Ashton Bradbury, head of equities, Old Mutual Asset Managers

Eurozone crisis can be solved
• It is the single biggest issue affecting equity markets
• The solution involves
• a write-off of Greek debt
• recapitalisation of weaker banks
• ongoing liquidity support for Italy and Spain
• Difficult to implement as it depends on Germany and European Central Bank and it will take time to get them to apply the necessary medicine
•Until they do, market volatility is likely to continue

China remains important to the fate of the global economy
• China’s growth will weaken (as authorities seek to reduce inflation) but does not mean there will be a hard landing
• Weaker Western economies mean China’s exports will soften
• But China has big cash reserves so it can spend on infrastructure and increase domestic spending to ensure growth continues

Optimistic on outlook for US growth
• Q2 data was weak but that was partly due to Japanese tsunami
• Since then there has been a pick up in employment and consumer durable orders
• US is not going to suddenly become a fast growth economy but it will grow
• Downside risk is major policy error in Europe which has knock on effects on other side of the Atlantic

Macro-economic concerns are beginning to affect company managements
• They are aware global events can impact on their business
• Everyone is nervous about what is around the corner
• Despite this companies remain strong financially
• However much more poor sentiment may start to affect companies’ capital investment and employment decisions
• Solving Eurozone crisis is crucial to improving sentiment of company managements

UK equities are looking cheap
• They are on 8.5x forward earnings but those forward earnings projections are probably too high (they imply 10-12% earnings growth over the next year)
• If you assume no earnings growth then market is on 9.5x forward earnings, which is still low
• That and decent dividend yield suggests that if Eurozone issue is solved then markets can return to a positive direction

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