You are here:

As bad as it gets?

Created:
8 October 2008
Written by:
Algy Hall

There's a dearth of cheer in the market at the moment, yet there are reasons for investors open to contrarian thinking to take heart. Admittedly, expressing optimism now may seem a bit crazy. After all, recent weeks have confirmed to most of us that the UK is in the grips of a recession - albeit one that is yet to go official by delivering the requisite two quarters of negative growth; the recession looks like it may well be long and deep rather than short and shallow; the banking system is in a state of collapse; and what was regarded as an Anglo-Saxon financial crisis has gone global.

Advertising

However, as a rule, the market tends to be less interested in what is happening than what could happen in the future. And while the repercussions of current problems could be with us for some time, investors' worst fears over what the economy will have to contend with have arguably been realised.

Given what's on the table, share prices are understandably discounting a lot of woe. Almost half (46 per cent) of the 48 FTSE All-Share sectors are trading at five-year valuation lows based on either earnings or dividends and a quarter are at 10-year lows. Interestingly, only two of the seven sectors that we highlighted in July ('Recession Ready Sectors', 8 July) as possible value opportunities at 20-year low - travel and leisure and general financials - are back in the rogues' gallery. Although, all seven are down since we cautioned about the extent of their rally in August ('Too Much, Too Soon For Soaring Seven', 19 August), having racked up losses of between 23 per cent and 4 per cent.

Not only does the level of fear suggest that the market could be finding a floor, but only a few weeks on from highlighting the possibility that interest rates could soon fall ('Losing interest', 17 September), it now looks like cuts are firmly on the agenda. What's more, at some point the market may actually take comfort from the increasingly aggressive attempts by governments to kickstart the banking system. All in all, while volatility means there are no sure bets and companies with high debt may not survive, hard hit sectors, where the bear market is well developed, look worth another nibble for investors hoping to lock in value on a long-term basis.

  • Back to top

Win £1,000 or a golf weekend

Enter IC's Fantasy Portfolio competition for the chance of winning £1,000 or a luxury golf weekend, courtesy of ETX Capital and Celtic Manor.

Enter here for your chance to win

Advertorial Feature

Take control of your investing with CFDs

Have you ever watched a move in the markets that you saw coming, but you weren't able to exploit?

by Dominic Picarda

Advertorial Feature

Spread your risks with spread trading

With so many big moves in the world's financial markets, there have seldom been more opportunities around for spread traders. Isn't it time you joined them?

by Dominic Picarda