While markets are likely to remain volatile, “the direction of travel” for the UK and global economy is now clear, and should mean more economically cyclical stocks start to perform well, according to Hugh Sergeant, who runs the £200m River and Mercantile UK Recovery fund.
Sergeant says: “While short term bumps are happening, we have passed the low point of the cycle, and there is more certainty about the medium term outlook.
"It looks like for the short term at least, we are getting something that isn’t a V shaped recovery, but is a much stronger recovery than might have been the case.
"There is a huge amount of impetus in the economy and no one is putting the brakes on; we are going to get more uncertainty, but even the Eurozone and emerging markets are picking up. In two years' time profitability for most listed businesses will be back towards normality for the economic cycle; the stocks we want to own are those which may have had their earnings impaired by the pandemic, causing the share price to fall, but which have franchises which are intact. We see plenty of those companies around, where we can make a 100 per cent return.”
Luca Paolini, chief strategist at Pictet Asset Management says: “Ample monetary and fiscal stimulus should provide a strong boost to the economy and corporate profits, which is why we continue to favour stocks over bonds.”
He added: “We don’t expect this pattern to change in the near term, and therefore retain our overweight stance on equities, neutral bonds and underweight cash.”
david.thorpe@ft.com
