Shares: Order-driven system looks set to dampen Footsie's festive surge

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The Independent Online
Stock markets make a habit of wrong footing investors - big and small. In recent years the run up to Christmas has been a merry affair with shares romping ahead in the second half of December.

This year, despite the Asian turmoil which put Footsie under some pressure last week, the index made remarkable progress in the opening weeks of the month, scoring a 213.4 points gain.

So has the Christmas share rally already come and gone?

A festive run in the second half of the month has only failed to occur once since 1980. So history would suggest blue chips will continue their December romp.

But this will be the first Christmas of order-driven trading. And the heavily criticised system, which is viewed as a disastrous development by many market professionals, could tip the balance against the tradition continuing.

After all, much of the Christmas fun and games was accomplished in very thin trading. And with many top executives at the leading City firms away over the long holiday period those left minding the shops were inclined to buy rather than sell.

So a few deals in a market drifting dozily had an inspirational, snowballing impact. Although 60 per cent of blue-chip turnover is conducted off the order book, the very presence of the computerised system may, just, inhibit the easy going holiday approach.

The early December run has caught out many strategists. The general view was that following the October peak blue chips would turn in a mundane performance in the final quarter of 1997. Even arch bull Bob Semple and his team at NatWest Securities settled for Footsie at 4,800 points at the year-end. He may still be right - but clearly he did not factor in the early December cheer.

With the Christmas high street spending spree slow to develop there are growing signs that the consumer party is over. Nick Bubb at Societe Generale Strauss Turnbull is one cautious about retail growth. Although Christmas is late arriving in the shops few doubt that the nation's retailers are in for another lucrative spell. But next year could be sluggish with few windfalls and higher interest rates taking their toll.

Even so, the market bulls are out in force. Mr Semple is on 5,700 points for the end of next year and is prepared to wager that Footsie will greet the millennium at 7,000. Taking a line through the various 1998 forecasts would suggest Footsie will end the year at 5,475.

The hazards of predicting anything so wayward as a share market is illustrated by last year's estimates. Among strategists Mr Semple was top of the range with what at the time seemed a brave 4,600 prediction. It was later raised to 4,800.

International influences, particularly of a Far Eastern origin, will undoubtedly take their toll in the months ahead. And higher US interest rates are likely in the next few months.

The British economy, however, seems set fair, although sterling remains a worry.

Old-fashioned market fundamentals look good. Share buy-backs, yet more are on the way, are pumping cash into the system and in many takeover bids cash, rather than equity, is king. New issues and rights calls are not particularly prevalent and are not, therefore, draining away much of the market's surplus cash.

Institutional coffers are also overflowing. So far some, like PDFM and Gartmore, have resisted the call of equities, moving instead into cash. They could eventually see the error of their ways.

It is often said that the monthly Merrill Lynch survey of fund managers' intentions indicates the reverse of what they really think. It could then be significant that the latest poll suggested most managers were not keen to increase their exposure to shares. Another point in the market's favour is it is still cheap on the international Richter scale and therefore attractive to overseas investors.

Of course, the bears still hover. Perennial pessimist David Schwartz is one caught on the hop by the long-running bull market. In his latest newsletter he says: "We believe the 1994-97 bull market is over. It ended on October 3 when Footsie peaked at 5,330." He points out that shares went on to fall 6.6 per cent in October, the 12th largest decline. "History warns of high odds that more falls are coming in the months ahead."

Asda, the superstores chain, heads this week's results. Interim figures are due on Thursday and around pounds 180m against pounds 160m is expected.

Comments on current trading will be closely scanned and there will be keen interest in what, if anything, chairman Archie Norman has to say about struggling rivals, Safeway.

Talk Asda is planning a takeover bid has swirled around; there is little doubt that with Safeway's shares still feeling the impact of last month's surprise profit warning the group is vulnerable.

MFI, the flat-pack furniture group, should produce slightly higher interim profits of pounds 34m today but tomorrow Securicor is likely to offer year's profits down by pounds 3.9m to pounds 103m. Also tomorrow Greenalls, the pubs chain where bid talk hovers, should roll out year's figures of pounds 158m (pounds 149m).

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