Richard Buxton says UK stocks will struggle to attract investors

A fall in the pound and a revival in the fossil fuel industry won’t be enough to reverse a long-term trend and bring investors back to the UK stock market, according to a leading UK fund manager.

Richard Buxton, UK equity investment manager at London-based Jupiter, said in an interview: “What could bring people back to major investments in the UK? I don’t have the heart to provide a bunch of convincing answers.

Investors have withdrawn £6.6 billion from UK equity strategies this year, making 2022 already the biggest year of capital outflows in a decade, according to data from the Investment Association, a trade body. This exceeds the £4.8bn withdrawn in 2016, the year of the Brexit referendum. UK-focused funds have seen net outflows every year since.

Meanwhile, UK government bonds and the pound fell on estimates that inflation could hit 20% next year if energy prices remain high, and investors and analysts expect only to weaken further as the country issues billions of pounds of debt to fund Prime Minister Liz Truss. £150 billion energy package.

Buxton pointed to several long-term structural trends that have also turned investors away from UK equities.

“The multi-year trend of globalization – which is a sneaky way to get great exposure in the United States, because the United States has been so powerful – does not reverse itself overnight,” he said. declared.

He also pointed to the UK market’s preference for cheap value stocks in sectors such as mining and energy, and the absence of fast-growing technology companies.

Until the Federal Reserve’s leadership change in November, growth stocks had been rising for more than a decade, first beneficiaries of central bank action to support the global economy through the 2008 financial crisis and then the pandemic.

“The perception is that we’re a dull, boring stock market with no exciting growth companies at ludicrous valuations,” Buxton said.

But it could be very useful for UK investors in the current environment, he added, given that sectors like oil and mining tend to fare better than high-growth stocks during periods. of inflation.

An investment firm run by fund manager Ruffer said on Friday its position in oil major BP, which rose 10% in August, helped its equity exposure outperform broader indices that month. .

“I actually think oil and mining is a wonderful place to hide in a bull market for commodities and a bear market for stocks,” Buxton said. “It will take a three-year bear market to crush the Nasdaq before people say the trend to go global might not have been such a good idea.”

The FTSE 100 is one of the best performing national equity indices this year, down just 2%, while the S&P 500 in the US is down 15%. The bulk of FTSE 100 companies earn revenue in dollars and other currencies that have appreciated against the pound, which has improved their bottom line.

Comments are closed.