Roughly half of 578 respondents to the latest FE Trustnet poll said they thought the FTSE would be lower than its current level of 5,510 by the end of the year, with 14 per cent saying they think it will fall below the psychological 5,000 barrier.
Source: Trustnet.com
The results follow a tricky period for the UK economy in the wake of the ongoing sovereign debt crisis, concerns surrounding the progress of the US economy and a downgrade of growth forecasts in Asia.
Economic forecaster Ernst and Young has this morning downgraded its GDP growth forecast for the UK to just 0.9 per cent for the year.
Bill O’Neill, chief investment officer for EMEA at Merrill Lynch Wealth Management, believes the stock markets will remain choppy until there is more certainty about the wider macroeconomic landscape.
"Following a terrible quarter for equity markets, our sense is that the fourth quarter will be similarly difficult, with volatility likely to remain elevated," he said. "The extreme risk-aversion in markets is unlikely to reverse until there is greater clarity around economic and political uncertainties."
The year has been characterised by large daily swings in the world’s major stock market indices, leaving investors anxious about the future of their equity portfolios.
However, Patrick Connolly, head of communications at AWD Chase de Vere, says that we are seeing a sentiment-driven market and not a fair reflection of the strong relative position of the corporate sector.
"The market is being affected by macro influences rather than by the performance of the individual companies," he said. "There are problems affecting the US and emerging market economies and the debt crisis in Europe refuses to go away. We see great swings based on the latest piece of news or data."
Connolly says the swing in the market is largely artificial and that investors need to focus on buying at a price they think is attractive and trust that the long-term value of the best companies will assert itself in the long-term.
Performance of index in 2011
Source: FE Analytics
"If people buy in at around the 5000 mark then they will probably be happy over the medium- to long-term," he said. "We may see the FTSE dip below that level in the short-term but over a period of five to 10 years I think investors will see some decent growth."
Ben Yearsley, investment manager at Hargreaves Lansdown, says that focusing too keenly on what level the market will be at by the end of the year is a distraction from the objective of long-term investing.
"It’s pointless asking where the FTSE will be over the next few months when it’s largely external factors driving markets," he explained. "If policy makers can do something really useful from here then we could see markets absolutely flying and we may reach 6,500, but if they drag their feet like they have done so far, then the market could continue to stutter for a long time."
Yearsley advises that investors should focus on the long-term and be aware that the market is just as likely to go up as it is down over the next couple of months. The important thing, he said, is to make sure investors hold the right funds in their portfolio to cope with both scenarios.
"People like Bill Mott and Neil Woodford are well positioned in defensive companies so that they are protected should markets fall. Equally, they have enough potential for growth in the upside as well."
Performance of funds vs sector over 3-yrs
Source: FE Analytics
Data from FE Analytics shows that FE Alpha Manager Mott’s PSigma Income fund has returned 32 per cent over the last three years while Woodford’s Invesco Perpetual Income fund has returned 35 per cent.
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