Opportunities are opening up for canny investors, say Investec experts

UK share prices are poised to deliver good returns over the next 10 years, according to investment experts.

Chris Hills, chief investment officer for Investec Wealth & Investment and Richard Buxton, head of UK equities at Schroders, agreed that UK share prices are currently cheaper than they have been and are akin to where they were in the late 1970s and early 1980s when they delivered a high real return over the next 10 years.

Speaking to an audience of business leaders at a Global Investment breakfast seminar in Yorkshire yesterday, Mr Hills said: “UK equities are cheaper than they were and have produced good real returns before from this rating.

“We could expect to see 10 to 15 times profits over the next 10 years.”

Mr Buxton backed his views and added: “We are akin to 1977 and 1981 in terms of equity valuations, so [if you are investing now] I would have thought that in 10 years you will have made money.”

Both men also agreed that there are several positive signs for UK firms and investors.

“Another piece of good news is that new business formations are up – which is incredibly positive for the UK economy. My contention is that we are through the worst,” said Mr Buxton.

Mr Hills added that corporate profits are “robust”. “We believe that they don’t need to rise – they just need not to fall.”

The event was held by Investec Wealth & Investment at the Radisson Blu Hotel in Leeds in association with TheBusinessDesk.com.

Also speaking was Darren Ruane, senior bond strategist with Investec Wealth & Investment, who told the audience of more than 60 people: “We are not at the ‘screaming buy’ stage for UK equities but they are in the least worst place.”

He said that in terms of investing in bonds, the opportunities will be in emerging and developing markets.

Mr Hills said: “The outlook is cautious for growth in the West. Business decisions are being slowed by paralysis in Europe. There is a slow recovery in the US because of a headwind caused by the consumer being more cautious.

“You probably want to invest in the ‘good guys’. CASH is the new BRIC – Canada, Australia, Singapore and Hong Kong are where you would be happy to be buying the government bonds.”

Mr Hills highlighted the recent trend toward so-called ‘vulture funds’ being launched in the City by organisations including Prudential and Aviva to provide “very expensive” mezzannine debt for commercial property owners forced to refinance their loans by their banks.

He said that was good for the banks as it helps their liquidity and potentially provided more cash for them to lend to SMEs.

Mr Buxton was withering in his criticism of the UK’s debt levels.

“It took 300 years to get UK debt to £310bn in 2000 and then it took just 10 years to treble that – marvellous stuff!

“It is difficult for the Government to get more cuts so this is why growth is so important.

“I am not surprised that people have been camping outside St Paul’s Cathedral as there is income inequality and I don’t think that the Government has done enough to get the message across that we are all in it together.

“It is not the level of unemployment but the fear of unemployment. The level of public sector job losses is slowing and we are confident that the private sector will gradually be able to absorb these public sector job losses.”

Mr Ruane said he believes that Greece “will have to leave the euro at some point”.

“Many European banks hold a lot of Greek assets so it’s not as easy as saying: ‘Let’s throw them out’.

“Lenders to Greece had to take a big haircut of 70% of the debt earlier this year and that is going to have to be cut again and organisations like the IMF don’t traditionally take haircuts.

“The good news is that most investors who have assets exposed to Greece know about it and should have priced it in. But if Greece leave the euro then they will have to leave the EU.”

Both he and Mr Hills highlighted opportunities for investors in China.

“We expect a soft landing in China – we think that is likely with growth of about 8.5% this year.”