Shares revival 'by next September'

THE good news is that most pundits reckon shares should have bounced back by 11 September 2003. The bad news? Any recovery is likely to be frustratingly short.

The most bullish experts predict a bounce in the FTSE 100 index of Britain's biggest stocks back to 5000 points in a year - a 20% return from now. But even these eternal optimists reckon it would be risky to gamble on a rally in case things go wrong.

Even more worryingly, City bears are growling louder than ever. One pessimist, basing his view on past recessions, suggests the Footsie will fall close to 3000 points - a near 30% plunge from now - before recovering.

The overwhelming view of our bulls is that shares won't rally until the US strikes Iraq. If the war is short and successful, uncertainty will evaporate from the stock market. But after the rally, shares will deliver slower growth, anything from 5%-8% a year.

Justin Urquhart Stewart, of Seven Investment Management, predicts a rise to 4800-5000 in a year. He says you should leave your money in the market and, to be on the safe side, any fresh investments should be in safer shares that will deliver healthy income from dividends, regardless of a worsening market. He suggests retailer Tesco or water company Severn Trent.

'The company's yield of 7% a year alone would double your money every 10 years,' he says.

Damian Larkin, of the Share Centre, sees the Footsie reaching 4800 points. He says a continuing retail boom will make shares in companies such as Boots and Next a good buy. For safety, he would also stick with stocks such as food group Tate & Lyle or cigarette-maker Gallaher, on the grounds that people will eat and smoke no matter how bad a recession is.

Khuram Chaudhry, strategist at Merrill Lynch, predicts a rally to 5000 by the end of next year. He's sticking with 'cheap' oil stocks, such as BP and Shell. He also recommends stocks with solid income from dividends, such as tobacco companies.

Witan and Foreign & Colonial are among the UK's biggest funds, sitting on nearly £3bn. Both of their managers foresee a recovery. James Robinson, of Witan, says history's two worst stock market crashes lasted 33 months and 31 months, those in 1929 and 1973 respectively. The current bear market has reached 33 months. 'We may already have seen the bottom of the market in July,' he says. He believes the Footsie could approach 5000 points within a year. F&C fund manager Jeremy Tigue also expects a recovery but warns: 'If a US attack on Iraq fails, it would be a disaster for markets.'

Barclays Private Clients, a brokerage that was previously upbeat, has turned bearish in recent weeks, setting a 12-month Footsie target of 3950, a 5% fall. But Hilary Cook, investment director, says investors should sit on their existing fund and share holdings as long-term returns should be 7% or 8% a year. Cook says Japanese and Far Eastern stock markets may be better bets than the UK over the next year.

Hugh Hendry, manager of the CF Odey European fund, is regarded as one of Europe's best stock pickers, but is also infamous for his pessimism. 'The big financial institutions will say equities are cheap, but it's just propaganda,' he says. Hendry estimates that to match the average bottom of bear markets of the past, the Footsie would have to fall to 3100 points, and that may take several years.

Hendry has put most of his own money into gold, but he has kept stocks that pay a high income, including cigarette-makers BAT, Gallaher or Imperial Tobacco. He also says food producers such as AB Foods and Tate & Lyle could benefit from better cocoa and sugar prices.

What to do

Financial advisers warn against investing off the back of such predictions. Even the pundits who make them admit it's a 'fool's game'. Past figures back that up: the consensus expectation of brokers for 2000 was a six% rise in the Footsie to 7350, yet it fell 10% to 6222. In 2001, it was a six% rise to 6600 - it fell 16%, to 5217. Instead of trying to chase quick returns by predicting a rally, advisers say you should hang on to the funds you already hold, because even though the market could go lower, returns in the long run should be better from shares than other investments.

If you have put off beginning your investment career until the markets are cheaper, you may be advised to save cash and wait for more reliable signs of recovery, even at the risk of losing some value, before plunging straight in.