Market report: Wednesday close

NOT everyone is gloomy about prospects for investors next year. Broker Investec Securities reckons they should take to the high road when it comes to the equity market in 2005.

Investec is telling clients that market fundamentals look attractive with UK equities set to confound the pessimists.

Despite the fact the Footsie 100 index is trading more than 200 points below its current forecast of 4950 for the end of 2004, Investec is predicting the indicator will finish next year around the 5,400 level, an increase of almost 13%.

Investec bases its growing confidence on earnings expectations, attractive valuations compared with the bond market and a belief that the institutions have a big pile of cash they are ready to tip into the market. The broker admits there are still plenty of global issues which have the potential to upset the applecart, but says this was always going to be the case, anyway.

'We are much happier to recommend a market which appears cheap on fundamentals when investors are nervous than when a spirit of optimism prevails,' says the broker.

Meanwhile, earnings expectations for the big companies are continuing to grow, with a consensus 8.5% forecast for 2005 followed by 6.2% in 2006.

They have been helped by higher oil price assumptions which have driven up ratings of the oil majors, while those of other larger companies have also held up well.

Investec's comments come just 24 hours after Rentokil Initial ¾p firmer at 142¾p, warned that profits for 2005 would fall short of this year. Now builders' merchant Wolseley, down 14p at 887p, has been hit. Deutsche Bank has cut from hold to sell and slashed its target price from 880p to 800p claiming the group's key markets have peaked and are likely to decline in 2005. US broker Morgan Stanley has reduced its target from 1064p to 1025p to take account of the impact of a weaker dollar and rising timber prices.

The FTSE 100 index recouped some of yesterday's losses with a rise of 32.5 to 4735.7. This was in spite of a big fall for the Dow on Wall Street last night which spilled over into the Far East this morning.

Broker UBS downgraded South African financial services outfit Old Mutual, ¼p up on 131½p, from neutral to reduce, but has raised its 12-month target price from 111p to 120p. UBS has also cut HIT Entertainment, down 3p at 257p, from buy to neutral with a 275p price target.

It was the first day of dealings as a full listing for Inion, which makes disposable plates and pins for mending broken bones, ligaments and tendons. The sale of shares was more than six times oversubscribed and raised £30m. The shares were offered at 130p each and traded at 164½p.

Marlborough Stirling collapsed 10¼p to 31¼p on its return from suspension after the software and outsourcing services provider confirmed it had been put up for sale. A couple of weeks ago the company issued a profits warning which was behind yesterday's departure of recently-appointed chairman Paul Fullager. An attempt by his predecessor, Huw Evans, to place his near-7% stake at 45p through UBS failed.

BetInternet has had its shares suspended at 5.12p after falling behind with publishing its report and accounts. BetInternet says it is close to finalising details of a refinancing package.