How UK may see a surprise stock market boost in 2019

PUT half a dozen i nvestment experts in a room and you will usually get six different opinions on stock markets.

But as we head for 2019, there is a little more consensus than usual. Nearly everyone is saying that the year ahead is going to be a difficult one for investors – although it will not be without its opportunities.

Nick Dixon is investment director at financial services company Aegon. He believes that next year will be ‘challenging’ for investors, with uncertainty ‘driven by slowing global growth, Brexit and the uncertain pace of interest rate rises’.

It is a view shared by Darius McDermott, managing director of investment fund scrutineer FundCalibre. He says: ‘I think 2019 could be another difficult year for investors. It may be a volatile 12 months and investors could be well-served taking a look at their portfolios and rebalancing any biases that exist.’

In other words, diversifying across a broad spread of markets, shares and investment funds.

A recent poll by the Association of Investment Companies indicated that the biggest proportion of fund managers – 27 per cent – thought the UK and the US could offer the best investment returns in 2019.

In the UK, a positive outcome on Brexit could result in a revaluation of the stock market, triggering a surge in equity prices. Dixon says: ‘I believe the FTSE100 Index could be the big pleasant stock market surprise of 2019. The UK equity market has underperformed other stock markets since 2015 and now offers attractive relative value.

‘If there is clarity on Brexit and even a modest amount of domestic economic growth, these will provide catalysts for the UK stock market to close the valuation gap with other stock markets.’ Mark Boucher and Mark Swain are comanagers on the Smith & Williamson Enterprise Fund. They feel that the shares of many domestically focused companies in the UK are standing at a 30 per cent discount to global equities. If a Brexit deal is struck, they argue such companies’ share prices could benefit from a ‘Brexit bounce’, resulting in the discount being eliminated.

Boucher adds: ‘Many domestic UK businesses are still trading well and versus global peers are the cheapest they have been for nearly three decades.’

Simon Gergel, manager of UK investment trust Merchants is similarly buoyant, provided the Brexit ‘fog’ lifts. He says: ‘An end to Brexit uncertainty could release pent-up demand in the economy and herald a return of foreign buying of UK equities, and a revaluation of the stock market from depressed levels.’

Investment house JPMorgan is among those asset managers to back the US stock market. It believes the earnings resilience of many US companies will support a strong stock market in 2019.

But it is not a universal view. Richard Hunter, head of markets at investment platform Interactive Investor, says continued trade tensions between the US and China could unsettle markets in both countries. As indeed could President Trump and ‘his 280-character diatribes’ on Twitter that Hunter says can prove ‘market moving’.

Many experts believe dividend- friendly UK businesses are good homes for investors who are happy to wait for the stock market to bounce back.

Hunter says: ‘The average dividend yield of the FTSE100 Index is 4.4 per cent which is a clear invitation to income seeking investors.’

He particularly likes some of the more ‘defensive’ FTSE100 stocks – British American Tobacco on an attractive yield of 7.5 per cent, Diageo ( 2.3 per cent) and Unilever (3 per cent).

Ed Monks of investment house Fidelity says most investors should not try to second guess markets in 2019.

Instead, he believes they should remain committed to investing a set amount on a regular basis across a spread of investments – from equities to bonds, to cash.

Ben Yearsley, director of Shore Financial Planning, believes that emerging markets and Japan look interesting from a ‘price perspective and growth outlook’.