Legal & General predict tricky year for UK equities

At a Fundamentals briefing, LGIM Equity Strategist, Georgina Taylor, indicated that 2010 is likely to be a far trickier year for UK equity investors than 2009.

"Last year UK equity investors were rewarded for choosing to invest in equities, almost regardless of which part of the market they placed their money. This was because equities staged a broad-based recovery from March onwards following the heavy sell-off which occurred as a result of the credit crunch".

Predicting a more subdued economic outlook in 2010, Georgina explained that equity gains for the market as a whole are likely to be far more modest. However, Georgina also distinguished between the economy and the equity market.

"It is important also to note that the UK equity market performance is no longer simply dependent on the UK economy. More than 70% of UK FTSE 350 company sales now come from outside the UK. So the fortunes and earning power of UK companies are greatly influenced by factors such as the strength of the global economy and the value of sterling."

Georgina highlighted a number of risks which UK companies face including:

- The fragility of the UK recovery

- High Government debt levels, pushing up the ‘risk free rate'

- A rise in the cost of capital across the private sector.

Despite these risks, Georgina stated that there will be opportunities for attractive returns from those UK companies who have pared costs during the downturn and are now likely to be highly cash-generative. In addition, larger companies with greater exposure to the expected higher growth emerging markets are likely to outperform, according to Georgina.

"Where as in 2009 it was a case of just investing in the market, spotting these companies will be the key to earning good investment returns in 2010."