The manager of the Old Mutual UK Alpha Fund and CEO of Old Mutual Global Investors sees interest rate rises and manufacturing weakness as the other two main worries.
“A serious risk facing investors in UK equities is Brexit, the potential departure of the UK from the European Union,” Buxton said. “Worries about this eventuality, and about the future of the UK outside the EU, could put off or delay international investors from allocating to the UK,” he warned.
Higher interest rates are the next key risk as they could increase borrowing costs for companies and consumers. “These are likely to follow in the UK having been introduced in the US by the US Federal Reserve in December,” Buxton said. “My view is that the Bank of England will be unlikely to want to wait more than a couple of quarters before raising rates. If the Bank of England were to wait longer, and the Fed hiked again in the interim, there would be a danger that it would fall behind.”
The last of Buxton’s triple is manufacturing weakness. “This is proving a real concern, not just in the UK but worldwide,” he said. “Many manufacturing indicators have deteriorated. Manufacturing companies, especially those serving energy- and mining-related sectors, could cut jobs, and if they do so in sufficient numbers this could even reverse the terrific improvement in the labour market in the US.”
It is seldom all doom and gloom with Buxton though and in his view each of these clouds has a silver lining.
While recognising the danger, Buxton believes Brexit will not come to pass in the end. “I simply do not believe Brexit will happen,” he said. “The British people are too conservative – with a small ‘c’ – to countenance the upheaval such a change would bring. And David Cameron will likely obtain sufficient concessions from Angela Merkel to satisfy the British electorate. My view is that Germany will grant these concessions because she wants an EU that includes the UK.”