Ted Scott has dismissed investor concerns leading into 2008, saying shares are set for a good year.
The F&C UK Growth & Income fund manager says although the economy and housing market could continue to slow further, he has left the “bear” camp.
“This time last year I was relatively cautious on the outlook for markets,” Scott says.
“Excessive levels of speculative activity, fuelled by high leverage and cheap credit, were unsustainable. I felt that after a bumper run for equities a significant correction was on its way.”
But a year on Scott is “pretty sanguine” on market prospects, aided by yesterday’s Bank of England rate drop.
“The stock market is an aggregation of everyone’s expectations,” Scott explained. “But the consensus view is often wrong.”
Scott says value is beginning to emerge in hard hit stocks such as financials.
“Some of the banks and life company shares are basically discounting a full-on recession and even dividend cuts and rights issues. I think some of this will need to happen,” he says.
“However, even allowing for dividend cuts and earnings downgrades of up to 40%, some of these shares are cheap and the yields are attractive for income funds.”
But the mining sector, which has enjoyed stellar gains in 2007, is an area Scott is cautious about.
“Miners and emerging markets have been largely driven up by liquidity,” he says.
“M&A activity, such as the bid for Rio, has also provided a fillip to the sector. If M&A dries up, as it did in the pub sector, the downside could be considerable.”
Emerging markets are also “vulnerable to a considerable correction”, should they show sub-prime or slowdown related signs, Scott explains.
“While there are definitely some potential pot holes to avoid, as confidence slowly returns, and a turn in the rate cycle may assist that, 2008 will shape up to be a positive year for shares,” Scott says.
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