Political uncertainties likely to keep the lid on an uninspiring Footsie


The stock market has, once again, failed to perform in line with expectations. At the start of the year many experts were confidently predicting a rip-roaring first six months with a flat second half.

Takeover action, ran the conventional wisdom, would continue, perhaps at an even more frantic pace than last year when the value of bids hit a record pounds 70bn. After all, the corporate predators would surely want to get their deals done and dusted before the market started worrying about the possibility of Tony Blair arriving at Number 10.

It has not happened that way, perhaps explaining why so many City experts are still drawing pay cheques and not reclining in a lavish millionaire's hideaway in the Caribbean.

For blue chips, the first six months have been pretty uneventful. True, they managed peaks in April when the FT-SE 100 index hit 3,857.1. But it was a short-lived spurt offering a little excitement in what has been a trying half-year for investors. Last week the boot was firmly put in on the first six months. On Wednesday, as the nation prepared itself for the epic clash at Wembley, Footsie trundled along below the level it started 1996.

The market has experienced the unenviable distinction of underperforming its global peers by 6 per cent. Although the economy improved, the feel- good factor was at last detected and interest rates were again cut, the great takeover stampede, essential for bull markets, failed to materialise.

So, what happens now? If the six months starting today follows the pattern so confidently outlined at the start of the year it would be wise to draw a veil over Footsie's coming performance.

The election will loom larger and larger in the market's eye; worries about a Labour government, despite Mr Blair's assiduous courting of the City, will take an increasing toll of sentiment and there is little doubt overseas investors, a powerful force in London, will at least trim shareholdings.

With political uncertainty at home and New York, although not the influence it used to be, there is little to inspire leading shares. And the takeover rush is unlikely to belatedly appear in the run-up to an election.

On a more positive note there is still the chance of yet lower interest rates. Deutsche Morgan Grenfell expects this week's purchasing managers survey to remain weak and "the Chancellor may well decide to cut rates again, either at this week's or the 30 July monetary meeting".

Institutions, says NatWest Securities, are awash with dosh with 1996 promising to be a record year for their cash inflows. But NatWest's Bob Semple and David McBain suspect that not much of the cash deluge - net investments into institutions could reach pounds 55bn - will find its way into the market. Although providing a "solid underpinning" for shares "the main beneficiaries are likely to be gilts and overseas equities".

Unit trust investment could remain strong. Although the high points for sales may have occurred in March and April the outlook should continue bright with low interest rates, maturing Tessas and new products, such as corporate bond Peps, keeping up demand.

Although blue chips lost their way, second-liners performed much more strongly. But their glorious run came to an abrupt halt in April and they have looked decidedly ruffled since then. As David Schwartz, publisher of the Schwartz Stock Market Handbook, pointed out recently, second-liners often do well early on in a year but then falter.

There has not been much evidence recently of year-end forecasts being changed. For example top-of-the-range Ian Harnett at Societe Generale Strauss Turnbull remains in a 3,900/4,100 points Footsie bracket; Paul Walton and Edward Shing at Goldman Sachs are sticking with 3,400.

This week will, at least in profit terms, be a boozy one. It is near enough the final fling for the beer season with Scottish & Newcastle, the nation's biggest brewer, leading the charge.

Scottish became number one when it swallowed Courage last year. If Bass, for years the leader of the brewing pack, should succeed in acquiring Carlsberg Tetley, without the infliction of too many Whitehall curbs, it will recapture top spot.

In the meantime Scottish savours its pre-eminence. Bedding in Courage has, of course, presented problems; even so a strong rise from pounds 265m to, perhaps, pounds 315m, is on the cards today.

Marston Thompson & Evershed, the Burton-on-Trent brewer once under the Whitbread umbrella, should tomorrow nudge pounds 28m, up from pounds 24.5m. The group is thought to have made steady progress with its Pedigree bitter. Last week it splashed out almost pounds 20m buying Pitcher & Piano, a London chain of trendy bars with national aspirations.

Burtonwood Brewery, on Thursday, is likely to roll out a relatively modest increase. Martin Hawkins at Greig Middleton is shooting for pounds 3.7m against pounds 3.5m.

Cider maker Merrydown, reporting Friday, should be handsomely back in the black after last year's pounds 2.7m loss. Helped along by its involvement in Two Dogs alco-lemonade and last year's hot summer it made more than pounds 1m in its first six months.

On Wednesday Lord Weinstock will probably report for the last time as chief executive of the giant General Electric Co. He is being succeeded by George Simpson from Lucas Industries who is putting the final touches to the merger with Varity, the US car parts group. Mr Simpson should take over in September.

GEC, where Lord Weinstock has ruled since he created the group in the 1960s, putting through the spectacular AEI takeover, is expected to produce pounds 945m, up from pounds 907m.

MFI, the flatpack furniture chain, is likely to announce lower profits today, say pounds 60m against pounds 66.1m. And Gibbon, the printing materials supplier, should manage pounds 2.4m on Thursday, up from pounds 2.1m.

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