UK equity managers are bracing themselves for strong economic headwinds in 2010, with Schroders’ Richard Buxton warning of a “winter of discontent”.
At the Schroders London investment conference at the Mayfair Hotel, head of UK equities Buxton said the UK was in an “environment of artificial normalisation” but the economic reality would be tough over the next two years.
He said: “I think there are going to be public sector strikes, uncollected rubbish in the streets, winter of discontent-type scenarios. I think there will be riots. It is going to be very messy over the next two years.”
Both Buxton and Santander Asset Management’s equity income fund manager Hak Salih expect the VAT rise, increased tax rates for high earners and the general election to refocus thoughts on the banking bailout and the resulting budget deficit.
Salih says: “You can see there is no reason consumers should be more certain about their outlook next spring compared with now.
Unemployment is still going up and wages are still under pressure.”
Salih says he remained “cautiously optimistic” but is revisiting defensive stocks within his £150m fund.
Despite the gloomy forecast, Buxton said liquidity will remain very benign, with risk assets benefiting and equities supported.
His £1.7bn UK alpha plus fund has been shifting out of some cyclicals at the margin and buying more defensive shares but the manager insists it is not a wholesale shift.
He said: “There is still material upside in the domestic bank names, it is just going to take you four years to get there rather than the five months in which you have had this phenomenal return from ‘going bust valuations’.”