PSigma income manager Bill Mott has warned that the UK market rally is set to end after going “too far, too quickly”.
Mott reiterated his view that the UK is set for a period of anaemic growth over the next five years and has repositioned his portfolio more defensively, with more than 85 per cent of the 70-stock fund now in FTSE 100 companies.
The income guru dismisses the bulls’ view that the current market is not dissimilar to the early stages of 2003 and 2004, which saw a flood of liquidity on the back of the TMT collapse.
He says: “This autumn 2009 rally cannot continue for much longer, simply because very low interest rates were not the sole cure that helped us recover from the last bust.
“Governments have taken on enormous amounts of debt in order to bail out the banking sector. Many Government deficits are now at levels where it is essential that long-term deficit reduction plans are implemented to restore credibility. The Bank of England has already spent heavily on quantitative easing.
“Although we accept inflation is not an immediate problem and that interest rates are likely to stay low for the near future, the other two drivers of the recent rally, global fiscal easing and quantitative easing, will have to end – you cannot print your way to prosperity.”
Mott says there is a 75 per cent chance of a recovery shaped like a square-root sign but with “a gently sloping upwards line rather than a flat line”.
Mott says he intends to continue lowering the stocks in his portfolio with numerous traits, such as companies that remain heavily weighted
He says: “The risks are building of a market correction if an announcement is not made over the next few months to suggest that some of the economic stimulus is being removed.
“Putting quantitative easing on hold would be a good first step and, although the market may react negatively in the short term, it would show the authorities are determined to prevent another asset bubble.”