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Woodford continues to question green shoots

Invesco Perpetual head of investment Neil Woodford says the UK economy is not likely to recover for another three to four years and that “green shoots” in the equity market are “illusory.”

Woodford says the economy won’t see meaningful recovery for a few more years as a result of the consumer boom, which he says resulted from “easy access to credit, the housing market bubble and the excessive risk and leverage adopted by banks.”

He says: “The perceived ‘green shoots’ that propelled equity markets higher from their March lows have already started to look illusory. Occasional instances of decelerating deterioration were inevitable in some data given the extent to which they had fallen, but this should not be confused with recovery.”

Woodford adds that efforts by the Government and Bank of England to keep the economy stable have been battling a deleveraging consumer and financial sector. Additionally, he says that instead of increasing lending, banks are choosing to “rebuild their balance sheets.”

Woodford says: “While there are numerous factors that can influence equity markets in the short-term, over a meaningful timeframe, fundamentals are the key determinants of share prices. Above all else dividend growth is the key driver of long-term outperformance in my view.

“In today’s market, the companies with the strongest and most secure dividend growth potential are trading at levels that are the cheapest I have seen for many years. Consequently, whilst I do not see economic recovery happening in the next three to four years, I do believe that the right sort of portfolio can provide attractive investment returns over this period.”

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