3 9 January 2001
Where in the world to invest in 2001
Stock market investors have had a bad year, but what will 2001?
The past year has been the worst since 1994 for investors, with the FTSE 100 index losing 10.2%. Stock markets have slumped throughout the world
- America's Nasdaq index of technology shares has been one of the biggest casualties, losing almost half its value since it peaked in March.
The turmoil is expected to continue throughout much of 2001. Experts are therefore urg-ing investors to be cautious and invest in the world's largest and strongest firms, and to concen-trate on the big European and American stock markets.
Investors would have been far better off putting their money in a savings account dur-ing 2000 than most stock mar-kets. But experts are advising investors not to sell out now because, in the long term, shares should prove the best bet - and it is almost impossible to predict when the market will turn round.
The slump in share prices has been caused by a slowdown in economic growth throughout the world, but primarily in America. This slowdown is expected to continue through the first half of 2001, but if the slowdown is more, or less, dramatic than predicted, stock mar-kets throughout the world could either crash or soar.
Experts advise investors to ignore Japan, emerging markets and technology funds this year, since they will bear the brunt of the slowdown.
But this is how British, Ameri-can and European stock markets are expected to perform over the next 12 months - and how investors can take advantage.
The British stock market has moved sideways for two years. Although share prices climb and fall sharply on a daily, weekly or monthly basis, the Footsie has largely fluctuated between 6,100 and 6,600 - closing at 6,222 last Friday.
The predictions are for the market to remain volatile but many forecasters expect the Footsie to climb above 7,000 during 2001. However, many of the predic-tions of the big investment banks, shown on page one of this section, look similar to last year's - and they proved wildly optimistic. Jeremy Batstone, head of research at NatWest Stockbro-kers, says: "The market will be very choppy during the first few months and investors will have to chart a careful course. It will be a stock pickers' market, but there is money to be made."
For those who want to go it alone, Batstone advises inves-tors to buy shares in firms with visible earnings - in other words, where it is clear where and how the companies will make their money - especially if the economy starts running into trouble.
Recommended shares inc-lude Prudential, the financial- services group, Tesco, the super-market chain, British American Tobacco and Vodafone, the telecoms giant. But investors in Vodafone should keep an eye on the legal case in America on the link between mobile phones and brain tumours.
Cautious investors may pre-fer to invest in a broad-based fund, such as a unit or invest-ment trust.
The direction of the American stock markets over the next year is in the balance - they could either slump or soar.
Nobody knows whether the slowdown in American eco-nomic growth is a temporary blip or will develop into a full-blown recession. Much depends
on how much, and when, Ameri-can interest rates are cut. Big tax cuts promised by George W Bush, the president-elect, could encourage people to spend and invest, providing a fillip to the economy and stock market.
Despite the concerns, most American experts are predict-ing a strong year for share prices. Edward Kerscher, chief global strategist at UBS Warburg, an investment bank, believes the S&P 500 index of America's biggest firms will rise more than 30% next year.
However, many of these experts are notoriously optimis-tic and have a vested interest in taking up the market. Others, such as David Schwartz, a stock-market historian, are pes-simistic about the year ahead across the Atlantic.
Schwartz was one of the few to predict correctly that the Brit-ish market would fall during 2000. He says: "Earlier this month, the S&P 500 fell below its long-term average for the first time in a decade. This is a very serious sign for the stock market and the odds of a rise next year are very, very low."
But investors cannot afford to ignore America and should save large amounts of money in American funds. The country is the powerhouse of the global economy and is home to many of the world's most dynamic firms.
In a global slowdown it is likely to fare better than other regions as global investors put their money in what they see as the safest home for their money - the biggest American firms, which are best able to fend off recession.
Continental Europe is the great hope for 2001 for many experts. In the past few months, the euro has started to recover strongly.
The stock markets are also expected to drive forward as more people start saving in pri-vate pension funds as state sup-port is radically reduced. European savers have traditionally ignored the stock market but this is now changing, while online stockbrokers are catch-ing on, especially in wealthier nations such as Germany.
John Hatherley, head of glo-bal analysis at M&G, a fund manager, says: "We won't see such a sharp slowdown in Europe over the next year because it has had a much shorter period of economic and stock-market growth."
However, although Europe has experienced periods of strong performance, economic reform has not happened as quickly as had been hoped, and investors should not stake everything on the con-tinent's future.