There are fundamental structural problems in the UK, European and US economies, in the view of Mark ...
There are fundamental structural problems in the UK, European and US economies, in the view of Mark Costar, manager of the JO Hambro Capital Management UK Growth Fund.
However, Costar believes the stock market has already been priced accordingly. 'Economic conditions are deteriorating at quite a rapid rate,' said Costar, 'but a significant proportion is already discounted by the market. Near recession conditions and falling consumer confidence are already in the price.'
He believes things would have to get significantly worse for a further major fall in the stock market to occur. 'It is important to distinguish between the stock market and the economy,' said Costar.
Further economic problems would not necessarily prevent the stock market from rising, in his opinion.
Costar identified a number of key themes and issues for 2003. 'We are likely to see a cashflow crunch and further dividend cuts, particularly in industrial cyclicals, as well as cost pressures associated with oil prices going up,' he said.
He also believes tri-annual revaluations on pension funds, in many cases revealing significant holes, will have a disproportionate share price impact on small to medium-sized companies.
Costar is looking at companies he calls 'early cycle beneficiaries,' which have already endured a period of difficulties and adjusted cost bases accordingly. He cited the example of technology, which he sees as a long-term secular growth industry. 'There are some attractive valuations in tech stocks,' he said. Costar also includes recruitment companies, such as Michael Page, and distribution businesses like Premier Farnell in this category.
Other likely themes through this year, said Costar, are an increase in corporate activity and venture capital money, and the fact China cannot be ignored as a manufacturing base. He will be looking to new structural growth areas, such as security companies, which have the potential to offer value in the current climate.
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