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Weekly Manager Views: Equities

23 July 2020

At GAM Investments’ Weekly Equities Meeting held on 21 July, Adrian Gosden provided an update on the UK equity market.

Adrian Gosden – UK Equities

Although many global developed equity markets have staged an impressive recovery since March, the UK has emerged slower than other major markets, in part owing to the low weighting of technology stocks that are driving other markets. This has been exacerbated further by renewed fears of a hard Brexit and the broader impact of the pandemic. Dividends are being cut or abandoned and companies are placing shares to raise money to repair balance sheets. Cyclical sectors have been the most severely impacted. Expectations of slower economic growth and central bank interventions to cut interest rates and increase the money supply have depressed bond yields. This has had a knock-on effect to financial companies and those with high leverage and large pension deficits.

Despite this, we are now seeing incremental month-on-month / quarter-on-quarter improvements in sales / trading updates from a range of companies. We also expect to see more corporate actions in the second half of the year towards those with more variable earnings, following recent deals such as the private equity takeover of healthcare communication business Huntsworth and KKR’s purchase of Viridor from Pennon Group. Moreover, if interest rates were to harden, this could encourage more investment into economically sensitive shares, not just growth stocks. Meanwhile, in the mid and small-cap areas, many share prices have not retraced since their March lows. While in most cases we do not think earnings of 2019 will be repeated this year, we do expect companies with the right business models to return to this level of profitability in the not too distant future. Similarly, while dividends have taken a hit this year, they should follow a similar path, albeit perhaps less generously in some cases. This is ultimately a call on the individual companies and their management teams.

Important legal information
Important legal information Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. July 2020.