It is now a case of “when and how deep, rather than if” the world enters recession, but some parts of the equity market look attractive, according to Bruce Stout, who runs the £1.7bn Murray International investment trust.
Stout is known for his long-term scepticism around equity market valuations, and said markets have tended to “accentuate the positives” in equities for a long time, however more recently he said he felt this optimism has receeded, and it is is at the heart of the present turbulence.
He said: “Economic fundamentals continued to dramatically deteriorate throughout the so-called developed world. With regards to inflation, growth prospects, corporate earnings and sentiment, recent developments were generally negative. Despite a 40 per cent decline in the oil price since the highs of early June, the relentless rise in overall energy prices continued to fuel upward momentum in inflation and simultaneously reduce consumer spending power. Economic growth began to tangibly decelerate, with the increasingly realistic prospects of recession translating into deteriorating public confidence and widespread caution across the business sector. As the ripple effects of the post-pandemic consumption boom began to dissipate, the prospects of tougher times ahead were echoed in trading statements and profit forecasts from most leading companies keen to manage expectations downwards.”
One area he highlighted as representing value, and where he has added new holdings, is the pharmaceuticals sector.
Stout said: “Weakness in global pharmaceutical stocks due to increased focus on product patents, drug pipelines, pharma litigation and a temporary rejuvenation of market sentiment towards all things “growthy” presented the opportunity to establish a new position in Merck, a global pharmaceutical company with leading capabilities across a wide range of healthcare solutions.”
The Murray International investment trust trades at a discount to net assets of just over 5 per cent, according to data from the Association of Investment Companies.
The trust has a dividend yield of over 4 per cent, and has raised its dividend for each of the past 16 years.
david.thorpe@ft.com
