Investors are just too jolly

published 31 October 2005

I am beginning to feel a grudging respect for Abby Joseph Cohen, Goldman Sachs's equity market cheerleader. The woman has clearly never had a pessimistic thought in her life. At the beginning of every calendar year, she announces that the market is undervalued. She did it through most of the 1990s (including 1999) and has done so every year since ("I'm a bull," she said in 2000). So this year, her announcement should come as no surprise. Right now, says Cohen, "the market remains undervalued because of nervousness over the election, possible terrorism and uneven global growth." But investors will now "capitalise on a perception of improving conditions."

Every bit of news is a plus for the stockmarket in Cohen's mind. Every year will be an up year. And every day brings new reasons for optimism. She's got to be taking some kind of mood enhancer, given the uncertainties surrounding the global economy and the fact that the US market is quite clearly not under, but overvalued. But she isn't alone. "Stock prices could actually forge ahead solidly, if not spectacularly," said the International Herald Tribune this week. "We're not gung ho," said one strategist interviewed, "we're realistic markets have been pricing in a more pessimistic outlook than we think is warranted." But I can't see any signs of pessimism at all - instead, every single sentiment survey seems to show most are on the same high as Cohen. Investors are as bubbly as they were in the late 1990s. The huge majority of analysts think things will get better in 2005, and so do the great majority of private investors, both in the UK and in the US. They believe the dollar will fall, with no particularly negative consequences; they believe shares will rise, as companies make more profit; they think rates and inflation will stay low; and most of all, they think Alan Greenspan and Gordon Brown actually control their economies and are capable of making sure nothing goes wrong.

Will they be right? We can't be sure. It looks to me as though this might be a year in which we can profit from mainstream analysts' recurring mistakes rather than from their good judgement. And one in which we might pay more attention to what economists call the "stopped clock club" - the analysts who, unlike Cohen, see the worst in everything. Their day may be about to come. Still, all is not lost, there's still value to be found in the UK markets for careful stockpickers

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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.