CONCERNS over the deteriorating UK economic picture, the eurozone debt crisis and talk of a global recession made it a volatile time for stock market punters in 2010 and another wild ride is seen during the next 12 months.
Median forecasts of about 20 equity strategists in a Reuters survey taken a few weeks ago predicted the London share market's FTSE-100 index would trade at 5400 points by mid-2012.
The poll result was lower than that in a September survey, which showed the Footsie reaching 5550 in mid-2012, dramatically below the 6300 predicted in a June poll.
"The main headwind with respect to the 2012 stock market outlook would normally be a fairly straightforward process, however the European sovereign debt situation will be, and is, a massive cloud to the overall economic outlook," said Michael Hewson, market analyst at CMC Markets in London.
Mr Hewson said a quick solution to the euro bloc debacle could see a rally towards late November highs around 5600, but the likelier outcome would be more uncertainty and "we haven't even talked about the nuclear option that a eurozone break up would have on markets".
The Organisation for Economic Co-operation and Development issued a stark warning in late November, saying the euro area's debt crisis had become the biggest threat to the global economy and a break up of the currency zone can no longer be ruled out.
"Expectations for corporate earnings are currently too high and will soon be revised down sharply on profit warnings as consumers hunker down. This should put a lid on rallies going into 2012," said David Morrison, market strategist at GFT Global.
Economists recently polled by Reuters said there was now a 60% likelihood of a recession in Europe and 40% chance of one in the UK.
Despite the heightened volatility in stock markets experienced since the summer, Citigroup Global Markets has maintained its 2012 year-end target price for the Footsie at 6200 points.
Citi expects UK earnings to fall by an average 15% next year, meaning the market is trading at 12 times 2012 top-down forecasts (this is in line with the last decade's average but below the long-run average multiple of 14).
Nevertheless 2012 is expected to be a tough earnings year: "Below average or average multiple for trough earnings is an attractive entry point in our view."
Citi's rival, Goldman Sachs, believes the UK blue-chip barometer could sink to 4700 in early 2011 before climbing back to 5400 within six months and rallying to 5800 by the end of 2012.
"We believe equities across Europe need to discount a deeper economic downturn and more downward earnings revisions," said strategist Sharon Bell. "However, we do expect a trough at some point in early 2012."
At Bank of America Merrill Lynch, Gary Baker said the Footsie was likely to continue outperforming other European stock indices in 2012 as the eurozone is wracked by its unending debt woes. He said the UK index's exposure to the more robust US economy, and defensive stocks such as pharmaceuticals, also gave it a strong defensive quality. The index is dominated by other sectors that Mr Baker likes –energy, telecoms and basic materials.
Analysts at Credit Suisse have lowered their 2012 year-end target for the UK benchmark index to 6100 from 6250. They also warned problems in the eurozone would persist in the new year.
Analysts at brokers Charles Stanley said the London market's heavyweight mining and oil and gas sectors should prove resilient in 2012 but the forecast for a strong rebound by banks and other big financials profitability looks vulnerable to downgrades.
"Our FTSE-100 end-2012 target is 5800 (bull case 6400, bear case 4800) and we see further weakness in early 2012 as providing a good entry point for both short-term tactical and longer-term strategic investors," the Charles Stanley team said in a research note.
Colin McLean of SVM Asset Management was downbeat about the Footsie's prospects for 2012.
He said: "The FTSE-100 could end 2012 lower, as the global economy cools and deleveraging in the eurozone proves painful. Commodity prices could be a casualty of this, and the Foostie has more exposure than most markets to miners.
"The blue-chip index could fall to 4800, but there will be many winners within that."
A number of City strategists who provided forecasts in past years said the fragile global economic situation and the eurozone debt debacle made predictions too difficult this time.
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