As the UK comes to grips with the new-found austerity ushered in by new chancellor George Osborne and the first coalition government since 1945, you can expect to see a lot more of this type of research.
And with good reason, too. On Tuesday, telecoms company Cable & Wireless Worldwide issued a profit warning based on a slowdown in public sector spending. Connaught, the social housing company, did the same in June. So, should investors be avoiding Austerity Britain?
Execution Noble says (in short) probably.
According to the bank’s small/mid-cap team:
The UK government’s commitment to reducing the structural deficit raises the question of whether it is possible to cut debt via spending cuts and tax increases without significantly increasing unemployment and reducing consumption. Current economic forecasts suggest that it is. We take the view that a period of fiscal austerity will result in a lower level of economic growth than is currently being forecast.
. . .
Given our more pessimistic view on the UK economy we have reduced our expectations for the UK equity market in 2010. While we admit that on traditional metrics the UK equity market looks cheap, we believe earnings upgrades have peaked and expect incremental cuts from here. We have already seen evidence of how fiscal austerity measures and budgetary cuts have impacted a number of UK companies and we expect this to become more of an issue as the year progresses. As a result we have reduced our year end FTSE 100 target from 5950 to 5400 and no longer expect smaller companies to outperform.
How refreshingly pessimistic.
Still, the analysts do have some recommendations for those who want to take a stab at speculating on spareness. They’ve come up with 10 UK stocks they think could do well in Austerity Britain.
And here they are — along with the boxes they’re meant to tick:
More austerity — should you want it — in the usual place.
Related links:
UK Plc feels the pain of Osborne’s axe – FT Alphaville
Companies reposition to avoid funding axe - FT
Austerity Britain and equities – FT Alphaville