It is for this reason I am perhaps a little wary of the claims that the violent falls in recent days offer only opportunity. That said, there are compelling arguments to be made for the bullish case.
I have already written about some of these, but another one was put forward by Stephen Bailey, co-manager of the Liontrust Macro UK Growth Fund.
Bailey believes the magnitude of the UK equity market’s correction looks overdone and that a summer sale is in full force.
Avoiding the temptation to “get caught up in short-term herd behaviour” or sitting on the sidelines until the turmoil blows over, he has been deploying flows into favoured areas of the market like telecoms and non-bank financials.
“When compared with the sharp market corrections of 1987 and 2008, the current episode is fundamentally different in that it has not been triggered by domestic developed market catalysts. Specifically, the current setback is attributable to fears over an economic hard landing in China”.
While he admits that a reduction in China’s growth rate will undoubtedly have an indirect impact on UK companies “this impact is not of the same magnitude as the 2008 financial crisis, and it will hit some sectors harder than others”
That said, he does believe that one of the results of the recent turmoil is that the prospect of a September rate hike in the US has now been snuffed out.
“It may be 2016 before we see this much-anticipated US rate increase, which provides further strength to our conviction that this is a buying opportunity for UK equity investors,” he said.
