Bonham Carter says the distress in the US sub-prime market will filter through to other markets and result in tighter liquidity conditions.
He says: “While it may be that we are undergoing a repricing of risk to what might be considered more normal historical conditions, the issue is the extent to which it might cause a change in the health of the underlying economy.
At this point, it would be presumptuous to forecast the extent or duration of the damage tighter credit conditions might cause. However, evidence is building up to suggest that US consumer activity is slowing down and this, in turn, will increase the probability of a reduction in US interest rates. In the eurozone and the UK, it may take longer before interest rates start to come down as central banks may require more evidence of an economic slowdown before acting.”
He believes private equity is likely to fall as result of the correction, however it could be replaced by corporate merger and acquisition activity.
“The corporate sector in the UK and globally remains in rude health, given the combination of healthy profitability, strong balance sheets and substantial free cashflow generation. This is leading to dividend increases and larger share buybacks.”
“The current setback, though unpleasant, does not alter our view that shares continue to be an attractive asset for investors over the medium term, given a healthy economic backdrop and reasonable prices. So this setback can be viewed as a potential buying opportunity for investors prepared to take a medium term view.”