Stock Market Week: Roller-coaster market fails to frighten City strategists

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THE TURMOIL in the stock market has yet to cause alarm and despondency among City strategists, even those of a bullish disposition.

Although one leading insurance group admits the jittery slump has prompted it to abandon, for the time being, its long cherished and widely followed practice of producing year-end Footsie forecasts, there appears to be a tendency in most quarters to carry on as usual and adopt the legendary advice of a now forgotten Stock Exchange chairman, Lord Ritchie of Dundee.

In 1962, when shares were in ragged retreat, he suggested small investors "should put their heads down and let the wind blow over them". In those days the now little-noticed FT 30 share index suffered its then largest one-day fall, 18 points to 261.3. It was pretty good advice; the FT30 is now around 3,100.

Among strategists looking for the present Footsie 100 share index to end the year at 6,000 points are Bob Semple and David McBain at BT Alex.Brown and Andy Hartwell at SG Securities.

Mr Hartwell has this month raised his 1999 target to 6,750. He says: "The Asian Tiger and the Russian bear have given Goldilocks and the Growth Fairy a severe mauling; both are in intensive care. But the next move is into the recovery ward, not the morgue. Risk remains in the short term but the end game is reflation not deflation as interest rate expectations come down".

The BT duo observe: "Market valuations have improved appreciably due to a combination of weaker equity prices and lower gilt yields. Although analysts' profit forecasts have yet to catch up with the extent of the economic slowdown, it is now priced in the market".

Still Mr Semple admits his confidence that the 6,000 target will be achieved has been eroded by the stock market turbulence. "I do however believe the market will go up over the next 12 months", he says. The current BT target for the end of next year is 6,700.

Goldman Sachs has raised its global equities allocation from 57 to 60 per cent and ABN AMRO, not noted as a bull, observes: "A much needed equity correction has taken place but with it has come an excessively defensive market. Recession has been priced into sector ratings rather than a slowdown and this offers selective buying opportunities." Strategist Mark Brown's Footsie targets are 5,500 this year and 6,000 in June next year.

Richard Jeffrey at Charterhouse Tilney, another who was not excited by the market's heady run, is on 5,200 for the year end and 5,750 for end- 1999.

It is now a near certainty that interest rates are on their way down. Some US banks have already cut their prime rates, anticipating a reduction by the Federal Open Market Committee this week and even a reluctant Bank of England Monetary Policy Committee seems to have come round to the view a cut is needed.

The hedge fund problems could escalate, banks could find themselves forced into making more wounding provisions and other difficulties, real and rumoured, could emerge to influence the stock market, no doubt producing more of the volatility which has been such a feature this year.

Small investors are becoming accustomed to 100-plus Footsie swings. The computerised order book is a big influence in the Footsie violence but then of course the numbers involved these days are much bigger.

Footsie peaked at 6,179 in July; since then it has been on a ski slope ending last week at 5,061. What has to some extent been overlooked is the demoralisation on the market under card, where the mid cap and small cap indices seem to be hitting new lows for the year with monotonous regularity.

Although selling may have produced exaggerated price movements it would be foolish to pretend that non-Footsie stocks have not been the subject of some determined unloading. Building and leisure shares have been particularly hit hard.

Manchester United is also on this week's profits agenda although the attentions of Rupert Murdoch's BSkyB and, according to the rumour mill, other potential predators, have kicked profit considerations out of the share equation.

Perhaps that is just as well, as Merrill Lynch earlier this month dramatically sliced its profits estimate - from pounds 27m to pounds 14m. A pounds 15.5m deficit on transfer dealings prompted the revision.

Bank of Scotland is the heavyweight on the reporting schedule. It checks in with interim profits which are expected to be around pounds 425m against pounds 347m when a pounds 23 lease write down took its toll. The sale of a New Zealand off-shoot should be booked in the second half year.

It is suspected that the growth of the group's lending offset deteriorating margins.

Bank of Scotland shares have suffered in the banking retreat although they have performed better than some of their rivals. At 595p they are just over 200p below their spring time peak.

THIS WEEK'S DIARY

TODAY - Economics: Global trade figures for July, Non-EU trade figures for August. Finals: Allied London Properties, Close Brothers, Manchester United, Magnum Power, Ricardo Group. Interims: Antonov, Bisichi Mining, Capital & Regional Properties, Core Group, London & Associated, Proudfoot, Seafield , World Telecom. Meetings: Railtrack

TUESDAY - Economics: Consumer credit data for August, Final M4 for August, New car sales-SMMT (September). Finals: Consolidated Coal, Lyles (S), Minerva, Petra Diamonds, Northern Leisure. Interims: Brent International, Coca-Cola Beverages, Cobham, George Wimpey, Hepworth, Intermediate Capital, Lamont Holdings, Ottakars, United Assurance. Meetings: PIC International, Stoves.

WEDNESDAY - Finals: A H Ball. Interims: Bank of Scotland, Brands Hatch, Brooks Service, Electronics Boutique, House of Fraser, Lambert Smith Hampton, Selfridges

Meetings: Liffe egm.

THURSDAY - Economics: UK Purchasing managers index (September), Qrtly turnover of distributive and service trades. Finals: Renishaw. Interims: Alpha Airports, Andrews Sykes, Austin Reed. Meetings: Lex Service, WF Electrical

FRIDAY - Economics: UK official reserves for September. Results: none scheduled. Meetings: Hillsdown Holdings

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