Article Abstract:
United Kingdom equities are cheap in relation to government securities (gilts), according to Lehman Brothers' Ian Scott. Equities could be seen as more risky and this could account for their high earnings yield. The risk premium may have increased as a result of increased volatility of stock markets world wide. Earnings could also fall, which would affect the earnings yield. Scott sees earnings as unlikely to rise by as much as some forecasts, but he still sees stock prices as likely to rise. Charterhouse Tilney's Richard Jeffrey fears that inflation and gilts yields could rise in 1998 and stock prices could fall.
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Article Abstract:
Guaranteed stock market investments have disadvantages which are not immediately apparent. They offer a guarantee that investors will not lose their capital after five years, but this is easily achieved with investments in blue chip shares on the UK stock market. They do not allow investors to benefit from share dividends and they are inflexible so investors cannot sell when prices are high. Investors will fund their capital has been eroded by inflation if they only receive their money back, and could obtain a better return from a building society if they only obtain a small sum in addition to their capital.
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Article Abstract:
UK interest rates are likely to rise in 1997, which could depress share prices, but corporate earnings are likely to grow, which will tend to boost shares. The net impact on shares of these contradictory forces is not easy to assess. Share prices usually tend to rise when interest rates rise only when shares were initially undervalued and when bond yields are dropping. UK shares do not appear undervalued, not do bond yields appear likely to drop. UK corporate taxes may also rise if there is a change in government, and this would affect earnings.
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