Legal & General Investment Management’s Georgina Taylor believes 2010 will be a far tougher year for UK equities compared with 2009.
The equity strategist says last year's recovery meant equity investors were rewarded regardless of where in the market they put their money.
Taylor predicts a more subdued economic outlook in 2010 with equity gains likely to be far more modest, but adds the distinction between the economy and the equity market has never been more pronounced.
"It is important to note the UK equity market performance is no longer simply dependent on the UK economy," Taylor says. "More than 70% of UK FTSE 350 company sales now come from outside the UK, so the fortunes and earning power of UK companies are greatly influenced by factors such as the strength of the global economy and the value of sterling."
Taylor says some UK companies will still be exposed to a number of risks, however, including the fragility of the UK economy, high Government debt levels pushing up the "risk free rate" and a rise in the cost of capital across the private sector.
Yet despite these dangers, she says there will still be opportunities for attractive returns from those UK companies which have pared costs during the downturn and are now likely to generate cash. Larger companies with greater exposure to emerging markets are also likely to outperform, says Taylor.
"Whereas in 2009 it was a case of just investing in the market, spotting these companies will be the key to earning good investment returns in 2010," she adds.
