Schroders European equity fund manager Andrew Lynch believes that the market is set for a 10 to 15 per cent fallback by the end of the first quarter of next year.
Lynch, who manages the Schroder ISF Euro dynamic growth fund, says he sees another storm coming for markets, pointing to a number of companies in the cyclical area becoming expensive since the rally in March.
He says the market was oversold in February amid fears about which banks would survive and much of the recovery is due to the fact that the banking system has survived.
Lynch says: “I would say that 30 per cent of the bounce- back we have seen has been justified on the back of this but the recent 20 per cent rise is harder to understand as it is on the assumption that companies have managed to quickly find a way to earn as much or more than they did in 2007. I find that hard to believe for a number of areas, like the cyclicals.”
Lynch says there are investment opportunities in the medium term.
He says: “The likes of Shell, which can pay a decent dividend, are going to see top- line cashflow, earnings and dividend growth in the next three years.”