Richard Buxton: three major concerns…and one ‘overriding worry’

Richard Buxton, head of UK equities at Schroders, believes the three immediate concerns plaguing investors are overblown and will subside over the coming year, while equities are on the cusp of a new bull market.

The manager of the £3 billion UK Alpha Plus fund said fears over the impending fiscal cliff, a Chinese hard landing and Europe’s ability to address its sovereign and banking crisis will reduce next year.

‘The US is likely to agree a fiscal policy which turns the ‘cliff’ into a gentle slope,’ said Buxton. ‘Given that US banks are creating credit again and that an improving housing market is underpinning consumer confidence, a positive agreement will reassure US corporates.

‘Having held back on spending ahead of the Presidential election and the ‘fiscal cliff’ negotiations, a satisfactory outcome should see a resurgence in investment and orders,’ he added. ‘Stronger activity in the US could lead global growth in 2013.’

With regards to China, Buxton believes improving economic data and a level of policy stimulus should ease fears of a hard landing, especially as the country’s policy vacuum is now over, following its leadership transition.

‘Against a background of improving activity in the US and China, even Europe may fail to dominate investor sentiment,’ said Buxton. ‘Much progress has been made this year in the multi-year evolution towards fiscal union and the appropriate mix of austerity, reforms and fiscal transfers. Expect further progress in 2013.’

In contrast, Newton's James Harries, manager of the firm's Global Higher Income fund, believes the long-term trend for China is downward, and remains negative on companies, sectors and economies dependent on China.

Overriding concern

One overriding worry, though, is the scale of debt in the West, which Buxton said ‘condemns us to weak growth for the foreseeable future.’

However, if the three concerns over the US, China and Europe fade, investors’ concerns over developed markets’ indebtedness may lessen.