Their view is based on the premise that while stock market volatility has been noticeably more marked in the past few months they are yet to see any significant, concrete economic data to support why this is happening.
The firm’s investment director, Gavin Haynes said: “Falls in equity markets have been largely due to the American debt concerns and European debt crisis, a concern the market is already familiar with, and an area we already know will take considerable time to heal.
Short-term declines
“History tells us we should expect some reversals during a recovery phase, it is the Whitechurch view that investors should sit tight as investors who attempt to trade their way out of short-term declines run the risk of either selling at the bottom, or compounding their losses.”
The firm’s current asset allocation views are negative on cash, given low interest rates and relatively high inflation rates, and property which it sees as weak in the short term as “there are more compelling investment cases in other asset classes”.
On the equity side, Haynes is positive about the UK saying: “Demand for UK equities is likely to remain supported by the fact that interest rates are going to be held at current low levels for the foreseeable future. It is also worth noting that the UK has retained its AAA rating, has in place a credible deficit reduction plan, and does not have the sovereign debt concerns that have blighted European equities.”
He added that longer-term investors willing to accept short-term volatility will benefit from FTSE 100 trading at a PE of 8x, a similar level to the lows of 2008, while many of the individual 100 stocks are yielding over 4%.
APac including Japan
Asia Pacific and Japan both had their difficulties in August but where there are negatives there are opportunities. The recent equity falls in Asia Pacific were enough for Haynes to upgrade the region from neutral thanks to its long-term fundamentals and cheap valuations.
“Consensus opinion has seen the region shunned in favour of developed markets year-to-date; add to this the recent price weakness within the area and our long term views, and the region is an attractive investment opportunity from a contrarian perspective,” Haynes explained.
Japan is another that saw equity falls in August with the Topix down by more than 8% but Haynes still sees it as the cheapest developed market in the world. Now, he says, it is 8% cheaper. He is also one of the many who sees Japan as a stock-picking story, with a number of world-beating companies to choose from.
“We are happy to maintain a positive view that Japan could surprise investors with the strength of its recovery for the remainder of 2011.”
