UK equity markets are already pricing in a recession that is unlikely to happen, according to Ashley...
UK equity markets are already pricing in a recession that is unlikely to happen, according to Ashley Willing, fund manager of the Gartmore UK Focus fund. He says the market is looking cheap in comparison to what he sees as an expensive bond market.
He says: "This is an ideal time to buy quality companies at low valuations."
Willing is adamant that the UK will avoid recession because he believes the interest rate cuts will be very effective.
"Interest rates have a profound effect on the equity markets," he admits. "The cuts that have taken place already here and in the US and those that are likely over the next few months will impact positively on share prices."
While Willing believes slowing global markets will not create a recession he admits they will cause problems for companies with weaker franchises. He says that the companies that come through this period of slower growth unscathed will prove themselves as genuine leaders in their respective fields.
He says: "We've already seen Vodafone performing comparatively well as it is the best of breed in its class. On the other hand, Cable & Wireless has been in trouble recently having already issued a profits warning this year."
Cable & Wireless has fallen 47.45% for the year to 29 March while Vodafone has fallen 19.76%.
Willing believes the opportunity lies in the reaction markets have had to the global slowdown.
The UK market is terrified by what has happened in the US, he says, and, as a result, equities are becoming rapidly oversold.
He says this situation is worse in certain sectors, such as growth areas where stocks have been ostracised.
This has resulted in a situation where the value run is unlikely to continue, according to Willing. "Investors have been piling into defensive sectors to such an extent that there seems little room left for them to continue rising," he says.
Geoff Miller, senior fund manager on the Exeter UK equities desk, agrees with this analysis. He says: "The market is going through an awful period where nothing looks optimistic. This is usually the best time to expect a turnaround because at this point there is usually very little left to sell."
Miller is confident that the markets are likely to pick up over the next few months and predicts a move into less defensive stocks. He says: "Valuations in non-defensive sectors are simply too good to ignore at the moment. However, it is important not to take an indiscriminate approach to technology stocks.
"There are still unrealistic expectations of the industry it isn't magic, it's cyclical, so it's not going to just bounce back in the second half of the year."
He does not believe a recession in the US should be of huge concern to UK investors, but says investors should keep a watchful eye on the ability of the Fed and Alan Greenspan to turn the slide around.
If it is unable to do this, Miller says, then perhaps the prospects for a global recession are somewhat higher.
Speaking at Professional Adviser's conference
Equity release panel
Speaking at PA360
TISA's Peter Smith
Shone a light on 'closet trackers'