) should offer modest headway, say pounds 106m against pounds 100.8m.
The Government has so far blocked attempts to sell the mobile phone stake to the major shareholder, BT. There is a feeling the restructuring in the telephone market could lead to another Whitehall U-turn. If the Cellnet interest was sold Securicor would be vulnerable to a predator.
The brewery season drifts towards its close with Vaux, the Sunderland group, expected to roll out pounds 35m, up from pounds 32m. The momentum should have been provided by its Swallow Hotels chain with the up-for-sale St Andrews nursing homes unlikely to have made a significant contribution.
Gibbs Mew, the Salisbury brewer, is due to produce interim figures today. Last year it made pounds 2.5m. But its shares are weak, bumping along at a 12-month low of 299p, suggesting the profits brew could taste a little bitter.
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