In our latest clip, Imran Sattar, Portfolio Manager of Edinburgh Investment Trust, talks through the strength of the UK PLC balance sheet and the positive position of UK equities in the current market environment.
It's fair to say there's a lot going on. You can see that from the headlines on the left-hand side. We've had more than our fair share of prime ministers in the last decade. Sentiment around the UK has been poor. And then when you look on the right-hand side, you can see GDP growth stubbornly below trend for a period, if you X out the COVID period. If you look at UK real GDP versus the G7, actually we're in the pack. And so the weak, below trend growth, is not specific to the UK. It's a function of relatively mature economies. On the right-hand side, you can see in the context of what is high total debt as a percentage of GDP amongst the G7, actually we fare really well. We've got the second lowest level of total debt. What total debt means is government debt, plus corporate debt, plus household debt. And the real driver, which I think is very impressive, is that reduction has come principally from consumer and corporate, where balance sheets are very strong. So growth is in the pack, and we have a relatively strong balance sheet position, at least at the corporate and consumer level. That's a good starting point for UK equities, particularly given the low starting valuation, which we've talked about previously. Perhaps with a stable political environment, the UK stock market might be a favoured one going forward. Now, it's not dissimilar across the globe. You can see on the left-hand side here, US consumer sentiment is poor. So the weak consumer environment is not specific to the UK. And remember, the US economy is growing faster than the UK, and you can see the inflationary impact from memory and chip prices on the right-hand side. Again, that will put pressure on the US consumer. So the tough US consumer environment is not that dissimilar to what we see in the UK. Let's have a look at some more charts. The hyperscaler capex. This is a positive, large amount of cash flows from the likes of Meta, Google, Amazon, and Microsoft being spent on compute and data centres. And on the right hand side, you can see a US economic cycle that is now in its seventh year of expansion, sixth longest in history. So the picture's mixed. The UK economy is not booming, nor is it uniquely weak. Against that backdrop, we think UK equities are really well positioned, particularly given the valuation.
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Imran Sattar
Imran Sattar heads the Global Fundamental team. He joined Liontrust in April 2022 as part of the acquisition of Majedie Asset Management, where he had managed funds for four years. Before joining Majedie in 2018, Imran was a Managing Director and fund manager at BlackRock, where he managed UK equity funds with combined assets of over £2 billion.
He holds a BSc in Mathematics & Economics from the University of Warwick and is a CFA Charterholder.