Corporate confidence rising with valuations

The UK economy is likely to have shrunk nearly 5% in 2009 yet many UK firms have shown resilient profitability.

Not only have costs been tightly managed but the bulk of listed company earnings are generated from outside UK Plc. The likes of Glaxo, Rio and HSBC can grow profits irrespective of what happens domestically and so can their dividends. As such, the UK market offers a prospective yield of over 3.5% and rising. This is attractive set against base rates of just 0.5%. Gilts now yield just over 4%. Higher bond yields may be the main danger to the market in 2010. The UK budget deficit in 2009/10 will be around 13% of GDP, the worst figure in peace time. There is a risk of a sovereign credit do...