London's stock markets can build on the positive start they have made to this year despite continued upheaval in the eurozone, one of Britain's most influential fund managers has claimed.
Robert Churchlow, head of UK Equities at Legal & General Investment Management, said an upturn in the housing sector was likely to boost consumer spending in the UK over the next few months. He praised measures taken by Chancellor George Osborne in last month's Budget and predicted the "feel-good factor" could creep back into the economy.
"We believe there are significant structural problems in the eurozone and think things could end badly. Trying to predict exactly how and when is the difficult bit, yet the markets seem to have taken the problems in Cyprus in their stride.
"In the US, it looks as though we may see a self-sustained recovery. The signals out of China are mixed but we believe things will be alright there too. These are the real drivers to global growth and as long as Europe doesn't blow up to the extent that it ruins the US recovery, then equity markets can make further progress."
LGIM is the biggest investor in the FTSE 100 and currently has global assets under management of £406bn. At the start of the year, the company predicted the FTSE 100 would rise 8 per cent to 6,400 points – a milestone it has already passed, settling at 6411.74 on Thursday.
Mr Churchlow was particularly bullish on the housing market, which he said would benefit from measures such as the Help to Buy scheme in the Budget, which the Chancellor estimates would fund £130bn of new mortgages over three years
"The Government has taken steps to boost the housing market, which should in turn support consumer spending," he said, adding: "If you can get consumers spending and get house prices going up then the 'feel-good factor' will creep back into the country. On the housebuilders we can see the profitability improving as the companies increasingly build on land bought in recent years on attractive margins.
"The measures which the Government is putting through are also helping and the detail in the Budget was a positive surprise. It was very helpful and you've seen housebuilders' shares react positively to that. Investors are also starting to believe that house prices can start to move up. We also believe that an upturn in the housing sector will benefit some retailers, particularly those exposed to an uptick in housing transactions."
Churchlow also welcomed the recovery in London's IPO market in the wake of positive stock market debuts from Countrywide, Crest Nicholson and Esure. He said the outlook for IPOs looked better this year.
"If you look at the quality of the companies coming to the market this year, it's been pleasing. For example, Crest Nicholson is one of the highest quality housebuilders and Esure has a strong market position with strong management. Both were sensibly priced as their share prices in the aftermarket have shown.
"Pricing something attractively benefits everybody. The company benefits from a rising share price, investors will have more willingness to look at future IPOs and the banks benefit from higher activity levels. A successful IPO also makes it easier for vendors to reduce holdings further in the aftermarket as we saw this year with Direct Line."