The European deleveraging process is five years behind that seen in the US and may obstruct a further rise in equity markets, according to Invesco Perpetual's Neil Woodford.
In his latest update to investors, Woodford said the UK market may be set for "some consolidation" over the remainder of 2013, in light of fuller valuations and a range of economic challenges.
The latter include both a further slowing in European economic growth, and, perhaps, concerns over an end to quantitative easing in the US, suggested Invesco Perpetual's head of UK equities (pictured).
"The outlook for the US, where the banks are largely through the required process of deleveraging and bank lending is returning, has improved - but this means that it is more likely that quantitative easing may come to an end.
"The process of deleveraging has only just started in Europe, which is some five years behind the US, and in our view this will inevitably put a brake on economic growth in the region."
However, Woodford said the market is now again recognising the attractions of some of his favoured holdings, after a 2012 in which some of his preferred sectors underperformed the wider UK equity market.
"Valuations no longer look as compellingly cheap and the remainder of this year may see some consolidation. However, we are encouraged by the stock market's recent appreciation of the qualities of the fund's holdings."
AstraZeneca is among those 2012 laggards that have performed well since the start of the year, and Woodford noted the market has started to warm to the strategy being implemented by new CEO Pascal Soriot.
The manager said he held "positive" meetings with Capita, Reckitt Benckiser and Smith & Nephew last month. He also reaffirmed his backing for struggling Homeserve, whose shares fell 15% in March as prospects of a return to growth in the UK soured.
"The business remains very profitable and dependable and we see good long-term growth prospects for the company overseas - but with the near-term outlook for the shares clouded by UK problems," Woodford said.
Woodford's £13bn High Income fund has returned 18.1% over the year to 5 April, ahead of the IMA UK Equity Income sector average of 17.8%, according to Morningstar.
Over five years the fund has returned 45% compared with a 32.6% sector average rise.
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