Mott says the economy is similar to what it was in March 2000, when a liquidity fuelled rally saw the prices of technology, media and telecommunications stocks rise to great heights but with commentators warning this was unlikely to continue.
He says: “Fast forward to today, and we have a liquidity-fuelled rally driving mining, financials and international cyclical stocks even higher.
However, this feels like a rally that relatively few people have long-term faith in. If stealth bull markets and rallies ‘climb a Wall of Worry’, then the unfolding Greek drama and the UK’s poor economic position are clearly worrying. Not everyone can continue to play this rally, and all hope to get out and ‘head for the exit’ – taking profits – at the same time.”
Mott says that the anaemic growth scenario is the most likely with the “real winners in UK quoted companies will come through.”
Mott says the possibility of the UK entering a double-dip recession is unlikely given the amount of quantitative easing, fiscal action and low interest rates, while a V-shaped scenario is even less likely.
He says: “We just cannot believe the cares and concerns of the last few years were a mirage and we can now get back to ‘partying’ again.
Mott has now cut the list of stocks on his UK equity income fund to 61, 15 of which are now overseas, pointing to sterling weakness being likely to continue.
He says: “This means that we have populated the fund with a wide selection of UK stocks which derive a large proportion of their earnings from overseas. Approximately 80 per cent of the earnings of the companies within the fund come from outside the UK.”
Mott has also highlighted yield revaluation, with a number of stocks in the UK now yielding more than 10-year government bonds and unlikely to cut dividends in the future as well as a return to the ‘nifty fifty’ style of investing of the 1960s which saw blue-chip funds lead the market for a long period.
In terms of the Election later this week, Mott says that a decisive Conservative victory would probably be the best outcome for markets.
He says: “Investors will expect swift action to reduce Government spending and increase taxes. However, once the Conservatives do outline their policies in an early budget, markets will reassess whether they have tightened too much and thus increased the risk of a ‘double dip’ recession or whether they have failed to tighten enough and therefore their policies will be not much different from that of the Labour Party. Nevertheless, the market reaction to a Conservative victory will not be euphoric until economic policy credibility is demonstrated in the first budget.”