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LONDON: SHARES AGONY FOR MILLIONS
DAILY MAIL September 10, 2001
SMALL investors were warned yesterday that they are facing five years of shrinking savings. Plunging stock markets will hit many millions of people through pension schemes, endowments and savings accounts.
City analysts said the 'glory days' of savers cashing in on a buoyant stock market are over.
Share prices in both London and New York recorded sharp falls last week and there are fears that more bad news is on the way. Worries about the world economy are likely to send the FTSE-100 index of the most important companies in the UK as low as 4,500 - a far cry from its high of nearly 7,000 in 1999 and well down on its 5,070 value on Friday.
Investment guru Tony Dye warned yesterday that shares may not keep pace with inflation for the next five years. 'We think we're in for a pretty tough time for a long period,' said Mr Dye, the former chief investment officer of top fund manager Phillips and Drew. 'Investors should put on their tin hats.'
Mr Dye, who left Phillips and Drew after he refused to buy into the boom in technology shares and now runs his own fund management group, described recent runaway investment returns as 'the most excessive financial bubble in history'. His stark prediction will dismay millions of people who have put their money into the City and could see much of it wiped out.
Over half the wealth owned by UK households is directly or indirectly in stocks and shares, including millions of pension schemes, endowments, life assurances, PEPs and Individual Savings Accounts.
Collapsing share prices have already slashed the total by GBP 300 billion in the last 12 months- equivalent to GBP 5,000 for every man, woman and child in the country.
Some holders of endowment mortgages have been warned that their investment may not cover their home loan, while many pension schemes are facing cash shortfalls.
The latest predictions will raise fears that Britain is set for a full-blown recession. Plunging investment returns would hit consumer confidence and put an end to booming High Street sales.
The collapse comes after years of soaring share prices, with booming economies around the world largely driven by hi-tech companies. Between the beginning of 1997 and the end of 1999, UK shares rose a staggering 70 per cent -or almost 3,000 FTSE points. Some investors gained as much as 20 per cent a year more than inflation and the continued rises tempted many newcomers into the stock market.
Some 12 million people now have pensions heavily linked to stocks and shares, and millions more have savings tied to shares in schemes such as PEPs, unit trusts and ISAs. Many are 'tracker' funds directly following stock market movements.
There are also six million households relying on endowments to pay off their mortgages. Almost all are likely to be badly hit by falling share prices.
The FTSE 100 index reached an all-time high of 6,930.2 in December 1999, but has fallen back as the technology bubble burst. On Friday it plummeted 134 points, or 2.6 per cent, to 5,070.3 - more than 270 points down on the week and the lowest for three years. Analysts believe it will carry on down through the 5,000 mark this week.
Today's trading is expected to reflect the dramatic falls on Wall Street on Friday, after the UK market closed. The Dow Jones shed 235 points to close at 9,606 following disappointment at a sharp rise in the U.S. unemployment rate.
Wall Street is expected to fall further this week as investors anticipate more bad news. On Friday, figures will be released on the state of U.S. retail sales, consumer confidence and industrial production.
Experts fear the U.S. gloom will spread to the UK, where investors' resolve will also be tested by a stream of economic data, including unemployment figures for August. The global slowdown has already sent UK manufacturing into recession and technology companies have struggled to cope.
Other sectors are also in trouble and banks are suffering heavily because of worries that they could be saddled with bad debts. Jeremy Batstone, head of research at NatWest Stockbrokers, said: 'This is a terrible environment for the long-term investor. It is hard to see how shares will recover.'
-- Swissrose (firstname.lastname@example.org), September 10, 2001