‘The Insider’

After a year of flat/negative returns many investors will be glad to see the back of 2002 and will be hoping for a more lively 2003.

But what will this year hold in store for investors and what are the main factors that will affect the UK economy over the next 12 months.?

Uncertainty

If one word sums up the view of the professional commentators out there it's ‘uncertainty’. With factors such as unstable oil prices and a possible war with Iraq bearing down, many are unwilling to commit to specific predictions. There seems to be very little commitment over the level of the FTSE 100 for the next 12 months. Many still have egg on their face from 2002, with the predictions looking mighty out of line with the reality.

Instead of trying to predict the level of the market, we're going to summarise some of the main sectors of the Stock Market and point out the main factors that will affect the share prices in each sector.

The Economy

In 2002 the property market had a serious influence on the UK economy, with rising house prices fuelling consumer spending and bolstering confidence. Low interest rates encouraged people to re-mortgage and capital raise to fund that extra special holiday, or the new kitchen.

Commentators doubt that the UK is in for a property crash like that of the 80's, but would not be surprised to see a slow down in the housing market in 2003. Low interest rates are predicted to help the market to sustain current prices, but overall prices and demand are expected to level out.

Consumers in 2002 did take a great deal more debt, and factors such as a rise in interest rates and unemployment would make them think twice about increasing their liabilities. 

Banks

Most of the big banks have been lending large amounts on loans and credit cards and may be starting to feel a little exposed. They have been extremely keen to open facilities to consumers to fuel spending habits, such as overdrafts and credit cards.

Factors already mentioned in the section above could impact upon the large financial institutions, so do not be surprised to see banks tightening their belts around lending policy in 2003.

Institutions like Abbey National and Lloyds TSB, have bought Life Assurance Companies in the past few years, and may feel the pinch if they're required to continue pumping funds to keep these subsidiaries solvent. 

Insurance

With the falling markets, many Life Assurance Companies have found it difficult to keep their heads above water. It is a requirement by the Financial Services Authority that insurance companies are able to show adequate reserves. With the FTSE falling in 2003, some of these companies became forced sellers of stocks and shares.

Confidence in the products that these companies sell are at an all time low, with funds like 'With Profits' being exposed as not quite as safe as the consumer was led to believe. Policyholders can expect further bonus cuts in 2003 and rising exit penalties.

It would no surprise to see a few big name providers bow out of writing new business in 2003, and perhaps one or two major consolidations. In a few years time, it would not be impossible to see the Life Assurance industry looking very much like banking. Maybe four major brands controlling the sector. 

Media

One of the most exciting sectors for the market promises to be media. With the new communications bill coming into play in 2003, there is likely to be a great deal of consolidation.

The long awaited marriage of Granada and Carlton will possibly mean that the combined ITV Company will be able to make progress after their disasters of the past few years. Advertising sales are starting to show some early green shoots, but this area will be fragile to any downturn in the general economy.

The Radio Industry is a widely sprawling beast, but again the Communications Bill will allow some of the major players in this industry to strengthen their portfolio of stations and companies. Media is an area promising excitement in 2003.

Leisure

The travel industry has suffered badly since September 11th, with many still reluctant to travel. The recovery of the collapsed 'My Travel' in the UK will be key to the success of this sector in 2003.

Consumers have become very price sensitive when shopping for their holidays, with many preferring to take a cheap flight, and arrange their own accommodation. 2003 will see tough times ahead for tour operators.

The fitness industry is going through massive changes at the moment, with many companies withdrawing from the stock market all together. Commentators seem worried about any dip in consumer spending affecting the higher end of the fitness market, with companies like 'Holmes Place' and 'Fitness First' likely to suffer. 

Retailers

The early signs from Christmas 2002 are not encouraging, as many consumers appear to have stayed away before the 25th. The general impression is that they have been holding onto their pennies in preparation for a ‘blood bath’ January sale.

The more likely explanation is that they are starting to prepare themselves for tougher times and have realised that they cannot continue to spend on the 'never never'. Many Credit Cards will be approaching their limits and as previously discussed, the housing market will play a key part in consumer confidence in 2003.

Telecoms

Is 2003 the year that the Telecom sector finally starts to pull out of its nosedive? There have been quite a few high profile casualties, with bondholders swapping their debt for shares.

This was at the expense of private shareholders, so confidence is pretty low from an investment perspective. The general feeling is that the whole sector has its work cut out for success.

Many companies will be under new leadership in 2003, with Vodafone, Orange and Cable and Wireless expecting, or already boasting, new senior management. 

Outlook

Our general prediction for 2003, is not a record breaking year.

As you can see there's not a great deal of good news to report at this end of 2003. The best we can hope for is an improved update at the half year in July.

Slow and steady growth for both the Stock Market and property market affecting consumer confidence. Prices stabilising in property hot spots across the UK, causing a slow down in mortgage borrowing.

Many sectors like retail, travel and leisure becoming extremely competitive for market share in a smaller market place. 

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