FTSE 100: 6475.07 ▼ -32.65 (-0.50%)
UK equity earnings will slide by around 20% over the next 18 months, Jamie Hooper of the AXA Framlington UK Growth Acc fund has warned.
In an update to investors, Hooper added the UK was far from alone in facing an extended period of corporate weakness, with dividends across western Europe likely to be cut.
‘We have seen around €18 billion (£14.7 billion) raised through capital issues this year across Europe - we will see dividends cut as a result,’ said Hooper.
He added that the lows should be seen as a natural part of the cycle following record highs on returns on earnings in recent years.
The aftermath of the credit crunch was now also beginning to return to a natural credit cycle, although the only thing which would cause the market to touch bottom would be when the Bank of England had the policy freedom to cut rates, he said.
Until then, he would not go near the retail banking sector, he said. ‘I can appreciate that they may look as if they offer latent value but there is much more bad news to come.
‘We need to see rates to come down before we see an inflexion point – it all comes back to when the Bank of England and the government have the policy freedom to cut rates.’
Niche financial areas such as the currently dormant specialist lender Kensington, currently trading at around half book value and the subject of takeover interest is interesting Hooper.
Other picks included Prudential and some specialist corporate debt businesses. The fund is currently 70% orientated toward FTSE 100 large and mega caps.
Hooper has gone some way toward redeeming himself on two years of previous under performance in the last 12 months. Since August 2007 he has returned -7.02% he has versus a peer return of -15.30%.