Investors continue to overlook balance sheet strength

ON UK INCOME

Investors have become concerned about the eurozone sovereign debt crisis and are questioning whether politicians will be able to find an acceptable solution to the problem, thereby avoiding contagion to the broader European and global economy.

With the environment being very much ‘risk-off’, investors have sold economically sensitive companies and sought refuge in those sectors perceived to be more defensive. Corporate updates have remained benign, albeit there have been limited profit warnings, although these have typically been company specific. Economic newsflow suggests a mid-cycle slowdown rather than anything more serious, which is consistent with IMF forecasts for anaemic global growth. This reinforces our view the key focus for stock selection must be on quality and balance sheet strength. The eurozone debt crisis i...