FTSE recovery or a sucker's rally?

FTSE recovery or a sucker's rally?

The Daily Telegraph asks some of the City's leading experts if the FTSE bounce signals a market turn.

By Jonathan Sibun
Last Updated: 12:38PM GMT 16 Mar 2009

The FTSE-100 rose an impressive 6.3pc last week and market participants are openly questioning whether markets have reached their lows for the first time since the financial crisis began.

After weeks of gloom the scale of the surge – with the FTSE up 223 points at 3753.7, the biggest full-week rise this year – took many by surprise.

The Daily Telegraph talks to some of the City's leading experts to ask whether it is time to turn back to equities.

Anthony Bolton

Fidelity International

All of the things I look for to be in place for a market bottom were in place last week, so I think there is a reasonable chance that we have reached a bottom. A new bull market could have started.

There are three things I have looked for.

The first is the pattern of bull and bear markets. In the US, the S&P index is down 57pc from peak to trough. That is the deepest bear market but one since the early 1900s. The exception was in the 1930s but that came after huge overvaluations in the 1920s.

The second is sentiment. You would have to go back to the 1970s to see when sentiment was last this bad.

And the third is that some valuations are now compelling. There are a lot of stocks out there that are undervalued.

I don't tend to focus on the economic outlook. If you focus solely on the economy you won't see it [the bottom]. You won't see a flashing green light. By the time you see the economic indicators the equity markets will already have moved.

Edward Bonham Carter

Jupiter Asset Management

If you are asking whether this is a reasonable time to be increasing equity exposure on a three-to-five year view then the answer is yes.

However, while investors are starting to be paid to take equity risk that doesn't mean we've reached the bottom. The lesson in history is that very few people can call the bottom.

This year is likely to remain schizophrenic. You will have periods of people thinking they can see the bottom and the effects of the actions taken by governments and then periods where people believe that the economy will remain in difficulty for some time.

It is possible we could fall through the 3,000 mark but a lot of people are trying to predict the unpredictable. In bear markets, rallies are the order of the day.

Between 1966 and 1982 markets traded in a broadly sideways pattern in a range of 300 to 400 points. It is highly possible we could see that again.

Paul Kavanagh

Killick & Co

The market was due a rally. I wouldn't call it a sucker's rally but neither would I call it the bottom. I can see us getting above 4,000 but I still believe there is a long way to go before we've bottomed out. We're looking at another year of working through this.

There is sentiment around job losses which has yet to feed through. Unemployment is a lagging indicator but it will hurt sentiment if 100,000 jobs are cut a month to Christmas. Consumer spending has yet to drop off a cliff but if unemployment reaches three million there will be an impact.

Tim Steer

New Star Asset Management

We may be reaching the bottom. One justification for saying that would be that much of the refinancing that companies are going to have to do is priced into the market. The market discounts what is going to happen and it is very easy to see which companies are in need of financing and which are not.

We have already seen some companies do well from that. In a few cases companies' share prices are going up in anticipation of a rights issue. The view is that while earnings will be diluted, there will be less of a debt problem.

Garry White

Questor Editor

A market bottoms when we reach what is known as the "point of maximum pessimism". This means that investors have lost so much money they completely throw in the towel - and shares correct to an undervalued level. I don't believe we are at this level yet.

The FTSE 100 is now trading on a price-earnings multiple approaching 16 – with many more earnings downgrades likely to follow the reporting season. Some analysts believe earnings at non-financial companies may slump 24pc in 2009, this means the "real" prospective multiple of the index is much, much higher. This rally has all the marks of a bear market rally and investors should beware.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5252775/FTSEs-11-week-high-sparks-hope-that-bull-market-may-be-arriving.html

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