Simon Murphy, equity fund manager at Tyndall, says it is more typical for people to be in debt when exiting a recession, and households focus on repaying the debt or rebuilding their savings ratio – but as savings ratios are already very high, and debt levels much reduced, this is less important in this recovery, and implies there will be higher spending and faster growth than was typical of previous recoveries.
Tom Moore, UK equity manager at Aberdeen Standard Investments, says every economic cycle is different, but the fundamental questions that determine share price performance are the valuation of the market and the performance of the wider economy, and at present both of those are at a level where it should mean UK equities perform well relative to the rest of the world.
But he says many of the companies listed on the UK market have come out stronger as a result of changes they were forced to make to dividend policies as a result of the pandemic, while the management teams in areas such as housebuilding and mining companies, which have in the past expanded far too quickly when the cycle seemed to be in their favour, have learnt from the financial crisis and are now managed better and are less cyclical.
Moore says banks are also in a structurally different place relative to other times in the cycle, as regulatory requirements mean banks are holding ample capital at the start of a cycle. This is unusual, as more often the recession would have left bank balance sheets in a poor state as more debts would have gone unpaid and savings used up.
In this way Moore says the cycle is very different from the past, with some structural changes also benefiting the UK.
Structural story
However, the UK stock market has an image problem, according to Adam Khanbhai, who runs the Strategic Equity Capital investment trust.
He says the image of the UK market is of a place stuffed with businesses in structural decline, left behind by a changing world of technology.
He says this characterisation has some validity in relation to the FTSE 100, but that the mid and small-cap area of the market is full of companies that are structurally growing, although they tend not to be household names or consumer-type companies, so they have a low profile.
He says there has been a wave of mergers and acquisitions of UK small and mid-cap companies in recent months, which is a sign the wider world is starting to recognise the value inherent in that part of the market.
