Half of investors expect UK stock market to fall over next six months

The recent sharp sell-off in shares worldwide has unnerved many UK investors – and half expect the market downturn to persist until the end of the tax year.

This is according to new research by financial services firm Willis Owen, which also found that 17 per cent of UK investors expect the UK stock market to fall by a tenth between now and then.

Some 6 per cent of the 1,000 UK investors surveyed gave a more gloomy outlook, anticipating a correction of more than 15 per cent.

Of those expecting the UK stock market to fall, 71 per cent believe that Brexit will continue to drive UK share prices lower

UK shares have been and remain fragile amid Brexit turmoil. The UK stock market has slipped lower amid the political fall-out from the struggle to get a Brexit plan sorted before the UK leaves the EU on 29 March 2019.

Of those expecting the UK stock market to fall, 71 per cent believe that Brexit will continue to drive UK share prices lower, and two-fifths (42 per cent) intend to reduce their exposure to UK shares and and bonds over the next six months as a result.

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Meanwhile, 41 per cent and 37 per cent of respondents believe increased political risk – the danger that the actions of governments might reduce the cash-flows that investors expect from their investments – will be the key reasons behind future falls. 

Adrian Lowcock, of Willis Owen said: ‘Even after the sell-off in markets in October investors remain nervous of the UK market. 

‘Our research reveals Brexit is putting off investors, and this is a dominant trend across both professional and retail investors and is reflected in industry wide data. 

‘However, investors should think longer-term when considering their portfolios. The UK looks good value for long-term investors.’

Projected falls in the UK stock market 

Percentage fall in UK stock market over the next six months (%)	Percentage of UK retail investors who think it will fall by this much between now and April 2019 (%)
Up to 5	11
Between 5.1  and 10	22
Between 10.1 and 15	11
Between 15.1 and 20	4
Over 20	2
Dont know	4

Another interesting statistic from the study is 46 per cent of investors believe that any correction in the UK stock market over the next six months could be an attractive long-term investment opportunity. 

But following the famous buy low, sell high investment maxim is easier said than done, as market timing is a hard art to master.

Seasoned investors can testify that selling when markets are falling does not usually pay off, but it can also be hard to find the confidence to buy when markets are down substantially

History shows that steep falls are often followed by a bigger rebound over the long term, however.

A separate study by investment management firm Quilter Cheviot found a person who invested £10,000 in the stock market through the average UK equity fund in March 1993 would now have £58,755 if they were brave enough to leave it untouched.

This figure takes into account loss that would have occurred during the global financial crisis of a decade ago.  

Two UK funds tipped to prosper

For investors looking to invest more in the UK, Lowcock favours Merian UK Smaller Companies and Man GLG Undervalued Assets funds which levy ongoing charges of 1.03 per cent and 0.9 per cent respectively.

He said: The Merian fund has one of the most highly regarded small and mid-cap teams, headed by Dan Nickols who is the manager of this fund. 

‘Companies must demonstrate one or more of the following characteristics: the ability to grow earnings faster than the market average for an extended period of time; the scope to generate a positive surprise; or the potential to be re-rated relative to the market. 

‘A pragmatic approach is taken to valuation, with various ratios and timescales used depending upon the situation. This flexible approach allows growth, value, and recovery names to be held, but the portfolio has tended to show a growth bias.’

When it comes to the Man GLG Undervalued Assets, Lowcock says fund manager Henry Dixon and co-manager Jack Barrat believe they can add value through thorough analysis of company balance sheets to understand a company’s true, ‘real-world’ assets and liabilities.

He adds: ‘They seek to identify two types of stock: those trading below their estimate of the company’s asset value and those where the company’s profit stream is being undervalued relative to the cost of capital, in their opinion. 

‘The portfolio has a value bias relative to peers, but it does steer the managers towards elements of quality and positive earnings momentum. Dixon has demonstrated his ability to consistently execute the investment process with discipline.’