The week ahead: Superbulls pull back, but they're not beaten yet

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THE STOCK MARKET bloodbath has forced superbulls Bob Semple and David McBain into a partial surrender. Although the strategists at investment house BT Alex.Brown have not raised the white flag, they have felt obliged to pull back their Footsie forecasts.

They - and the market - realised some time ago that their 6,000-point year end estimate was dead and buried. The question was: would they throw away their bullish banner and slink into the growing bear camp, or would they continue to see light at the end of the tunnel?

Well, Messrs Semple and McBain believe the worst is over: they see some rousing performances over the remaining trading days of this year and predict that Footsie will be around 5,500 when the year ends.

The Alex.Brown men have established a good record in recent years. Last year they covered themselves in glory with their bullish and on-the-ball forecasts. Even their now-withdrawn 6,000 estimate for this year must be viewed against the index peak of 6,179 in July. They could say they just got their timing wrong.

The temptation to join the bears must have been huge. After all, they say: "The risks to global equity markets remain on the downside and markets will remain turbulent for several months. If you must be in equities, the prospect of policy easing means that UK equities will prove a relatively safe haven."

They admit their 5,500 estimate "comes with a wide margin of error", but say: "We do not expect recession and therefore believe that UK equities offer good value... But in view of the change in market sentiment and a poorer outlook for corporate profits we have been forced to accept that our year-end target of 6,000 will not be met."

The Semple/McBain team has also taken a slightly more cautious view of next year's market prospects, cutting its year-end projection from 6,700 to 6,350.

This bear run is the fifth-worst since 1966. So far it pales into insignificance against the dreadful Heath-inspired calamity of the 1970s, when shares fell away for 31 months. Before the legendary Prudential-led rally the market had fallen an incredible 72.9 per cent. If that bear run is repeated, Footsie will go down to 1,674.5.

The 1970s disaster ended when the Pru called other leading fund managers to lunch at its High Holborn office and suggested that each should pump cash into the market. A buying spree was allegedly agreed, although the kitty was said to be only pounds 20m.

The sudden institutional initiative at first pushed prices only moderately higher. Much more important, it transformed confidence, so essential for any rising market, and the rally gathered strength: within a month shares were 73 per cent up from their low.

Interestingly the frightening 1987 crash - the anniversary of its start is a week today - represented a 32.6 per cent fall, covering four months. The present setback, now of 12 weeks duration, is a 22 per cent-plus decline.

The Pru-led revival in the 1970s showed just what an important part sentiment plays in a market's behaviour. Remarkable value may be there for all to see, but unless investors big and small have confidence to buy it will remain untouched. The old worry that a share will be cheaper tomorrow is responsible for killing many a buy order.

The market this time round has got itself into a highly nervous state, which lower interest rates may not be enough to remedy. Anxious small investors, many still sitting on big profits from the bull run, wonder whether to hold on or snatch what returns still remain.

Generally, domestic institutions are not selling but withdrawing their buying interest until they feel the worst is over. It is thought that much of the selling in London has come from overseas investors.

Institutional investors, of course, rarely panic. They take a long-term view and see bear markets as buying opportunities: that is one reason why they dominate the share markets.

Allan Collins at stockbroker Redmayne Bentley says: "Investors with cash are in a good position as prices continue to weaken: [they can] pick off one or two cheap-looking situations on the bad days, but it is still too soon to throw money at the market. Prices could get worse before they get better."

Over the past 32 years most bear markets have lasted just a few months. If the present one follows that pattern, Messrs Semple and McBain may once again hit the jackpot. But, as they are so fond of saying in the market, "no whistle blows and no bell rings" when the worst is over.

Smiths Industries heads another thin reporting week. After an upbeat trading statement last month it is expected to record a strong year's profits performance, say pounds 225m against pounds 192.1m. The figures could be accompanied by a US acquisition: the company is known to be in talks with Biochem International, which would cost some pounds 32m.

Highland Distilleries, the Famous Grouse Scotch whisky group, should have withstood the whisky downturn and strong pound and roll out pounds 44.5m against pounds 42.7m

But RJB Mining, still in need of long-term coal contracts with the country's generators, is on target to produce depressed interim profits of pounds 35m against pounds 87.1m.