Persuading private investors to buy shares right now must be like trying to sell Christmas to turkeys. But life assurance group Legal & General is having a go. Its strategy team believes investors should start adding to equity positions during 2009 ahead of a sustained recovery in 2010.
Their analysis is based - conveniently, some might say - on the bigger economic picture, rather than on the detail of bank collapses and general investor panic. But it's compelling nonetheless. They argue that, next year, the world's central banks will stop worrying about inflation, and instead cut rates to stimulate growth, while the US housing market will stabilise, leading to a recovery in banking confidence. As inflationary pressures ease, liquidity returns, corporate profits start to rise and we're all off to the races.
To back this up, they point out that:
■ Only the Fed has aggressively cut rates so far. The Bank of England, the European Central Bank and monetary authorities in emerging markets have been more hawkish. But that's likely to change as the inflation threat fades - and the UK base rate could conceivably drop below 3 per cent by the end of 2009. That's lower than money markets are predicting, but expectations can change rapidly.
■ Central banks will be able to slash rates because rising surplus capacity and lower commodity prices will ease inflationary pressures. Job insecurity means wage demands will be moderated.
■ Interbank lending will also recover once there is evidence that the US housing slump is ending. The current problems in the credit market all started with the US property market, and the psychological impact of home values falling for the first time since the Great Depression can't be underestimated.
■ Shares are fairly cheap. The earnings yield on the S&P 500 (measured as a 10-year moving average) is back down to where it was at the bottom of the dot-com bust.
This last point has been made by others, too. Writing in this weekend's Financial Times, former Fidelity fund manager Anthony Bolton opined that "for the first time in a couple of years, I've started to feel optimistic... all the things I like to see for a recovery are in place." Today, our own point-and-figure chartist also indicates the growing likelihood that we are close to the bottom - and tomorrow, our companies editor Simon Thompson will make a similar point.