NEIL VEITCH, manager of the SVM UK Opportunities fund on UK Growth
Markets lurched downwards in June, only to rebound strongly in July. August saw another decline, although at the time of writing, this has been almost fully reversed in September. What can this pattern of returns tell us about the state of the market and the underlying economy?
Unfortunately, after all that build-up, the answer is not a lot. To be blunt, investors remain confused. Both bulls and bears can rely upon very persuasive arguments to justify their respective positions. As a result, investors remain cautious, with many long funds hugging their index and hedge funds running very flat books. Unfortunately, the market will only get a real sense of direction when there is more clarity regarding the economic situation.
While aware of the downside risks, I remain optimistic. Equity valuations are attractive, particularly in relation to other asset classes. The recent weakness in economic data will ensure interest rates remain low for a prolonged period, providing a supportive backdrop for risk assets.
In addition, business confidence continues to improve and is manifesting itself via a significant uptick in M&A activity. Although they were relatively dull, the summer months witnessed a number of corporate transactions involving UK companies. Businesses such as International Power, Scot Wilson and Chloride are all in the process of being acquired by foreign companies. So while investors may remain nervous, companies at least appear more optimistic.
Neil Veitch is manager of the SVM UK Opportunities fund
