Investment advisers predict UK boom

Caroline Merrell on where the money may be next year `Politics will be an increasing influence' `Japan is the most difficult market to read'

Financial advisers are predicting a boom year for Britain next year, despite the possibility of increases in interest rates and continuing political uncertainty. For investors who are prepared to take a risk and want a longer-term play, advisers t hink that Latin America could be a promising market.

The new breed of personal equity plan announced in this year's Budget that allows investment in UK corporate bonds, convertible shares and preference shares will give investors a low-risk way of benefiting from the economic growth in Britain.

Stephen Ingledew, Frizzell's development director: "Interest rates are definitely going to go up in this country. Equities in the UK will not go up much above the level they are at the moment. Although there does not technically have to be an election until 1997, political uncertainty will add to the problems in the equity market.

"Deposit based investments will become more attractive next year. The new personal equity plans announced in the last Budget which allow investment in convertibles, corporate bonds and preference shares will be the ideal investment to take advantage of this."

Louise Wright, Rathbones principal: "The UK will be an interesting place to be, although there will be a focus on interest rates. Low inflation will continue, but obviously there is the political risk.

We favour smaller companies and prefer investment trusts over unit trusts. We believe that the best investment for getting into this market would be River & Mercantile UK investment trust or investment trusts from Henderson Touche Remnant.

"Emerging markets are also favoured for the next year. Templeton's emerging markets investment trust would be a good bet. We are not keen on the US or Hong Kong."

Eric Hathorn, Henderson Crothswaite research director: "Politics are going to be an increasing influence. Last year, politics were of little concern to the market. It was an interest-rate-led market. Next year, it is going to be an earnings-led market. The prospects for exports are good, but consumer spending is depressed. We think that inflation is going to remain very low.

"We are not looking for major returns next year. There will be opportunities for equities as the index is at a low point. We will be looking at companies that should not be marked down as much as the market is pushing them down. Despite the depression inthe car market, we favour some of those companies that make car components like Lucas and GKN. Over the long term we also favour British Aerospace."

Nick Sketch, Carr Sheppards adviser: "We like the UK as an area to invest in and we like some countries in Europe. We do favour Japan, although some of the companies are over-priced. Some of them are on 35 times peak earnings - these ratings are absolutely ridiculous. We are wary of Malaysia and actively afraid of Hong Kong. We like some of the smaller markets in the Far East like India and Indonesia.

"Latin America looks like one of the most interesting areas for investment. The market with the most potential will be Brazil, with good prospects in Chile and Peru. Investors should choose funds that have under 20 per cent invested in Argentina.

"They should also be wary of fund managers who take the easy way into the market through buying American depositary receipts (investments in Latin America that are quoted on the US stock exchange), because they often have exposure to some of the big but poor companies.

"In the UK, we like Morgan Grenfell equity income investment trust, and the Schroder UK Growth investment trust, although they have to be bought at the right time. Schroder's UK growth investment trust is trading at a premium. I also like the M&G Dual investment trust, which will give a 5 per cent return regardless of whether the FT-SE goes up.

"I like Schroder's Japanese Growth fund, although again it is trading at a premium. Edinburgh Fund Managers Dragon fund gives exposure to South-east Asia, and its Inca fund could be good for Latin America."

John Dottridge, IPS Capital Management: "Europe singularly fails to excite except from a stock-picking point of view. The emerging economies in Europe like Hungary and Czechoslovakia are particularly attractive. The best stock pickers in Europe are PeterYoung and his team at Morgan Grenfell and Stephen Peak and his team at Henderson Touche Remnant.

"Japan is the most difficult market to read as it is the most manipulated by the governments of all the major economies.

"Our preference is for discounted investment trusts and open-ended funds including Kleinwort Benson's Select Japanese, Gartmore Japan, Perpetual Japan and Jardine Fleming Japan OTC.

"Within the emerging market areas we continue to be extremely cautious about Chinese inflation and its subsequent effects upon the Hong Kong, Malaysian, and to a lesser extent, other economies in the region.

"We believe that there is fair value in Korea, where Japanese influences pervade, while Singapore, the epitome of fiscal probity, is in the progress of expanding with all the associated benefits to be expected.

"Brazil is consolidating after hectic years. The rest of the region is much favoured on a selective basis and we expect good cash flows from North America into the region."