Investors should be more optimistic about the outlook for markets than is currently being reflected in share prices, according to Simon Edelsten, who runs the £182m Mid Wynd investment trust.
Mr Edelsten entered the month of October with 9 per cent of the assets held in cash in some of his funds, something which boosted performance as share prices fell from the start of October.
But since late November he has been using that cash pile to buy shares, despite the market continuing to fall.
He said: "The end of the cycle, debt, emerging market slowdowns, Brexit, tension around trade wars between the US and China have all rattled markets in the second half of 2018.
"Oddly, looking into 2019 we are increasingly optimistic. Post mortems on historical crashes show that bull markets don't die of old age, but from debt and exogenous shocks.
"Heading into 2019, debt does not seem a problem. In the digital world modern companies are less dependent on capital to build capacity and many have strong balance sheets.
"Household debt is relatively low. The US government is soaking up debt, but with interest rates low, that feels like a problem for later.
"As for shocks, we can certainly envisage some: a breakdown in currency arrangements (in the Eurozone for instance), the Xi Trump stand-off exploding or inflation suddenly shooting upwards.”
He added that a slowdown, rather than a crash, is likely for US economic growth in 2019, and added “clairvoyant investors looking for portents of doom would do better to look at equity valuations – they may not trigger a crash, but they are often a strong signal."
Speaking at the start of December, he said: "The S&P currently trades on a multiple of 16 times next year's earnings, with the UK on 12 times and Japan also on 16 times.
"Equities continue to yield significantly more than government bonds. There are pockets of the market experiencing irrational exuberance but on these valuations a recession would be unhelpful rather than devastating."
david.thorpe@ft.com
