New Star issues UK equity outlook
New Star anticipates progress in the equity market in 2008 after uncertainty in the latter half of 2007.
Stephen Whittaker, joint CIO and manager of the New Star UK Growth Fund, said: “As audited company end-of-year results are released in the new year, the market will gain confidence from the greater transparency and this should allow volatility to reduce as the year plays out.
“I envisage interest rates being cut further as central bankers respond to the threat to growth. The Bank of England will probably have reduced the base rate to as low as 5% by the middle of 2008 and this should provide a spur to financials and take some of the strain off consumers.”
New Star believes investors should remain optimistic. Despite the ups and downs, equities are arguably the best value of all the main asset classes and even at the heights of the market in 2007, the PE ratio on the FTSE All-Share and FTSE 100 Indices were only 14.5x and 13.5x respectively.
Whittaker adds: “While economic growth will undoubtedly be slower next year, the market has been discounting a recession and worst case scenarios are already priced in, leaving plenty of room for share price recovery. I feel much more comfortable holding depressed cyclical and financial stocks than trying to hide in expensive defensives.”