UK equity managers remain bullish on the markets and expect up to 15% FTSE growth in the second half of the year despite weeks of sharp volatility.
Despite the FTSE 100 falling below 5,000 for the first time since October this month, LVAM’s UK equities head Graham Ashby describes the correction as “sensible”.
“Our view is what we have seen over the past few weeks is perfectly understandable,” he says.
“Investors had very low levels of cash two months ago and risk appetite was quite high, and there is only one way those things normally go. We have seen a very sensible pull back in markets. People are a lot more balanced in their outlook.”
Ashby believes rising investor cash levels and increasingly bearish sentiment are positive signals for markets. He adds UK companies are in a strong position, with balance sheets healthier than at any time in the last decade.
“The market is 15% cheap at the moment but it could go 30% cheap because markets are volatile, but there are enough pointers to suggest the market will recover from here, although it will not be in a straight line,” Ashby adds.
“The message is do not panic about what has been going on in the past few weeks.”
PSigma’s Bill Mott says although the extreme market movements have been painful for investors, he sees the weakness as a buying opportunity.
“Our view is it is not as bad as it seems. To be able to buy the UK stock market at a greater yield than that available on cash or gilts is a rare opportunity and an indication of the underlying upside potential in many companies,” he says.
Mott is standing by a prediction he made at the start of the year that the FTSE would end 2010 between 5,400 and 5,800, at least 200 points higher than last Friday’s close.
Last week BlackRock vice chairman and chief equity strategist Bob Doll called an end to the worst of the current equity market correction.
He says given the magnitude of the recent currency and sovereign debt concerns, equity markets are more likely to be driven by the broad macro outlook rather than company-specific fundamentals.
“This is usually the sort of environment where volatility remains high in both directions,” he says.
“It is important to remember that corrections during times of economic recovery are normal, but are often intense and quick.
“Regarding the current correction, we believe the worst should be behind us in terms of the magnitude of the downturn, but it will likely take some additional time before markets can repair themselves.”
Doll says while many investors have been unnerved by current events, BlackRock believes the broader economic recovery remains on track.
However, Standard Life’s Richard Batty, an investment director of strategy, says it is difficult to predict where markets will go. He believes policy announcements, such as from the UK’s emergency Budget and G7 conference, could impact on equity markets.
“The macroeconomic environment remains uncertain and we are still in a period of volatility,” he says.
“This is not to say markets will not go up, but they will be very volatile. We are preferring to be equity neutral and seek safety in credit and property,” he says.
