UK equity investors will face a triple headwind next year as the domestic market’s strong run comes to an end, Fidelity’s asset allocation director Trevor Greetham has warned.

A number of managers have warned about political risks to the UK market in the run up to the general election in 2015, and Greetham (pictured) believes the pound could come under renewed pressure.

“There is potential for further weakness in sterling heading into the election,” he said of a currency which has already fallen from a summer high of $1.71 to a current level of $1.57.

But while this would potentially create a barrier to earnings growth among importers and domestic-focused firms, Greetham said he is underweight UK equities in his multi-asset portfolios for other reasons.

From a macroeconomic standpoint, the manager believes today the country’s economic recovery is too closely tied to that of the housing market.

Pointing to slowing mortgage market data, he said: “I would agree what is happening here is partly the effect of the Mortgage Market Review, partly fear of [Labour’s proposed] mansion tax. The UK housing market boom has been a big part of the UK growing so strongly, and it is definitely cooling off.”

Greetham also emphasised the impact of the falling oil price: Brent crude has fallen by more than 40 per cent since June to a current level of under $70 a barrel.

“What is driving our decision to be underweight UK equities is the fact that the stock market has a large resources exposure,” Greetham said this morning.

The FTSE 100 has been knocked back in recent days as oil majors BP and Shell feel the impact of the price falls, though both stocks have recovered ground today.

Elsewhere, Greentham remains underweight Europe, despite being “pretty certain” the European Central Bank will introduce quantitative easing in 2015. This is due to concerns that while cheap, European equities have underperformed due to consistently low earnings growth.

But the manager has increased exposure to Japan following the shock revelation it had slipped back into recession.

As a commodity importer, it will benefit from low prices, he said, while its export sector is aligned with consumer demand in a recovering US. In combination with the Japan exposure, he is shorting the yen in what he described as “a key play”.

Julia Rampen reports for Investment Week.