UK will weather eurozone storm, says Custis
The manager believes the uncertainty on the continent will continue, but claims the solid fundamentals of UK businesses should stand them in good stead.
The strength of UK corporates should be enough to fend off an all-out collapse in prices if the eurozone crisis takes another turn for the worse, says Lazard’s Alan Custis.
Custis heads a number of equity-based funds – focused on both the UK and globally – but believes the UK is the best place for investors to put their money at the moment.
"UK companies still appear to be in good shape and will more than likely survive another wave of macro uncertainty without the need for rights issues or other rescue measures," he said.
"They still have robust balance sheets and dividend cover has remained strong throughout the past year. We have also seen an uptick in M&A activity, primarily among mid cap companies."
The manager remains vigilant however, and while many point to the relative ‘cheapness’ of the UK market, he says prices could dip further still.
"It is difficult to predict what equity markets will look like in three months' time," he commented.
"Will the rally on the last day of the second quarter be extinguished once another set of measures by Europe’s leaders has been found wanting?"
"Possibly, but simply looking at the past two summers, this could be a difficult, unpredictable quarter for equity investors."
"A number of European companies are beginning to struggle, which could be interpreted as a warning that large corporate weakness in Europe could make its way to the UK."
Custis has returned 83.96 per cent in the last decade, beating his peer group composite by 8.83 per cent – albeit with more volatility.
Performance of manager vs peer group over 10-yrs
Source: FE Analytics
is clearly anxious about the deepening eurozone crisis, he believes there are more reasons to be optimistic than pessimistic.
"If liquidity measures lead to better macro economic data across Europe and a more lasting solution to the crisis can be agreed upon, share prices could appreciate strongly," he said.
"In the meantime, we will continue to focus on stock specifics, particularly where we see stocks with valuations that do not reflect the business reality."
Custis points to the downscale in inflation as another reason to be positive and attributes this to the fall in global oil prices.
He commented: "We feel there is underlying data that is more promising with regard to long-term growth and short-term hardship. At 2.8 per cent, inflation is now a lot closer to the Bank of England’s target."
The manager also highlights the turnaround in strength for the US housing market and the Chinese government's interest rate cut as reasons for UK investors to be more optimistic in the long-run.