Stock markets are poised for a resurgence in 2009 after what is likely to be a shaky start to the new year following brutal losses in the past 12 months, leading institutions predict.

Despite the still-deepening global recession, stockpickers are defying the economic gloom to back high-stakes bets that shares in the West’s main markets will now rally.

Equity strategists and traders are pinning their hopes on past trends that have seen stock markets rally well before recessions end, as well as on further, aggressive action expected from governments and central banks earlier in the year as they strive to limit the scale of the economic slump.

In London, blue chip shares are tipped to make modest gains of about 6 per cent during the new year, polling among leading investment groups by Reuters suggests.

The gains for the FTSE 100 index are expected after investors last year endured the worst losses since the benchmark was created in 1985, with the index ending more than 31 per cent down. In 2007, the FTSE also rose by a meagre 3.8 per cent, after climbing by 11 per cent in 2006.

A glimmer of support for strategists’ bets on a rebound in the London market is offered by the FTSE 100’s improved performance since it sank to 3,665.2 in October in the turmoil following the collapse of Lehman Brothers. Since then, the FTSE has climbed by more than a fifth to end 2008 at 4,434.17.

“History teaches us that a new bull market virtually always begins before the economic recovery becomes apparent. I think the FTSE is going to fly in 2009,” David Schwartz, the prominent stock market historian, said. The independent forecaster expects the index to climb to 5,300 this year.

Morgan Stanley, the investment bank, suggested that this year could do even better, if it follows the pattern of 1975, when share prices soared 50 per cent even though corporate profits fell 40 per cent betwen December 1974 and April 1976, although that would depend on “highly effective” monetary and fiscal policy.

Investors will be hoping that London shares will take further heart at the start of the new year from another big cut in interest rates expected from the Bank of England next week.

After the past two months’ drastic 2.5 point cuts in rates to an historic low of just 2 per cent, the Bank is set to reduce them next week to levels never seen in its 314-year history.

However, despite the optimism, the FTSE 100 is still tipped to be among the weakest performing of the West’s main stock markets, according to last month’s Reuters poll. In the United States, where the New York market suffered its worst year since 1931, with the benchmark Dow Jones industrial average shedding 33.8 per cent, investors are also hoping that the incoming Obama Administration will give a new impetus to shares.

Strategists are predicting that a 2009 fightback by the New York equity markets will see US blue chips in the broad-based S&P 500 index jump by almost 11 per cent, with the Dow, which includes 30 of America’s largest companies, tipped to rally by more than 9 per cent.

Continental bourses are also tipped to make substantial gains, with forecasters predicting a 12 per cent rise in France’s CAC40 and a 9 per cent gain for Germany’s Dax. In Japan, Tokyo’s Nikkei index is tipped to rise by more than 7 per cent.

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