Equity analysts predict steady but unspectacular growth

The City's leading equity strategists are predicting a year of steady growth for the FTSE 100 in 2005 - after a 7.17% gain in 2004.

Those analysts who were prepared to make their forecasts as 2004 was coming to a close - and there were many who were not - expect the index of blue chip stocks to reach some 5100 by the end of next year.

Over the past 12 months the FTSE 100 has climbed from 4476.87 to 4798.06, and is now back to the levels it stood at in the aftermath of the terrorist attacks on the World Trade Centre in September 2001, after dipping to 3491 at the beginning of 2003.

"We expect equities to make steady but not spectacular progress. We foresee good returns to shareholders via dividend growth and mergers and acquisitions activity," said Hilary Cook, director of investment strategy at Barclays stockbrokers.

Her counterparts at investment bank Goldman Sachs are not making a specific forecast but predict that the FTSE could gain 10%. This puts their estimate at 5278.

Goldman bases this prediction on the "greater clarity on the economic front, and people have a better grasp on the dollar". Most of the other major investment banks will not release their forecasts until the new year.

Deutsche Bank, however, expects higher growth. Charles de Boissezon, European equity strategist at the German bank, said: "The UK economy is robust. The earnings momentum of the UK economy is strong. We foresee no collapse in the housing market.

"Instead there will be a normalisation of housing prices, with maybe a 10-15 % decrease.

"Interest rates will stay on hold for the first half of the year and may ease towards the end. There are also a number of attractive growth themes to play in the UK markets."

Another strategist who believes the market looks "robust" is Graham Secker, UK equity strategist for Morgan Stanley.

"We have forecast that the FTSE will rise to around 5100. Economic growth both at home and abroad will be robust, growing at trend rate. Historically, equities perform well when economic growth is close to trend," he said.

"This growth will increase investor confidence as well as business confidence."

Lehman Brothers are forecasting the same increase as Morgan Stanley.

A spokesman said: "In December 2003 we forecast end 2004 FTSE 100 to be 4900, it is currently 4800. We think the market will rally further in 2005 because valuations on equities are relatively low, especially compared with the rates of interest available from gilts and bank deposits.

"The dividend yield is currently 3%, with another 1% coming back to shareholders in the form of buybacks. This is very competitive when compared with real yields on index-linked gilts of less than 2%. Earnings in the UK should continue to grow in 2005 by 11%," he said.

FTSE forecast

What the strategists expect

Barclays Stockbrokers 5000

Lehman Brothers 5100

Goldman Sachs 5278 (10%)

Deutsche Bank 5350

CSFB 5000

SG 5370 (12%)

Morgan Stanley 5100 (8%)