AFTER a volatile 2007, investors will be hoping for a calmer time in stock markets this year. Although it's early days, 2008 has got off to an unsettled start and the credit crunch looks set to continue.
On Thursday, the Bank of England warned that households and companies were likely to find it harder to borrow in the coming months as a result of market turmoil tightening credit conditions. The US got off to a shaky start with blue-chip stocks on W
ednesday suffering the worst new year in quarter of a century.
In an environment of such uncertainty, people need expert guidance more than ever. So in the second of our two-part series to assist you in your investment decisions, The Scotsman has asked a selection of commentators to look back over the past year and give their predictions for 2008.
Graeme Lind, wealth adviser at Towry Law:
WE HAVE two classes of forecaster; those who don't know and those who don't know they don't know. Those are the words of renowned economist JK Galbraith, and there is plenty of evidence to back up his statement.
As we enter into 2008 we are still not aware if the credit crunch has been fully played out. While Northern Rock has been the big story, we are still not much further forward in knowing the full implications of the credit crunch. At one extreme it could lead to a global recession, which would be likely to have a negative impact on all major stock markets and potentially other asset classes as well. Of course, scenario two could be that the credit crunch is played out swiftly, economies do not go into recession and global asset prices have a strong year.
The reality is that nobody knows so the best approach, as always, is to maintain a sensible blend of investment assets appropriate to your return requirements and attitude to risk.
Tom Munro, of Larbert-based Tom Munro Financial Services:
WHERE to invest in 2008 is an interesting question given the recent impact of the credit crunch on markets this year. Many of the UK's leading fund managers suggest the current problems affecting the banking and commercial property sectors may spread throughout 2008 to other asset classes. But the interest rate cuts late last year, the promise of more this year and tight government fiscal control throughout 2008 should help stabilise the economy. I believe markets should perform strongly toward the end of the year.
Those of you who have benefited from the excellent returns over the past four years or so from equities, both UK and overseas, along with double-digit returns from commercial property, will view recent events as a well-overdue correction.
Unless you require access to your capital in the short term, sit tight and stay invested, as pulling out of the markets now only chrystalises losses.
As history confirms, a long-term investment strategy from a well-diversified portfolio of assets with exposure to the four main asset classes of cash, gilt and fixed interest, property and UK and overseas equities will always outperform cash if regularly reviewed by your IFA.
Ken Taylor of Mackenzie Taylor Wealth Management:
MY PREDICTIONS for 2007 were, in the main, close to the mark. Property, particularly the commercial sector and the buy-to-let market, has experienced a significant reversal of fortune in recent months and the US has now started to reduce interest rates. What was not predicted was the impact of the credit crunch started by the collapse of the subprime market in the US – the effect of which is still very much an influence on stock markets worldwide. Looking to 2008, I would expect to see the following scenarios unfold:
• Residential property prices will begin to stagnate, as mortgage lending becomes more controlled and the buy-to-let sector slows.
• The UK market will struggle to gain ground, and only the very astute investor will outperform. Our economy is slowing, so we are likely to experience a year of consolidation at best.
• Emerging markets will outperform. Asia, Eastern Europe and Latin America will all offer good growth prospects for the more risk-tolerant investor. As always, great care will be needed when selecting investments in such markets, but risk will be rewarded.
• We will witness the demise of at least a couple of well-known insurance companies in the UK. This will be via merger or acquisition, as a very inefficient market sector finally progresses with overdue consolidation.
• Alistair Darling will announce a climb-down on the proposed changes to capital gains tax, but late enough in the day to prevent any tax planning to be implemented before April.
Gordon Wilson, director of Thomson Shepherd:
WARREN Buffet said: "In the business world, the rearview mirror is always clearer than the windshield." Looking forward and attempting to forecast markets and therefore where to be invested is immensely difficult and seldom do you find any investment commentators getting it right with any degree of consistency.
My advice is to ignore all the short-term noise, develop a long-term personal plan with clear objectives in terms of investment returns and stick to your plan.
Avoid fads and fashions. Make sure your portfolio is well structured and diversified across the four main asset sectors and in this way you will always have funds available and the risks you will be running will be much less than if you go chasing returns from one or two of the asset classes.
