The new millennium champagne quickly went flat for investors in 2000, as a collapse in technology stocks and IT spending dragged the market down. Surely things could only get better in 2001? Sadly not. During the next nine months the global economy slumped, terrorists destroyed the World Trade Centre, the US mail system and government were paralysed by anthrax attacks and the US and UK went to war in Afghanistan.
The new millennium champagne quickly went flat for investors in 2000, as a collapse in technology stocks and IT spending dragged the market down. Surely things could only get better in 2001? Sadly not. During the next nine months the global economy slumped, terrorists destroyed the World Trade Centre, the US mail system and government were paralysed by anthrax attacks and the US and UK went to war in Afghanistan.
Just about everything that could have gone wrong has done over the last eighteen months, and in the process equity markets have gone from ludicrously expensive to cheap. With value returning and the worst of the economic news hitting right now, we anticipate a far better year ahead for investors with our year-end FTSE 100 target for 2002 at 6000.
With the US and Japanese economies in recession, the good news is that the UK slowdown has been far less pronounced. We expect the UK economy to recover strongly in the second half of next year, helped by the Monetary Policy Committee’s (MPC) proactive use of monetary policy. History suggests equities should run 4-5 months ahead of the economic news, and should perform well over the next six months as the markets anticipate improving fundamentals. The downside of the UK’s robustness and low rates is that interest rates will need to rise in the second half of 2002 as the global economy recovers.
One word of caution. Longer run concerns about over- capacity, weak consumer and corporate balance sheets and still low profit margins remain largely unresolved by the shallow downturn we have experienced. These concerns should not prevent the market rising further but may mean it is better to travel than to arrive. The second half of next year may well see a muted economic and profits recovery in America providing some disappointment for investors, but markets should make significant progress before then.
Our three stock picks for 2002 are:
CMG
2001 has been a miserable year for CMG with the stock not only significantly under-performing the index, but also Logica, its most obvious competitor. Whilst there is a risk of further profit downgrades the company is taking action to cut costs. Additionally with a new head of the wireless division and new product trials in the second half of 2002 CMG looks well placed to benefit from increased demand for mobile services
Aegis
Media was a big loser in 2001. Aegis is a small quality play in an industry still consolidating. Top two shareholders own c. 25%. Geared to economic recovery, 2002 could be the year that something finally happens.
NMT
NMT manufactures a patented world-leading safety syringe that is now being successfully mass-produced by this Scottish-based company. The US alone uses 7bn syringes per annum and NMT has a best of breed product to satisfy the requirements of the recently introduced Needlestick Injury legislation. Even a small share of this market would make NMT an extremely profitable company.
-ends-
For further information please contact:
Penrose Financial
Gay Collins Tel: 020 7786 4882 gayc@penrose.co.uk
Caroline Deutsch Tel: 020 7786 4871 carolined@penrose.co.uk
Notes to Editors:
- The opinions expressed are based on Morley Fund Management’s internal forecasts and should not be relied upon as indicating any guarantee of return from a Morley Fund Management investment.
- Morley Fund Management (‘Morley’) is an independently managed, London based, asset management business with over Ł100 billion under management. It has investment management operations in London, Tokyo and Singapore and an associate office in Boston*.
- Morley is a wholly owned subsidiary of the CGNU Group and manages both institutional and retail funds under the Morley brand. It also acts as investment manager for a range of retail investment funds, marketed in the UK under the Norwich Union brand.
- CGU plc and Norwich Union plc merged on 30 May 2000 to create CGNU plc, the UK’s largest insurance group and one of the top-five insurers in Europe with substantial positions in other markets around the world, making it the world’s seventh largest insurer based on gross worldwide premiums.
*Norwich Union Investment Management, a CGNU Group company
Morley Fund Management is a business name of Morley Fund Management Limited, registered no. 1151805, 1 Poultry, London EC2R 8EJ and Norwich Union Investment Management Limited, registered no. 2152949, 8 Surrey Street, Norwich NR1 3NG. Both are CGNU Group companies and are regulated by the Financial Services Authority
The content of this document should not be construed as a recommendation to buy or sell stocks.