Expect corporate earnings downgrades in 2012, says Buxton

Richard Buxton, head of UK equities at Schroders, expects corporate profit downgrades in 2012 as expectations for UK and global growth continue to fall.

Richard Buxton

Buxton says the only immediate driver of equity returns in 2012 would be any re-rating of the market resulting from a positive resolution to the uncertainty surrounding the eurozone.

He says: “As expectations for UK and global growth continue to recede, it is probable that earnings forecasts for 2012 remain too high and the next few months will see a continuation of recent downgrades to profit expectations. There will be no upward pressure from this market driver.”

Buxton believes the next ten years should provide double-digit real returns, despite the economic headwinds the UK faces.

He says: “Previous bear phases have typically ended on a price/earnings ratio of 6x. It is easy to envisage a further crisis in the next few years which does provoke a final lurch down in stockmarkets to generationally attractive valuation levels.”