Scotland-based fund managers are optimistic about the state of the UK equity market but particularly enthusiastic about opportunities in China, Japan and southeast Asia.
A Sunday Herald round-table event found that they are more concerned about US equities and corporate bonds, fearing that they are probably over-valued at the moment — particularly over worries that US interest rates will continue to rise.
Willie Watt, chief executive of Martin Currie, believes that the recent upturn in global markets after a three-year bear run, fuelled by the bursting of the dotcom bubble in March 2000, as restored investors’ faith in stock market investing. He said: “The fact that markets have gone up is a good thing. It will stimulate people to put money back into equities.”
Mark Tyndall, chief executive of Artemis, believes the UK stock market now represents a promising stamping ground for stock-pickers who are capable of identifying the performing companies of tomorrow.
He said: “One interesting thing about the market is that there’s been a huge compression in valuations. It doesn’t matter if you’re a growth stock or a value stock, everything is on 10 or 12 times earnings, plus or minus a bit. That’s a very unusual state of affairs, but it gives plenty of scope to do well.”
Alan Harden, chief executive of Alliance Trusts, said: “It’s good to see some strength coming back into Asia after a 10-year slow market. We’re very bullish on Asia in general with China as the engine. We’re also pretty comfortable with the property market both here and in the US because, even though it’s fully priced, the yields are still reasonable.”
Alex Callander, joint senior partner of Baillie Gifford, said: “We are bottom-up investors with a growth bias. We’d define that as investing in companies that are genuinely going to grow, rather than ones with low-yields or high multiples. Such stocks are about as cheap as they’ve been for many years, so we think our approach should do well.
“But I believe bond markets are quite fully valued, particularly at the high-yield end.
“What’s interesting about Japan is whether we’re going into an extended economic cycle there. Valuations are more reasonable and company profits seem to be moving up. On the other hand, the economic data is mixed, to say the least.”
Jim Fisher, managing director of Saracen, warned that the US market is probably over-valued. “I think the US looks a relatively expensive market and that valuations could fall if interest rates rise further. It is very difficult to see how the UK could be completely insulated from that.
“But in the UK, the market looks reasonably valued, and may actually be cheap. The one caveat is the housing market. My view is that any severe housing market downturn may lead to a recession.”
This article followed a round-table event organised by the Sunday Herald and held at the Scotch Malt Whisky Society in Edinburgh. The artucke was published in the Sunday Herald on 5 December 2004