View from City Road: Buyers may not be back to stay

THE CITY is buzzing with talk about the return of private investors. The word is that individuals have moved back into the stock market after an absence of more than five years.

It is easy to see why this should be so. With interest rates falling, deposit accounts are not producing the returns they once were and savers are looking for other places to put their money.

While building society accounts are offering about 3.6 per cent, shares are yielding 4.3 per cent on average. Assuming shares are held in a personal equity plan and no tax is payable, their relative attractions are greater than they have been for years, even taking into account the risk they represent.

Private client firms confirm there has been a surge of business. David Jones, of Sharelink, says the increase in activity started late last summer and is still continuing. The value of the firm's daily business more than doubled in January. Capel-Cure Myers also reports a rise in business.

This anecdotal evidence is backed up by Proshare's Mori survey of investor confidence, which shows a dramatic increase in January. The balance of positive views over negative ones has moved steadily from minus 26 in October to plus 5 last month.

No one should get carried away. There are good reasons for thinking the market's recent strength is bringing out sellers as well as buyers. While Sharelink says there are more buyers than sellers, NatWest Stockbrokers says the bias is still towards selling.

There is little reason for thinking private investors are back for good or that the long- term downward trend - they realise as much as pounds 3bn a year from selling shares - has changed.