credence end of year ftse predictions January

Should we believe the many who think the FTSE will end the year above 6,000 or the few who honestly answer in Janaury that they haven't got a clue?

credence end of year ftse predictions January

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However, predictions are frequently expected in the fund management industry. At this time of the year, to be asked where the FTSE will close at the year end is a fairly typical investor request.

No more than a gameshow

“Frankly, I haven’t a clue!" is probably not acceptable as no view tends to be seen as a sign of weakness. Some fund managers may excuse themselves on the grounds of being stock pickers with little interest in the day-to-day fluctuations of broad market indices, however, most will be expected to answer, no matter how wrong it turns out.

Should you find yourself in this situation here’s an approach that may help. Imagine you are a contestant on the popular TV game show "Who wants to be a Millionaire?" You are well on your way to the big prize when Chris Tarrant asks you what the closing level of the FTSE will be this year. There are four possible answers. As you scratch your head, deep in thought, you are reminded that you have all three lifelines left – 50/50, phone a friend or ask the audience.

Taking the 50/50 lifeline would be to state the direction but not the closing level of the market. The prospects for a further move upwards in the equity markets look encouraging for this year, supported by a gradually improving global environment as the easing monetary cycle persists. New political regimes in China and Japan, the second and third-largest global economies, have promised further stimuli and renewed economic growth.  Even the eurozone appears to be stabilising, evidenced by peripheral government yields falling dramatically since last summer. Long term challenges remain, but markets can make progress in 2013.

Then phone a friend, quote the opinion of one of your favoured market commentators. For example, Mark Tinkler at Axa Framlington writes a regular strategy piece known as Market Thinking. He has forecast a high single figure return for equities this year, driven mainly by earnings growth with the slight possibility of a multiple re-rating. He also acknowledged that returns could be greater after the perceived reduction in risk over the past six months.

Comfort in the majority

Then perhaps the game show’s most popular and indeed most successful lifeline – ask the audience. In his book, “Wisdom of the crowds,” James Surowiecki wrote on the theory that the many are smarter than the few, highlighting the predictive powers of polls under the right conditions.

The annual fund manager poll carried out by the Association of Investment Companies (AIC) last year found that 71% felt that markets would be positive in 2012 and 50% predicted the FTSE 100 would close above 5,500. The many were correct last year, so what is the majority forecasting according to the AIC’s November 2012 poll? The answer: 87% of fund managers expect the market to rise, whilst 76% expect the closing level of FTSE to be above 6,000.

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