European and UK equity markets are being favoured on the back of the slowdown in the US. Sarah ...
European and UK equity markets are being favoured on the back of the slowdown in the US.
Sarah Arkle, head of equities and managed funds at Zurich Scudder Investments, is overweighting the UK and to a lesser extent Europe, while remaining underweight in the US.
She says: "We favour the UK and continental markets for the positive earnings growth that they offer at the moment. We are remaining cautious on the markets but the FTSE does look to be good value."
M&G is also underweight in the US, according to Adam Smears, a fund analyst at the group. He says: "We had a higher exposure to technology stocks there before the more recent downturn. Technology is a driver of economic growth and with a slackening of demand, it brings the stock market as a whole down with it."
However, some are much more optimistic about the situation in the US. Bambos Hambi, director of global equities and fund of funds manager at Friends Ivory & Sime, sees the medium-term outlook as bright.
He says: "There will be huge cuts, up to 2%, in interest rates this year. Greenspan can afford to cut them with such low inflation."
Hambi went overweight in the US in December and recently decided to remain so. He says: "The US catches a cold before the rest of the world but it also bounces back before other markets. The UK market may be fundamentally good but it is driven by the US market."
Hambi predicts the markets should turn around in the second half of the year. He warns that this will lead to continuing volatility but a great long-term outlook.
He says: "Low interest rates combined with much better economic news will lead to a bounce back. Historically, a big chunk of returns comes in the first few weeks of an upturn but the outlook for the next five to 10 years is very good."
Within the European and UK markets, Arkle is overweight pharmaceuticals and oil and underweight in technology, media and telecom stocks.
She believes the weakening global equity market offers some good investment opportunities. She says: "There are good companies being sold off along with the not so good."
These opportunities in equities mean Arkle is favouring stocks over bonds. "People tend to move to bonds as a flight to quality but I do not see them as representing long-term value," she says.
Hambi agrees that the time is not right for bonds and is also underweighting them on a global basis.
He says: "They have had a great run. They have outperformed the market hugely over the past few months but I would expect them to go the other way when sentiment in the market changes."
Hambi is also negative on Japan looking forward. He sees it continuing its depressed run and predicts that a devaluation of the yen will keep the market underperforming.
M&G, however, does not share this view, according to Smears. He says the group is overweighting Japan as there are a number of good investment ideas coming in from analysts in the region.
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