2010-07-09
Public spending cuts will push debt problems from governments back to banks, although British outsourcers should benefit, according to the manager of the £1 billion Artemis UK Special Situations fund.
Derek Stuart says banks will have to contend with further bad debt problems as the government cuts jobs and export markets weaken.
Although the eurozone is deleveraging and Chinese growth is slowing, Stuart warns America should be the next country to “wake up to the fact they cannot keep increasing debt”.
Stuart says investors have to look at where exporters’ customers are located, rather than assume all multinationals are in a better position than domestic companies.
Stuart is looking at stocks with all of their revenues in Britain, including Capita, an outsourcing firm. He bought Lloyds and RBS at oversold levels in the first quarter, but reduced his 2.5% positions to 2% and 1% respectively in the second. (article continues below)
Other positions include an underweight 3% in BP, which Stuart had raised from 2.5% during the Gulf of Mexico crisis.
Stuart says BP’s annual contributions to its $20 billion (£12.5 billion) compensation fund will constitute less than 15% of operating cash flow, or earnings before interest, taxes, depreciation and amortisation and capital expenditure.
Anadarko and Transocean, BP’s contractors on the affected rig, may be liable to pay part of the compensation if BP is not convicted of criminal negligence, according to Stuart. However, Stuart warns BP still risks losing key assets outside America—in Russia—in the wake of the crisis. He is also waiting for uncertainty surrounding American litigation to clear before adding to his position.
From: www.fundstrategy.co.uk
