The outlook for the UK is improving now that inflation worries are dissipating. In comparison to worl...
In comparison to world markets, Jeremy Rigg, part of the UK equity team for Henderson, is positive about the UK.
However, this is tempered by the uncertainty surrounding the US struggle to dampen inflationary pressures. This has pushed Rigg back into a neutral position on the UK.
He says: "The US interest rate picture is cloudy. We expect the Fed to ensure that the economy will slow down. The recovery in the Nasdaq has spooked the Fed and consumer demand is not slowing down enough."
Rigg believes the UK market will remain trapped in the 6000-6600 trading range until the US situation becomes more clear, essentially until US interest rates peak. When the market reaches the bottom of this range, however, it starts to look good value.
Valuations in technology, media and telecoms (TMTs) are still relatively high despite the recent drop, and investors are taking valuations more seriously. Rigg thinks they will probably sell off a little more before a period of sustained growth becomes possible.
He is neutral on TMTs and for now prefers the shorter term plays - names such as BT, Cable & Wireless and Vodafone - as opposed to the second tier companies whose timescales for profitability is too long in the current climate. As soon as the risk of US inflation dies down, the risk of longer-term plays will decline and Henderson will contemplate a shift in strategy.
In the IT sector, software houses have an advantage over those that sell services. This is due to the serious lack of trained IT professionals in the UK in comparison to demand, which limits service providers needing to hire more technical staff to grow, while the only growth needed to move from selling 1,000 to 10,000 copies of a piece of software is in administration and infrastructure.
Rigg is overweight oil stocks, based primarily on the good oil prices and the OPEC policy of keeping a tight lid on supply. Spirits companies also look good with the development of a healthier global market and low valuations of many of the bigger stocks, such as Allied Domecq.
Water stocks look fairly cheap and the top performing companies are shrugging off the effect of keen regulation by diversifying away from their highly regulated core business.
Banks are still struggling against the tide of new competition, especially from online banks and mortgage providers. Rigg is underweight banks, despite something of a recent recovery.
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