On the face of it UK equities are not expensive either absolutely, or relative to their long term history, or relative to bonds. However the UK equity market is highly skewed to a small number of sectors of which oil and gas, mining and banks dominate accounting for 31% of the FTSE 350. This note looks at valuations, excluding these three volatile lowly rated sectors and concludes that equities are not as cheap as they look. A copy of the note is available on request.
Election year is upon us and this note looks at the key issues effecting the likely result and the subsequent investment implications. It goes without saying that this is potentially the most difficult election to call for many many years. The Parties also have the sharpest policy divide possibly in 20 years too making the result important from both a macro and micro perspective. We are starting to think that, by a nose, David Cameron is the more likely winner, probably in coalition.
2014 was the year of the Dollar. We believe, the US Dollar will continue to appreciate in 2015. The US economy remains the strongest, by a margin, of the major economic bloc’s and its safe haven status looks assured. It does not have the political risk of the UK, or the divergence and monetary policy risk of the Eurozone. It sails above geopolitical risk.
Given the substantial falls in the oil price and the possible impact on dividend paying capacity for the oil and mining sectors we have published a note looking at the outlook for income. A copy of the report is available on request. Bottom line while recent squalls may not be over we are fairly relaxed about UK equity income prospects. There is clearly specific risk in the oil and mining sectors but, for the market as a whole, this is partially offset by USD strength and the benefit that certain sectors gain from lower oil prices.