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Gartmore’s Head of MultiManager, Tony Lanning, gives his market and economic outlook.

The recent market turbulence witnessed over the last couple of months was sparked by a variety of macro level developments. The threat of European sovereign debt contagion, Germany’s shock short selling ban, uncertainty over the future of financial regulation and the threat of the Chinese economy slowing down, were some of the major factors which rocked global markets.

However, despite this surge in risk aversion we don’t believe the UK will suffer a double dip recession. In fact, our funds are all currently invested with a bias towards equities.

There are a number of factors we think should be considered. The co-ordinated global policy witnessed at the beginning of the credit crisis has restored credibility and confidence in monetary authorities around the globe. It appears that financial Armageddon has been avoided and banks have remained solvent.

It is true that the credit crisis has morphed into a sovereign debt crisis but again governments are taking strong measures to reduce the effects of contagion. For example, in Europe the ECB has proposed a massive €720 billion package to protect the financial stability of the eurozone. It also announced in conjunction with the IMF, a €110 billion package to help bailout Greece over the next three years.

In the UK, although some investors fear that government spending cuts may damage the UK’s fragile economic growth, the news has been warmly received by rating agencies, foreign governments and supranational bodies (such as the OECD and G20). It is generally accepted that the UK’s budget deficit (currently 12.6% of GDP) is untenable, and will damage future economic growth if it is not addressed soon. The UK government’s budget slashing proposals seems to address these concerns.

It also appears that the Bank of England seem prepared to keep historically low interest rates on hold for the foreseeable future. They are willing to tolerate higher levels of inflation in the long run in order to generate economic growth. This should also help to further quell fears over a double dip recession.

Given this backdrop, we are underweight cash and avoiding gilts which appear unattractive in the current market environment. Property is becoming more interesting and we are positive on equities. We have been overweight cyclical equities but defensive names now appear to offer good value. In terms of regional allocation, we have been taking some profits in GEM and Asia and are reinvesting into preferred regions like the US and Japan.

It is true that the outlook appears muddied by recent events. However, it is important not to lose sight of the bigger picture. Despite the rise in risk aversion over the last few months, by and large, economic fundamentals remain positive.

In part, this has been due to the generally positive economic data which increasingly supports a broadening economic recovery. Additionally, many companies have beaten their earnings and profit forecasts this year, exhibiting stronger and more robust balance sheets than they did a year ago.

Recent market volatility has created many value opportunities across a number of asset classes. A prime example is large cap equities which are trading at valuations which do not reflect corporate balance sheet strength. We believe that the current market offers many buying opportunities, whose returns will realise once markets have normalised.

The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance is not a guide to future performance. Please ensure investors read the Simplified Prospectus before investing. All opinions and estimates constitute the Fund managers judgement as of 8 July 2010 and are subject to change without notice. The views expressed must not be taken as an offer to buy or sell units or shares in the markets mentioned. These views are provided for information purposes only.

• This entry was posted on: Friday, 16 July 2010 17:58 BST
• Filed under: News & Opinion
• Tags: Gartmore MultiManager, News, Tony Lanning
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