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Predictions for growth in the FTSE doesn't necessarily mean an end to volatility

Predictions for growth in the FTSE doesn't necessarily mean an end to volatility

21 September 2010 / by Paul Dicken

The number of forecasts predicting growth in the FTSE 100 of up to 10 per cent by the end of 2010 has been growing, presenting potential opportunities for investors looking for growth linked returns.

Not everyone is in agreement of course, but Citigroup and UBS are among those forecasting a finish for the FTSE leading share index of up to 6000 points. At the same time, fears of a double dip recession in the UK and the USA have receded.

Despite a dip at the end of August in the FTSE100, since beginning September on 5366.41 points the index crept upwards overall, closing at 5602.54 on 20 September. The FTSE100 began 2010 with a close of 5500.34 on 4 January.

Several business leaders in the US addressed an economics summit in Montana earlier this month, dismissing some of the negative sentiment about the economy in the media, with chief executive of Berkshire Hathaway and the man referred to as the oracle of Omaha, Warren Buffet, reported as saying: "We will not have a double-dip recession at all."

The predictions for growth in the FTSE in some way belie recent data in the UK which has stoked fears about the broader economy.

Employment data published on 15 September showed more people claiming a jobseekers allowance, but also an increase in the number of people in employment.

Figures for retail sales, published on 16 September, showed a slowdown in consumer spending, which for some equated to the beginning of a slowdown in the UK economy.

Financial advisers Torquil Clark said stockbroker predictions for growth in the market were based on robust half-year earnings and global merger and acquisitions news.

Nigel Walker at TQ Invest said: "Upbeat market predictions should not influence your decision to invest, however for those no longer content to have money sitting in cash accounts and who are prepared to take a risk with their money and invest over the long term, now could be a good time to consider equities."

Investing in equities

There are several different types of funds available which give investors exposure to growth in equities. Such as growth funds like the M&G Recovery Fund, which focuses on corporate rather than economic recovery.

A large number of the structured products available are linked to the performance of the FTSE 100. Structured investment products can offer return rates on a geared basis such as 2x or 4x growth on the FTSE.

Many structured products also take advantage of the volatility in the equities market, with no certainty whether growth by 10 per cent would mean calmer times for the markets.


Gary Dale, head of intermediary sales for derivatives and structured products at Investec, said overall growth in the FTSE would not necessarily mean less volatility.

"If there is a 10 per cent gradual rise in the FTSE to 6000 points is that going to be more or less volatility? The truth is we don’t know," Dale said.

He said he didn’t subscribe to the view that the FTSE would see steady growth other the next three months and the market was still relatively volatile compared to two or three years ago.

Marc Chamberlain, an executive director at Morgan Stanley, said that in the last week things had been less changeable but warned that the atmosphere in the markets was still febrile.

"We’re still in an environment where if someone drops a pebble in the lake then the ripples generate a wider impact; people are still nervous."

© Fair Investment Company Ltd