2009 will be tough for the economy but better for stock markets

This year will see tougher economic times for consumers and business but good opportunities for stock pickers, according to Artemis fund managers. While the recession will bring more hardship during the year, depressed stock prices will also offer good buying opportunities, the company says in the latest fund manager interviews on its website.

The Artemis Film Club will today, 12th January, post interviews with Mark Tyndall, Artemis chief executive and co-manager of its Capital Fund, Derek Stuart, manager of Artemis UK Special Situations and Mark Niznik, co-manager of Artemis UK Smaller Companies.

Mark Tyndall says that last year’s stock market falls should mean that buyers should see good growth in the medium term, although he does warn that 2009 itself could also be a relatively flat year in the markets.

“Over the long term, equities generate seven or eight per cent per annum. The returns that we get in any 10 year period are a function of how cheap or expensive the stock market was when we invested and what the valuations look like when we are looking to sell our investments. If a stock market has just halved, then the probability is that, over the next 10 years, we are going to get better returns than average,” he says.

Mark Tyndall also warns that the need to reign in spending will mean tough times for the economy: “There is a paradox here that is not going to go away, no matter how much the politicians wish it would. If the problem is that there is too much debt, then the solution cannot be to encourage people to keep spending. Saving has to go up and the debt has to be paid back. That may result in people being thoroughly unhappy because jobs will be lost and businesses will suffer.”

Derek Stuart says that the general fall in stock markets has meant that good, well-run companies can be bought for attractive prices. His fund looks for companies that have a strong franchise, good management and are well financed. “The great thing at the moment is that we are not having to go down to the poorer quality areas of the market, because we can find great value in the better quality end.”

The Artemis UK Special Situations Fund is beginning to move from defensive stocks, such as Cadbury and Unilever, into cyclical and is again investing in companies such as Premier Oil and Wood Group in the oil sector. Derek Stuart is also beginning to invest in some of the stronger fund managers and banks within the financial sector, where good companies’ share prices have been dragged down because the sector as a whole is out of favour.

One of the factors that will help manufacturers this year is that many companies ran their stocks so low last year that they will now have to restock in 2009. “As long as we don’t have a depression, there is money to be made in the stockmarket,” he concludes.

Mark Niznik says that he and co-manager John Dodd are looking for good opportunities for the Smaller Companies Fund, following a tough year for the sector. With share prices halving last year, they see the prospects for better than average growth. Mark Niznik, like Mark Tyndall and Derek Stuart, is encouraged by an increase in directors buying their own companies’ shares towards the end of 2008: a sign that they see their shares as undervalued and likely to improve.

“As share prices have been falling in 2008, John and I have been getting more excited about the prospects. We have been tracking quality companies over the past few years and now we are able to buy these companies at pretty much bargain basement prices.”

“We see the opportunity to go on a shopping spree in 2009 which should be paying substantial dividends to our investors in future years,” he said.

Source: Internal as at 12 January 2009.