UK prospects lure investors

Top fund managers tip domestic companies, Japan and Latin America for g ood returns, Caroline Merrell finds

Nearly all fund managers rate the UK and Latin America as the most lucrative places to invest this year. Despite the continuing political uncertainty in the UK and the threat of increased interest rates, the leading investment managers believe co ntinuing low inflation and recovery in company earnings will make UK companies attractive for investment. They also think that British firms will start to produce increasing dividends.

The investment specialists are tipping Latin America, in particular Brazil and Mexico, for investors prepared to take on more risk. They are also looking to Japan for good returns as it finally comes out of recession.

Bridget Cleverly, a Schroders director, said: "The UK has strong potential for growth despite the political situation. Dividends are going to start to come through quite strongly.

"Japan could be good, provided domestic investors come back into the market. Hitachi and Mitsubishi have doubled their profit forecasts for 1995. We think that the dollar, and therefore sterling, will strengthen against the yen, which does not favour UK investors. But the recovery in Japan should outweigh this.

"We also like the emerging markets, especially those of Indonesia, India and the Philippines," Ms Cleverly said. "We are also keen on some countries in Latin America, such as Brazil. Some of the East European emerging markets, such as Poland, could be interesting, too."

ShareLink, the execution-only stockbroker, is tipping the following 10 UK stocks for the beginning of 1995: Anglian Water, Bank of Scotland, Barclays, Barrett Developments, British Steel, Gestetner Holdings, Northumbrian Water, Royal Insurance, Sun Alliance and T&N. Its selection of best stocks will change during the year. Last year, its selection provided a 2 per cent gain while the FT All-Share index crashed by 11 per cent.

Mike Ryder Richardson, marketing manager of Save & Prosper, said: "Japan, UK and Latin America are our favoured markets, particularly the UK. "

Richard Royds, the managing director of Mercury Asset Management, said: "We expect double-digit returns in the UK and in emerging markets in the Far East. Although the job of running assets is becoming harder by the day, there are plenty of opportunitiesfor growth."

Simon White, the managing director of Kleinwort Benson Unit Trusts, is equally positive about the recovery in the UK market. "We believe earnings growth in the UK is going to be in the region of 8 to10 per cent, with dividend growth only slightly lower at 9 per cent."

Tony Thomson, chief investment officer at Foreign & Colonial, said: "We are looking for a pleasant surprisein the UK and will watch Japan with interest. The emerging markets, led by Latin America, should also do better than in 1994."

Howard Flight, joint managing director of Guinness Flight, said: "We expect the FT-SE to rise 10 to 12 per cent, with recovery stocks performing in line, but marginal outperformance by smaller companies."

Michael Hart, chairman of Foreign & Colonial Management, said: "In the UK, inflation remains low, and as yet the UK is showing no sign of the balance of payments problems that have caused the economy to crash to a halt in the past.

"We can already see signs of Japan emerging from a long recession, and continue to keep a keen eye on Brazil, which saw a substantial rise in dollar terms in 1994 and could still show further progress as the reform process gets under way."