Jupiter income manager Tony Nutt says those calling a V-shaped recovery in equity markets are being too optimistic.
Nutt says the market has lost touch with what is happening in the underlying economy and that indicators of econ- omic growth will continue to be modest and in some cases will disappoint.
He says the overriding issue that is governing underperformance is whether a firm is burdened with too much debt and if they can refinance. He also warns that there is a significant amount of leveraged debt to be financed between now and 2013.
He says: “No one can convince me that this recovery is going to be short and sharp and levels of activity will remain volatile. This is nothing more than a rally in a bear market – we are not looking towards new highs.”
Nutt believes the market has bottomed following the capitulation of the banking and insurance sectors but does not predict a rapid recovery.
He says: “These are not models which can bounce back qui-ckly and while the marginal imp-rovement is clear to see, we have to work through the legacy issues. The banking sector is not about totally irresponsible lending, and that will be proven once we work through the defaults, but it was more about the lack of understanding of models heading toward the funding crisis.”