As the clays fell, so did the FTSE – another day of “correction” and enforced expectations of another sleepy summer for markets. Is that such a bad thing? Perhaps not for those looking for a buying opportunity into equities, while as so many wealth and fund managers tell me, “we’re not trying to shoot the lights out”.
When the going gets good we get nervous, while when things are tough we have a tendency to be over dramatic – remember those predictions from a few years ago that the UK would have to default on its debts?
However, judging by the recent surge in sales of UK equity income funds, it’s clear that many investors remain quietly confident about the prospects for corporates going forward.
The British lion
Alan Higgins, chief investment officer at Coutts, goes as far as talking up the waking of the “British lion”.
“While the investment world has been focused on the US, Japan and China, the steady advance of British blue chips has often been overlooked – yet this globally focused index may be the harbinger of a sustained recovery in the world economy,” he says.
“All of the liquidity being pumped into the global economy through worldwide quantitative easing has yet to feed the animal spirits of households and businesses. We think that’s likely to remain the case for the rest of the year, and look for a continued – though modest – outperformance of equities versus bonds. Given the signs that the British lion is awakening, we have added the UK to our list of preferred equity markets.”
From a macro viewpoint, Simon Ward, chief economist at Henderson Global Investors, is also not shy about coming forward with a positive prediction with an, admittedly out-of-consensus, view that UK GDP will grow by 2% this year (see chart).
This, he says is supported by this week’s upbeat May purchasing managers’ survey for the services sector, and encouraging results from manufacturing and construction business indices.
He adds: “Survey confirmation of the upbeat economic outlook signalled by monetary trends ought to cause the three MPC doves to back down on their call for further easing, assuming that this recommendation is based on data analysis rather than neo-Keynesian dogma.
“Mark Carney’s February assessment that policy was already sufficiently loose for the economy to achieve escape velocity has proved correct, suggesting that he will enter office with a neutral bias.”
Of course, the spotlight will be on the UK next month when Carney takes the reigns as the new governor of the Bank England. As his achievements in his native Canada proves, this is a man more focused on success than self-deprecation and lady luck may also be on his side.
Boon to growth
Ian Kernohan, economist at Royal London Asset Management, again points to strong output numbers from manufacturing, construction and services as a boon to growth, alongside signs of a more general recovery in the housing market.
“Mr Carney may be taking charge just as the economic outlook is improving,” he suggests. It could all go terribly wrong, of course. But if like me the rare glimpse of a British summer has filled you with unexpected optimism, embrace it and stick to your guns!
