Fund managers can't help but be cautious on the outlook for the UK economy going into 2008.
The summer sub-prime collapse has led to market volatility, liquidity concerns and inevitable recession fears. As the economy struggles to regain the strength seen in recent times, what can be expected in the New Year?
Neptune UK Equity fund manager Jeremy Smith believes the consequences of the credit crunch will more than likely take a while to correct.
“Tightening credit conditions will make it challenging for both financial institutions and consumer dependent companies to grow their earnings in 2008,” he says.
“With high commodity price inflation feeding through to all parts of the economy the Bank of England will struggle to reduce interest rates to a level that will provide a real stimulus to the consumer dependent UK economy.”
Smith says investors will see the best returns from industries able to tap into global growth opportunities.
Santander Asset Management UK equities chief Richard Moore says the firm is positioning its funds defensively on an expected 2008 economic slowdown.
“Whilst I anticipate further cuts in interest rates, it is unlikely that these will have a noticeable effect until 2009,” he says.
“I am expecting downgrades across the mid cap spectrum as we are near the end of a long bull market in these companies and many of them look over-owned and do not have especially attractive ratings.
“Despite the challenging short-term outlook I am confident that the longer term outlook remains positive, and we are well positioned to take advantage of opportunities as they arise.”
London & Capital is “somewhat less optimistic” on UK equities as a result of the housing market slump.
“Real estate is a heavy user of leverage, especially in the UK, due to the constant and long term nature of the income streams generated,” it says.
“The credit crunch has hit the market heavily with very few lenders active and the uncertainty causing institutional activity to slow as redemptions are handled.
The lenders will take a while to restore order so we do not expect a wave of renewed activity early in 2008.”
See Wednesday's IFAonline 2008 INSIGHT: US
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