Friday 25 January 2008

UK investors begin to Jump ship

As the pound has plunged and stocks are officially in a bear market, is the still hope of finding a profit?

Some of the City’s top professionals are betting that sterling will slide this year, marking Britain as one of the least attractive world markets during 2008 and throwing up better opportunities overseas.

The news came as UK stocks officially entered bear market territory earlier this month, according to stock-market historian David Schwartz.

The FTSE 250 index of medium-sized firms – a better indicator for the state of the British economy than the main FTSE 100 index because it contains more domestic businesses has now dropped 21% since its peak in early June 2007. The Footsie is down 6% since then and 4% since the start of the year.

British stocks, particularly retailers and housebuilders, have slumped amid fears that the UK could be one of the bigest casualties of the global economic slowdown.

The Bank of England is expected to cut interest rates at least twice this year to 5% or lower to prop up the ailing economy, despite keeping them on hold last week. This is putting pressure on the pound.

Jim O’Neil, chief economist at Goldman Sachs, the investment bank, said earlier this month that one of his top trades of 2008 was to bet against the pound.

He also highlighted: “Last month saw close to the biggest single monthly drop of the pound since the exit from the exchange rate mechanism at the start of the 1990s, and suggests that the world is developing a different view of the UK. This seems justified as there are lots of reasons to be bearish about the pound.”

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