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Investors warned not to buy shares for up to three years
Jonathan Prynn2 Jul 2008
City "superwoman" Nicola Horlick today warned investors to avoid the stock market for the next two to three years because of the credit crunch.
The influential multi-millionaire fund manager, who now heads Bramdean Asset Management, said she saw no sign of any return to a bull market "in the near future".
She is advising clients to steer well clear of shares - also known as equities - and look at alternative investments. Her warning follows another turbulent day on the stock market yesterday-in which the FTSE-100 index of leading shares plunged 146 points.
Although the market recovered a little ground today, analysts see this as a classic "dead cat bounce" - traders' jargon for a short-term and illusory rise.
The Footsie - the most closely watched measure of the performance of the stock market - is now down almost 20 per cent since its peak at 6730.7 last autumn. A 20 per cent fall is widely regarded as the definition of a classic bear market.
Although only a small percentage of the population own a portfolio of shares directly, almost every household will be affected through the value of their pension funds, endowment policies and other investments.
This year's huge fall has been led by the sectors that have suffered most in the credit crunch - banks, property and retail.
Marks & Spencer shares today dropped more than 20 per cent on its shock trading warning, dragging other major high street names such as Next, down eight per cent, in its wake. Shares in house builders have also been mauled as first-time buyers have temporarily abandoned the property ladder.
Shares in Taylor Wimpey, Britain's biggest housebuilder, lost 50 per cent of their value in minutes today after it admitted failing to raise rescue finance from the City.
Shares in Barratt, another major house builder, have lost 97 per cent of their value. But some leading commentators say this is not a time for investors to lose their nerve.
Howard Wheeldon, senior strategist at BGC Brokers, said: "We are obviously in very, very difficult times. But if you are in the market you might as well stay there, don't bale out. There will be the odd company that will go under, that is bound to happen, but eventually by staying there you will be all right.
"But is it right to invest more money in the market at the moment? The answer has to be 'no'. I don't see the FTSE-100 going below 5000, but what we need is stability."
Another leading commentator said that although shares looked cheap, the wave of bad news about the economy meant only the bravest would dip into the market now. "If you challenge the logic of sentiment verses valuation, then sentiment is going to win every time."
With some bank accounts paying up to seven per cent interest the returns on cash are at their highest level for 15 years. The increased protection for depositors announced by the Government this week means that staying in cash is even more attractive in uncertain times.
However, many investors will be looking for signs the stock market is bottoming out and will be ready to buy back into shares to make big instant profits when the mood changes - as it always does. The key stock market sector performances since start of last year are:
BANKS down 55 per cent
The banks have been the most obvious victims of the credit crunch, having to write off tens of billions of pounds in bad loans since last autumn. They are also having to pay much more to borrow from each other. They have gone from the surest of bets to pariahs.
PROPERTY down 47 per cent
House building has come to an almost total halt, the number of property transactions has halved, house prices are falling and the commercial property sector is in meltdown. The long party for the sector has ended in tears.
RETAIL down 56 per cent
The high street is starting to feel the knock-on effect from consumers having less money to spend and worrying about debt. Summer sales have started early and even the big supermarkets have seen their shares under attack.
ENERGY up 18 per cent
Record oil and gas prices and soaring demand from countries such as China and India mean energy companies have seen their profits reach new highs. Motorists may curse their names but the oil majors have been one of the few bright spots on the stock market.
MINING up 70 per cent
The current and unlikely darlings of the stock market. Usually regarded as dull, demand from emerging economies has pushed up the prices of commodities to all-time highs.
