But he has warned that the B&B bailout has damaged the equity risk premium for more prudent banks.
Buxton says that UK portfolios will see the benefit across numerous companies which have earnings significantly discounted for 2009 but warns that valuation is not enough on its own, given the plight of the banking sector. He says: “With lingering problems in the banking sector, a catalyst for improving sentiment – and realising this value – continues to be lacking.
“Indeed, until the current banking sector paralysis is resolved, the market is likely to remain reluctant to call the trough of the earnings cycle and, equally, is likely to remain unwilling to look through to a recovery on the other side.”
Buxton says the market needs some catalyst to rest- ore confidence in global equ-ities but says it is reassuring that the US authorities are working proactively to solve balance sheet concerns in the banking sector.
Meanwhile, Buxton says the drama unfolding with Bradford & Bingley will not affect his belief that UK equities will continue to be range bound in the next few months but what it has done is ensure that that range has moved marg-inally lower.
He says: “This shift is, not least, the result of nationalising embattled lender Bradford & Bingley, which, in our opinion, leaves the more prudent of the UK banks with the risk of picking up the tab for their more imprudent peers.
“As such, the agreement seems to create yet another unwelcome headwind for the UK banking sector – given its inevitable impact on the equ-ity risk premium – and, at its widest level, will result in higher capital costs for every borrower – corporate or consumer – throughout the UK.”