Buxton says he now expects equities to be both volatile and rotational in the next few months as sentiment shifts between sectors given the recapitalisation, unwinding of positions and profit downgrades that still have to be worked through.
He says: “It is also worth remembering, however, that while a raft of downgrades never creates an enjoyable situation for equity investors, the market tends to fully discount these matters well ahead of time.”
Buxton says that given de-leveraging and recapitalisation are still to happen, the squeeze on the market will still be in place for some time. However, he says that there is better news from the US, where the housing market has stabilised and the nationalisation of Freddie Mac and Fannie Mae looks to have a positive effect on markets.
Buxton also says he has confidence in China’s ability to handle the economy.
“Calming things when growth starts to get too hot and applying stimulatory measures when things cool to the sub-9% level. On this basis, we do not believe it is all over for a lot of those companies benefiting from Chinese growth and see a number of the recent share price moves (particularly in the mining sector) as rather extreme.”