City legend's share tip, top sector and FTSE 100 prediction for 2017

Which sector are you backing for 2017?

For 2017, I'm backing possibly the most unpopular sector you can get at the moment, which is the banking sector. Here you have to be careful because you have to differentiate around the world. Would I be interested in the Italian banking sector? No, because there won't be much of an Italian banking sector left quite soon I suspect.

Most European banks would be interesting for the medium term. Some of the British banks are quite interesting as well, although I would leave out Royal Bank of Scotland.

But the American banks will certainly be benefiting from the position of actually seeing higher interest rates coming through in the states. Some inflation in there as well, but also the fact they're in a much stronger position with now an economy which is looking relatively mature in its growth.

So, that's a good time actually for the banking market to get some confidence back in.

You famously tipped Anglo American here last year. They've since quadrupled! Which share do you think will thrive in 2017?

This coming year I'm going for a company which has actually been really rather dull in comparison. It was affected by Brexit, and really hasn't had a very good year.

It's Dixons Carphone. Now, this is a company, which if actually if we're going to see maybe a softer Brexit coming through and we actually do see a slowdown but not actually a recession, it could be in a position actually to benefit from this, particularly with a weaker pound. So, 30% down this year, I don't think it deserves to be there. There's a good chance of some recovery.

What advice do you have for income seekers?

It's going to be difficult for income seekers. The traditional thing to do now would be to chase some of the income stocks, but be really rather careful. If you've got companies paying a really dramatically high yield, that's normally being paid just before the dividend gets cut.

No, no, I would actually rather people look at the overall value of capital and income, and if you can put that in a fund so that it becomes more tax efficient, therefore sell the profit you're making and offset that against capital gains tax rather than concern necessarily about just income or capital. I'm very concerned that some of those income investments are now being chased far too high. So, pursuing that could get the income, but you risk your capital.

We know you hate the question, but where do you think the FTSE 100 will finish 2017?

Yes, I really do hate this question, because we never know. It's like playing darts, and I'm very bad at darts. If we look at a reasonable growth in the market, I would expect this time next year to be looking at a market which is about 7,350, so you can almost certainly to say it probably won't be that. But that is actually where I expect the FTSE 100 to be.

But remember the FTSE 100 is not a UK index, it's a reflection of the global economy. And I expect the global economy to continue to grow at about 3%, and, if that's the case, then that's really where the FTSE 100 should be.

Stockmarkets have shrugged off every political storm in 2016. Can they do it again in 2017?

After what we saw in 2016, which I think was quite remarkable. Can the stockmarket's do the same next year? I wouldn't be at all surprised. However, we're going to be in for some shocks.

Where do these shocks occur? Well, of course at the moment it's got a new presidency coming through, we've got a global economy doing quite well, but it's at the dog-end of the growth because over the next few years we'll see that growth start slowing down. So, there will be some shocks, when they're going be though, we don't know.

Share prices are up sharply since Donald Trump won the presidential election. Do you see his presidency as a threat or an opportunity for equities?

It's been fascinating with president-elect Trump because we're in this strange world of phoney war at the moment. He can say anything he likes and it has no real impact because there are no policies yet.

So, actually when he becomes president and some of these ides get turned into legislation and do they become proper policy, that's when the gilt might suddenly come of the presidential trophy, and we realise actually quite how good it is.

Having said that though, policies which are going to infrastructure, policies which are going to be more expenditure, and tax cuts, those are going to be good for markets. However, if he starts going into trade wars and putting up tax barriers for other trade internationally, then that's going to be negative.

But I suspect he won't do that yet. That's something much more likely to occur when the economy starts slowing down. But for the time being he'll be looking on the positive side. So, so far I'll be positive, but be wary not a few years out.

We talked a year ago about a correction in 2016. We got one. Are we in for another in 2017?

This year there will be a correction at some stage. When it's going to be? Well typically, you'd normally find it's during the summer when the volumes go down and you end up with a bit more of an erratic market.

However, I do think there are some opportunities here for correction when you see the concept of policy coming particularly from the American administration turning into actual reality in terms of what happens.

So, a combination of say further rate rises, potentially a slowing economy, but also with rising interest rates and rising inflation, and then maybe policies which aren't quite as generous as were originally predicted.

That could turn into a prefect little storm which could actually be the cue for the markets to come down a bit.

Do you think there's a wall of cash waiting to 'buy the dips' over the next 12 months?

Typically in the market you'll normally find there is a pile, or a wall of cash waiting to be deployed. But last year what we saw was an awful lot of money being taken out of the markets, so it's going to take quite some confidence for people to come back in and be reassured that it's worth it.

But people ought to take advantage. Where there are dips, frankly these will be worth buying. If you see a bargain, go in and get it. They happen quite rarely.

Should investors fear or welcome an almost inevitable surge in inflation?

Inflation is going to be brand new to many people. We've almost had an entire generation who've never seen inflation of any particular size. So we have to be careful about what its impact is going to be.

Now, typically that can be quite for equities in a way, but it depends how much inflation you're going to be getting. So, in terms of portfolios we need to be very careful.

People need to be wary of some of the inflation bonds, because if the bond market's going to be affected that will going to affect those inflation bonds as well. So you need to find those equities which are capable of growing with inflation, so overall the economy needs some inflation, the government's want inflation because it will erode some of the debt. So a little bit of inflation is quite good, just make sure it doesn't get out of control.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.