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Effects of credit crunch predicted to continue

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UK stock market volatility will persist into the New Year, according to fund manager New Star’s market predictions for 2008.

Returns from developed markets will remain muted and while some gains are expected to be found in global equities, these will not be easily made, according to Mark Harris, spokesperson for New Star. He said: “UK equity market performance is likely to remain muted, with returns of 8-10%. The financial sector is likely to correct further until the market can get some certainty over the full impact of the credit crunch. At that stage, financial stocks may represent an excellent opportunity and we may look to buy.”

As for the US markets, Harris expects investors to experience further corrections as the increase in earnings which drove market performance upwards since 2003 has now begun to recede. Emerging markets, however, will continue to grow. He added: “China has overtaken the US to become the biggest contributor to growth this year. Despite recent market falls, earnings growth figures for Asia and emerging markets elsewhere remain among the strongest in the world. China’s growth is unlikely to be significantly impaired by US credit market woes and any economic slowdown. Global economic growth, while it may slow, should therefore remain relatively robust.”

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