And the closing Footsie number will be...

FORECASTING IS a hazardous exercise but each year the City's army of stock market strategists puts its collective head on the chopping block to offer thoughts about the direction of shares.

Complaints that the coming 12 months are particularly difficult to predict invariably accompany the forecasts. This year is no exception.

Even so the estimates, some confident but mostly hesitant, are again flowing. Many expect blue chips to make further headway although there seems to be little support for under-performing second and third liners, with talk that it could be years before they return to the heart of the stock market.

What is clear is that company profits are unlikely to show much in the way of growth. Yet few dividends are expected to be cut or pegged.

So, on the surface, predictions that Footsie could end 1999 around the 6,800 points mark have a rather unreal ring to them. Yet the weight-of- money argument, expectations that New York will at least edge further ahead, and growing investor confidence are likely to fuel share progress.

As Legal & General's David Rough says: "Confidence on both sides of the Atlantic will pick up strongly as governments and businesses are seen by investors as having successfully managed and weathered what many commentators expected to be the worst period since the great depression."

There should be some economic recovery, probably in the second half of the year, and lower base rates, which could fall to 5 per cent, should help hard-pressed exporters. However, the arrival of the euro could distort the performance of the pound.

With little or even no earnings growth mega-mergers are expected to continue as companies combine - cuddling together to keep warm - to get more marketing muscle and cut costs.

Low inflation should also underpin equities, and falling interest rates should prompt movement from deposits into shares as investors, big and small, seek to retain and even increase yields.

The birth of Euroland, with 11 countries using the euro as currency, is not expected to have much short-term influence on the British investment scene. As time goes on what will eventually be the second largest stock market in the world will, of course, impact on London with one possibility being a bigger two-way investment flow.

Certainly, the growing temptation for British fund managers to invest in European stocks will increase. But there is every chance that the greater cash flow will be in the opposite direction with more British stocks attracting Continental interest.

Possibly the most worrying aspect of the forecasting round is the failure of the stock market's under card to gain much support. The Small Cap index has under-performed the All Share index by a staggering 40 per cent in two years. Richard Jeffrey at Charterhouse Tilney is one of the few spotting a glimmer of hope - he reckons there could be something of a revival in the middle of the year.

At this time a year ago, little hope was held out for the little'uns. The general view was that the Lords of Footsie would hit the high spots but the rest would dilly and dally and miss the party. Despite achieving new highs in the first half of the year, the stock market under- card performed in line with expectations.

The ragged and sad under- card display should, I feel, worry the Stock Exchange powers. The yawning gap between the powerful and the rest could be the stock market's Achilles heel, creating growing disenchantment among small investors who provide much of the investment seed corn, as well as unsettling small companies whose management perceive their capitalisation to be derisory.

The most optimistic Footsie forecast I have come across is HSBC's 6,800 points for the year end. Chase Manhattan is shrouded in gloom, shooting for 5,400. Most are over 6,000 with the consensus suggesting the millennium will start with the Footsie at 6,250.

Among the other more adventurous souls are SG Securities on 6,700; Warburg Dillon Read 6,600; ABN Amro and Dresdner Kleinwort Benson both at 6,500 and Lehman Brothers 6,400. A clutch on 6,300 include BT Alex.Brown, L&G and Merrill Lynch.

My hunch is that the strategists are being overly cautious. When the millennium arrives I would hope to see Footsie above 7,000 - a level BT Alex.Brown suggest for the following December. My forecast for the year just ending was 5,600.

There is a general acceptance that stock market conditions will be particularly volatile. This will stem from the overall investment scene as well as the sharp fluctuations often produced by trading on the computerised order book. L&G, for example, see the index swinging between 6,500 and 5,200.

Still, predicting the closing 1999 Footsie is a precise science that it is unrealistic to expect to achieve. As L&G suggest: "A few hundred points plus or minus makes a lot of difference to the total return achieved in 1998 and to the prospective return of 1999.

"But, in the real scheme of things, the direction of markets is far more important than their absolute value on one day at the end of the year."