Stock market wobbles

10th August 2011

The turmoil afflicting financial markets subsided despite a warning from the Bank of England that the UK economy's recovery could be derailed by global instability.

Share prices, however, remained in the black and even saw gains after Bank Governor Mervyn King presented the report, says This is Money.

Fears of a double-dip recession are real – but companies have already gone through sharp rounds of cost-cutting and balance sheets have been strengthened since the credit crisis. Another downturn will be grim, but businesses have the sandbags out already, adds the Daily Telegraph.

Graham Kitchen, Head of Equities at Henderson Global Investors discusses why UK equities are starting to offer exceptional value. He says: "Investors are rightly seeking credible long-term strategies from the US and Europe to reduce their debt, but realise that the solution would involve further austerity measures, which given an already sluggish global economy, could lead to a double-dip or an outright recession.

"But a glance away from the headlines and a deeper look at fundamentals reveal many reasons to be positive on UK equities, which are currently at extremely low absolute valuations. UK corporates are by and large in good health with robust balance sheets (rebuilt since the crisis of 2008), a credible austerity plan is already in force in the UK, and a floating currency and low interest rates (expected to remain with us for sometime), all bode well for stocks in the UK. "

The Daily Telegraph recommends a number of attractive holdings, It says that Investors with cash can buy bargains – if you are still in the market, do not rush to sell. Defensive shares have also fallen – so now is a good time to look at some quality businesses with global footprints. These sectors include the "sin set" of booze and fags, as well as utilities, healthcare and consumer goods.

For example, it recommends Diageo, saying that "alcohol sales are usually relatively robust in a downturn – and Diageo's recent share price fall has made the shares attractive. Especially as the group has a well-covered 3.8pc dividend yield."

GlaxoSmithKline is another ‘buy' on the list. "Healthcare is one of the few real bull markets you can bank on. People are living significantly longer and emerging parts of the world are growing wealthier – which means they will spend more on their health. Add to this a rising global population, and the industry is as defensive as they come over the longer term."

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