The UK market has rallied too far if fundamentals are considered, Hendersons' Richard Prew has warne...
The UK market has rallied too far if fundamentals are considered, Hendersons' Richard Prew has warned.
Prew, who manages the Henderson UK Capital Growth fund, said: 'I simply do not believe the explanation being propounded for October's rises that investors are lengthening their time horizon in purchasing bombed-out stocks because they think the earnings cycle is turning. I still think reality, a year of earnings growth in 2003 nearer zero than the 13% in consensus forecasts, will disappoint many.'
Prew believes the UK is in an era of slow growth and low inflation in a world characterised by overcapacity, the effect of which has been to remove corporate pricing power, lower returns on capital employed and lead to widescale retrenchment.
This is a long-term consequence of the capital investment at low hurdle rates during the late 1990s and renders any comparisons with past normal recovery periods obsolete, he said.
'While I am not outright bearish because I think valuations are beginning to reflect a lot of this, it does restrict market upside. From whatever market level you wish to begin on 1 January 2003, the fundamentals simply will not justify equity returns of greater than 7% to 8% per annum. In many ways the next few years are likely to bear comparison with the 1950s and 1960s, before the inflationary shocks of the 1970s, in which the index averaged 7% per annum.'
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till