Starting valuations for UK stocks and increasingly negative equity sentiment point to the beginnings of a new bull market, according to Schroders' Richard Buxton.
In his outlook for 2013, Schroders' head of UK equities acknowledged macro concerns over the US fiscal cliff, the slowdown in China and the eurozone debt crisis, but said all three fears would lessen over the course of next year.
With the UK equity market currently trading on a P/E multiple of just 11 times earnings, Buxton said investors should enjoy annual real returns, possibly even in the double digits, over the next decade.
"I am much more optimistic about the returns from UK equities over the coming decade than I was 10 years ago," he said.
"Growth could be subdued, but a lessening of extreme fears could see equities re-rated nevertheless.
"2012 saw frequent references to the ‘death of equity' as an asset class - surely a stimulus to the contrarian instinct.
"I believe we can say we have already passed the low point for UK equities - below 3,500 on the FTSE 100 index twice in the last 12 years - and are in the foothills of a new bull market."
The manager of the £3bn Schroder UK Alpha Plus fund said corporates remained in good shape, adding he and his team had struggled to reconcile this year's poor macro data in the UK with companies telling him "it is not getting much better but it is not getting any worse".
In the US, meanwhile, Buxton said one of investors' biggest fears should be viewed more optimistically were it to materialise.
Any signal from the Federal Reserve that quantitative easing is over or interest rates may rise sooner than expected should be seen as a positive, pointing to a resurgence in credit creation, he said. Buxton labelled this scenario "one to watch" for next year.
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