The Japanese and UK markets are being favoured relative to other regions on the back of good valuati...
The Japanese and UK markets are being favoured relative to other regions on the back of good valuations and perceived recovery, according to James Robinson, manager of Witan Investment Trust.
Witan is overweight Japan as Robinson feels the market is coming back to good value.
He says that last year everyone was too enthusiastic about Japan and now everyone is too pessimistic. He points out that this year Japan was hit by foreigners selling.
He expects reasonable growth in Japan over the next 12 months, which he believes, will be a more sensible, less extreme year.
Ian Barby, managing director of the investment trust division at Merrill Lynch Investment Managers, agrees: "In Japan we are beginning to see relative value now the market is back at 14500 and we have a modest underweight exposure at 6%."
Mercury Asset Allocator Trust is overweight UK. With the strong possibility of an election in the coming year, the UK should be a well-behaved market, Barby says.
He adds: "In the UK, with an election coming, the Government is keen to avoid any significant economic slowdown but given the current highly rotational market environment, our team is likely to focus on stock selection while avoiding any significant style bias and or sector positions."
Witan is also increasing its exposure to the UK after a period of underweighting it. The trust's UK exposure has gone up since August to 58% from 55%.
The UK has good defensive characteristics, Robinson says, with only 6% of the All-Share in the technology sector, compared to around 30% for the S&P 500.
Robinson says: "If technology is under pressure the UK in a relative sense is not bad. This is quite a big call for us because the UK market has been underperforming since 1998. We have been allocating assets to the blue chip old economy part of the UK market."
However, the trust is still slightly overweight technology, though it has recently reduced its exposure to the sector. It is underweight hardware and overweight software. Robinson says he finds telecoms unattractive and is underweight in the sector.
"We tend to focus on telecom companies that have very low gearing and low interest cover," he says.
Witan has holdings in Colt Telecom, which has little or no debts, and is avoiding France Telecom which has been forced to sell assets.
There is uncertainty about whether the US economy will achieve a hard or soft landing. According to Robinson, the US economy is slowing rather than nosediving, with high interest rates and high oil prices unlikely to be repeated.
Robinson expects the oil price to return to $25 next year.
There is plenty of liquidity around and he expects the markets to take this into account. However, he believes that the US election is acting as a diversion.
Mercury Asset Allocator is slightly underweight US versus Europe. It tends to invest in larger cap American companies and smaller cap European companies, Barby says.
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