Markets have enjoyed a period of pretty much unbroken growth since March of last year and so the reversal of this trend during January was not entirely unexpected and, indeed, is seen as welcome in many quarters.

The reason for this is that markets were looking as if they had got a little bit ahead of themselves and, whilst there remains a good deal of optimism about the profitability of companies across the globe, valuations were beginning to get a little extended on historic earnings and equities were beginning to look a little expensive compared to fixed interest securities.

On the whole, the consensus is that equity markets will grow during 2010 but it may well be that it is necessary to identify specific stocks for the best returns rather than playing the market as a whole.

The UK economy moved, rather anaemically, into growth in the last quarter of 2009 but there remains the real risk that this will not be the end of our problems with the consumer and government spending, combined, representing approximately 88% of our economy and both are likely to come under a great deal of pressure over the next 12 months.  Whilst there is a fair bit of optimism around in corporate UK and in the market, it is increasingly likely that 2010 will prove to be a good year for stock pickers. 

There has been a flight to stock of a dubious quality over the last 10 months or so and, to some extent, this has resulted in a two tier market now with the more defensive areas of pharmaceuticals, utilities, tobaccos etc.. looking much better value than some cyclical areas of the markets which have bounced very sharply.

There is an election due in this country before the end of June and markets always fall at some point after an election has taken place.  This isn’t necessarily immediately but a point lower than the starting position is generally achieved.  Markets are going to be quite volatile this year, although the trend will probably be in the right direction but such a correction is to be looked out for.

In the United States, growth of 7% or 8% has been predicted in some quarters which seems pretty unlikely at face value although the last quarter showed growth of over 5% on an annualised basis.  It does appear that the structural position of their economy suggests growth will return quite strongly, certainly compared to our own economy, and this is likely to be positive for the world as a whole.  United States is still, by some way, the largest economy in the world.

Far Eastern and Emerging markets have had a very good run and this is predicated on strongly growing economies.  This trend is likely to continue during 2010 but there is a view that stockmarkets have got a little overvalued at present and performance may be a little more muted than in the United States.

European markets will be patchy and there is likely to be some austerity measures taken in countries such as Greece which, now they are part of the Euro zone, cannot devalue their currency to ease the economic pressures as, for example, we can in the United Kingdom.  Portugal, Ireland and Spain may find themselves in the same situation.

On the other hand, France and Germany look to be in a better position and prospects for good stock performance in the region will likely be based on this area. 

At the beginning of any year, there is always some commentator prepared to tip Japan as likely to have a very good year but there have been several members of this camp this year based largely on the fact that the valuation of the market is better than much of the world, with no quantitative easing to reverse and a growing economy very close to hand, notably in China, where a lot of trade is expected. 

Gilts may well have a difficult year during 2010 although no one is expecting any large scale falls in value, but some increase in yields is on the cards with an end to QE and some issuance likely.  It is thought that Corporate Bonds will be insulated to some degree from this and both investment grade and high yield bonds are likely to post positive returns during this year, although in the case of the former class, this may be not much more than the coupon.

Some commentators are pushing Property at present but it is thought that this is still a little early with only prime office property in London likely to attract overseas investment and the remainder of the market remaining in the doldrums against a weak economy.

Equities remain the preferred asset class, therefore, with overseas markets likely to do better than the UK and, in many cases, defensive stocks offering the best value.