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High unemployment, union strikes, tough trading conditions on the high street and political uncertainty – all symptoms of a chilly 2010 UK market outlook. It is easy to get caught up in the bleak headlines as we experience arctic weather conditions and struggle to return to work after the holidays. It is also easy to forget that we have seen similar times before.

Just over thirty years ago the original ‘winter of discontent’ hit the UK with some of the coldest weather on record and tens of thousands of public sector workers taking part in strikes, including rubbish collectors, hospital workers, grave diggers and airport staff. Approximately 4.7% of the work-force were unemployed and whilst the way we measure unemployment has changed, the claimant count remains roughly the same today - the Aug 09 - Oct 09 figure of 7.9% remains a worryingly high figure.

In 1979 we also had a labour government struggling to stay in office which finally lost a confidence motion, leading to a general election that was duly won by the Conservative party. Fast forward thirty years or so and whilst we have yet to see the same severity levels of industrial action, January 2010 is hardly short of crisis or political unrest. With the country struggling to withstand the winter weather, talk of regulating the national grid to ensure there is enough gas to fuel the country, splits in the Labour government and the political parties kicking-off their campaigns ahead of a spring or summer general election, it is all sounding rather familiar.

So will markets freeze during this uncertainty and see lukewarm trading conditions throughout 2010 or can we expect to see things warming up as the UK pulls out of recession in a pivotal election year?

Continued uncertainty on how Labour and the Conservatives will tackle Britain’s chilling budget deficit of £178billion has hit sterling over the last month falling 3% from $1.65 to $1.60. On an equities basis, generally speaking some commentators would suggest that markets tend to suffer in a close-run election contest and historically share prices have declined by an average of 15% in the six months leading up to a general election.

All of this suggests that the smart investor should be increasing the heat on their portfolio to ward off the winter freeze and get ready for whatever market weather 2010 brings. Despite these challenging times there was some good news this week where retailers reported their best December growth for eight years with 4.2% rise in like-for-like sales. Clothing, internet and food retailers were the main winners on the high street and while this news was warmly received commentators remain tentative that this may only be a temporary boost on the long road to recovery.

The old adage of holding a fully diversified portfolio in times of uncertainty can generally be considered a sensible approach, especially after the market volatility of the past 18 months. Not only ensuring you have a fully diversified equities portfolio but more broadly having exposure to multiple asset classes including funds, equities, fixed income products and global currencies.

If the UK market does indeed have a chilly outlook in the early part of 2010 then a defensively constructed portfolio might weather the storm better than one with a more opportunistic outlook on markets. You will generally find sectors such as telecoms and pharmaceuticals in a defensive portfolio. Why not review the performance of these sectors by accessing our research centre?

Alternatively if you are looking to speculate on the performance of sterling against the dollar and other major currencies you can do so on our BARXdirect: FX platform, supported by research from Barclays Capital. FX dealing is for experienced investors; you can lose more than you invest.

So, if you find yourself at the start of the New Year reviewing your portfolio and investment goals for the weeks and months ahead, login to our Research Centre where you will find all the tools and information you need to help make informed decisions. As ever though, please bear in mind that any investments can lose as well as gain value.

M&A news thaws a frosty outlook for the New Year

Looking back on the decade we have just left, the ‘noughties’ were notable for some significant Mergers and Acquisitions activity, particularly in the early years, which saw M&A deals such as America Online with Time Warner and Glaxo Welcome with SmithKline Beecham. However Mergers & Acquisition volumes were hit hard in 2009 as a result of the financial crisis and the freezing up of the credit markets. Now though, early indicators already suggest that 2010 may be a year for the revival of M&A. Equity valuations, rehabilitated credit markets and economic recovery all provide an ideal environment for a growth in M&A activity.

Historically, M&A activity has been closely correlated to the state of equity markets and some chief executives may want more clarity before committing themselves to any significant deals. However a cautious revival is expected and the market has already buoyed as a result of the first major M&A deal of the year (Swiss food group Nestlé said it was selling a majority stake in its eyecare unit Alcon to Swiss drugmaker Novartis). The FTSE has started the year on a positive note, rising 87 points by close of Market 4 January, despite suspicions that the rally seen in the final weeks of 2009 would fade come the New Year.

At the start of the week the FTSE World index also rose 1.5 per cent to 344.4, a new 15-month high, as the M&A sunshine brightened what is generally considered the northern hemisphere’s most depressing day – a post-festive, back-to-work Monday.
Indeed the market has continued to offer a respite from the cold, with the FTSE 100 staying above the 5500 point mark for two consecutive days for the first time since the collapse of Lehman Brothers in September 2008.

Login to our Research Centre to monitor M&A news and potential market reaction or investigate companies that might be a potential M&A target or acquirer. Alternatively if you want to keep an eye on the Barclays Wealth view of M&A activity login to our research centre and look out for our monthly investment strategy publication Compass.

You should be aware of the risks involved in investing in stocks associated with M&A activity. The value of these stocks can quickly fall as well as rise and you may receive back less than you invest.