Markets: the next moneyspinner?
Published 19/12/2010 | 05:00
THE stock market (which had more than its fair share of Black Mondays, in 2008 and early 2009 following the credit crunch) could be the moneyspinner of the next decade, according to Barclays Wealth.
The S&P 500 -- the US stock market index that includes 500 of the most widely held stocks -- is now back to the levels it traded at before the US investment bank Lehman Brothers collapsed in September 2008, says Barclays in its latest market intelligence report.
"Year to date gains on the S&P 500 index are now over 10 per cent which, compared to historical averages, is a good year for the index," says the report.
"We have seen dramatic levels of earnings per share growth this year, well ahead of what analysts were expecting to see. This bodes well for future returns and gives us confidence that equity markets can continue to make progress next year."
The report adds that equity valuations (the value of a company and its stock) "should not be underestimated as a driver for long-term returns".
"Where we currently stand today, in terms of valuations, hints that the next 10 years may be a better time for investors than the previous 10 years," it says.
Don't rush blindly into the stock markets, though, -- choose your stocks well.
Among the equities favoured by Barclays are US, European (apart from British) and emerging markets. Barclays is not as keen on Japanese and British stocks.
"Recovery in the US economy is leading the rest of the developed world, and we expect its equity markets to do the same," says the report.
"Small cap stocks look particularly attractive. Emerging markets offer the best short and long-term growth prospects."
Equities in emerging markets, however, are risky. "A lot of clients are looking to invest money abroad in emerging markets such as China and India," says Pat McCormack of Barclays Wealth.
"Typically, if you're going into those markets, you're going to take a currency risk. Many funds are in US Dollars. Emerging market equities are high-risk but they should outperform developed equities over five to 10 years."
US global consumer franchise stocks such as Coca Cola, Proctor & Gamble, Colgate, Kraft, Johnson & Johnson, Wal-mart and McDonald's could be safe bets over the next three to five years, according to InvestRCentre's Rory Gillen, who is also a former Merrion Capital stock-picker. "In Ireland, CRH, Ryanair, Kerry and DCC are all top quality companies and reasonably priced," says Gillen. "In fact, CRH looks like a bargain recovery stock."
CRH is among the Irish stocks being recommended by Bloxham Stockbrokers for 2011 -- along with DCC, Origin Enterprises, Ryanair, Smurfit Kappa and Total Produce.
Bloxham also recommends Aer Lingus, C&C and ICG "if plausible merger and acquisition activity develops".
Remember, there is as much money to be lost on the stock market as there is to be won -- so be sure to tread carefully.