View from City Road: Recovery timing hard to predict

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CALLING the turn in the stock market is a mug's game. This is especially true when the market has fallen by 12 per cent in the last two months and the downward trend has, if anything, steepened.

The gloom is hard to dispel. Large investors, even those who have long-term faith in the attractions of shares, have got it into their heads that shares are not going to recover for some time yet. Disappointed about recovery earlier this year, they now expect the autumn results season to be awful, with more dividend cuts, and fear that after that the market will be infected by American uncertainties pending the November election.

There is no sign of recovery yet, nor is there likely to be for some time, now we are in the holiday season. But these investors suggest there will be no upturn until next year and a very few, the really bearish, question whether there will ever be a pick-up. It is a measure of the pervading gloom that equity investors could even consider that possibility, however briefly.

There were, however, one or two fund managers who enjoyed the fall, seeing it as an opportunity to put money into shares at what they regard as cheap levels. They admit the market could go still lower, but on a six-month view they are confident they will be showing credible gains.

There are good reasons for thinking the market may bounce back, though the timing is uncertain. The government's change of heart on the National Savings bond will reduce pressure on mortgage rates. Investors have traditionally looked six months ahead and most remain confident of eventual recovery, however slow. Meanwhile, the market is yielding more than 5 per cent, when inflation is less than 4 per cent.

Bulls, however, have to cope with two counterpoints. Companies do not yet view the market as cheap, otherwise they would have launched more bids. Their reticence reflects the extent of their operating difficulties, the limited availability of bank finance and the paucity of companies with cash and other resources able to launch a bid.

But a low level of bid activity may be something investors have to learn to live with in the 1990s.

The second is the short-term effect of the Wellcome offer. Fears that it will flop will keep the market nervous this week. But the long-term effect of drawing money from overseas into the London market should be positive as the proceeds are reinvested.