Equity markets are set for a period of profound underperformance but the UK could be a bright spot, according to Luca Paolini, chief market strategist at Pictet Asset Management.
Mr Paolini said a cheap sterling, low prices and a resilient economy combined were a good reason for investing in UK equities.
He said: "If prospects for global equity markets looked unfavourable before the latest salvoes in the trade battle, then they are even more discouraging now.
"We are underweight stocks, neutral on bonds and overweight safe haven assets such as gold and cash.
"Within equities, there are a few exceptions. UK shares, battered by Brexit worries, look good value, not least because companies in the leading FTSE 100 index by and large generate their revenues outside their home country.
"A cheap currency, low valuations and the fact that the economy has so far managed to weather the political storms are reasons for maintaining an overweight on UK equities.
"Sector-wise, we aren't especially attracted to stocks that are heavily geared to the economic cycle. Also, we think that investors have long been complacent about the trade war’s potential impact on technology stocks. They’re suffering for it now."
He said wage growth and low unemployment levels in the UK meant the market might be underestimating the potential for interest rates to rise.
Mr Paolini noted that UK government bonds were presently trading at a record low yield, but he felt this asset was not good value.
Simon Edelsten, who runs the £230m Mid Wynd investment trust at Artemis has had very little invested in UK assets in recent years, but he has recently invested in Vodafone shares.
He said: "I think the market is rather extraordinary just now - take the UK government 10y bond yield of 0.82 per cent today - a level no living fund manager has seen.
"But yield seems no support in UK equities where Imperial Tobacco is forecast by Bloomberg to yield over 10 per cent (ie maybe it won’t pay all the dividend). Similar features are apparent round the world of equity markets."
He said the yield on the UK government bond was relevant for the performance of UK shares because investors compared the safe income from the bond with the higher risk income from shares, so the lower the bond yield, the more incentive there is to buy equities.
He said: "Our view of this is that investors are highly sceptical of yields unless supported by very healthy businesses. In other words investors fear dividend cuts and there have been a number already in the UK.
"From that point of view, we have recently bought Vodafone following its recent dividend cut. It should be able to pay its rebased yield of over 6 per cent and on fundamentals its problems in India now seem contained and its risk of very expensive European spectrum auctions are now past."
