Shares: Week Ahead: Footsie constituents remain the favourites of the City's bullish majority
Monday 29 December 1997
Although there are many who remain convinced blue chips will have another fine year, it is not easy to find researchers enthusing about the smaller fry's share prospects.
Indeed, there is a distinct impression that the gap between the lords of Footsie and the rest of the market will yawn even wider as next year progresses.
As so often happens, many top individual performers of the year come from the lower reaches of the stock market. So do most of the ragged assortment of losers. Their much smaller size enhances percentage movements. Yet, in overall terms, blue chips have left the rest of the pack struggling even to stay in touch.
The FTSE 250 constituents have had a particularly trying time. The members of the FTSE SmallCap index, hanging on in there in the early months of the year, have since lost their way. The FTSE AIM index has failed to display any exuberance.
A similar scene could unfold next year. Quite a few strategists see Footsie ending at 6,000 points. But once again the partying will be for the elite with the rest of the market, despite its obvious value - which is underlined by the rush of takeover bids - forlorn wallflowers.
BZW, Panmure Gordon and SBC Warburg are looking for Footsie to hit 6,000. NatWest Securities, this year's arch bull, is on 5,700.
Blue chips will continue to score from the internationalism of share markets and the growing belief among institutions that deeply researched Footsie constituents are relatively safe and easy to buy and sell, whereas many other areas of the market are a minefield.
Of course, it takes many views to make a market and the bullish enthusiasm is by no means shared by all. Legal & General, the insurance handling pounds 50bn of funds, plans to be no more than "modestly overweight" in equities. It sees, however, Footsie ending the year at 5,500. Last month L&G was more cautious, then shooting for 5,250. Charterhouse Tilney sits on 5,200.
ABN Amro Hoare Govett is seemingly the most bearish large securities house, suggesting blue chips will drift with Footsie ending at 5,000.
Growing cash piles, influenced by share buy-backs, a sprinkling of takeover bids and the low level of new issues and cash calls, have been favourable influences which have allowed Footsie to surprise many of the cash-is- king fund managers.
As Allan Collins, at stockbroker Redmayne Bentley, says: "Institutional investors are clearly cautious; they are holding unusually large amounts of cash - a policy which left most of then under performing in 1997.
"They could be wrong again. Companies disagree with them - takeover activity is high and directors are buying their own shares at a ratio which has previously heralded bull markets."
He thinks next year will be good overall but ducks attempting a Footsie prediction. His explanation: "As long as we get the direction right and we are broadly correct on the pace of that direction, then the targets can take care of themselves."
Merrill Lynch also points out that directors are buying. In the past their interest has "proved to be great opportunities to buy stock".
The political climate, highly sensitive this time last year, does not appear to be a big factor in the current round of crystal-ball gazing.
Last year anyone who displayed what US banking chief Alan Greenspan might call "irrational exuberance" in arriving at their Footsie forecast was very much in the right ball park.
As I pointed out last week, an index hitting a peak of 5,330.8 points, even if it occurred in October, was far from the vast majority of City minds. When, during a discussion in a City wine bar, a stockbroker chum of mine suggested it could reach 4,800 he was subjected to a barrage of uproarious laughter. My own thought, 4,500 (which I moved up to 4,600 within a month), seemed optimistic.
What many overlooked was the exuberant way the stock market was prepared to embrace a Labour Government believing, correctly as has so far turned out, that it has a decidedly Tory hue.
For 1998 I go along with those who think Footsie will continue to move ahead. It will, of course, suffer an array of knocks. There seem to be worries about its performance in the first half-year with Asia headlines creating tension.
But the Asian tigers are not going to lie down and die and I would expect that particular storm to fade fairly quickly. The nation's economy is still in good heart and I would guess Footsie could be around 5,600 in a year's time.
Gordon Brown, the Chancellor, has already displayed he has little love for equities and could do more damage. And there must always be a worry that the antics over Europe could cause dismay.
But most in the City are bullish. And betting against the herd could prove costly.
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