City Watch: Mark Marshall on why equity values are rising

Mark Marshall of Charles Stanley & Co

Mark Marshall of Charles Stanley & Co

PEOPLE often ask why shares are rising when economic news seems to point in a different direction. he strong performance during 2012 and into 2013 which has taken equities back to levels last seen before the Lehman Brothers collapse in 2008 seems at odds with forecasts that Britain could endure a triple dip recession this year.

However, this reflects a more optimistic view that just perhaps we may have seen the worst.

At the start of 2012 a deep sense of foreboding gripped investment markets, yet none of the apocalyptic disaster scenarios actually materialised. The Chinese economy managed to avoid a hard landing, Israel did not go to war with Iran and the eurozone did not fall apart as widely predicted.

Add in the Jubilee feel good factor and the Olympic Games and the UK managed to achieve some growth in the fourth quarter.

In the US, haggling over the need to cut spending and raise taxes, resulted in a compromise which prevented the economy from falling over the cliff, although painful spending cuts still have to be agreed. The eurozone could still dampen the party, with Cyprus and Portugal likely as the next flashpoints – hardly a sound backdrop to equity investment.

However, with fears growing that the rise in Government debt and corporate bond markets will hit the buffers this year, investors are beginning to look to equities once again, at a time when share dividends have been rising at their fastest rate for some years.

Many investment banks have revised upwards their year-end forecasts for the FTSE100 index with forecasts ranging from 8% to 10%. Throw in a dividend yield of say 3% and it is not a bad return – but, of course, not without risk.

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: : Mark Marshall is a stockbroker with Chalres Stanley & Co in Ipswich.

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