Ardevora's Lang: Utility stocks can withstand political risk

There are three main actors driving the irrational behaviour we so often see in equity markets; company management, analysts and investors. Each group can fall into bias, but the circumstances and the types of biases are different.

Company management are prone to excess risk taking, analysts tend to be under-reactive, while investors are prone to over-reaction. These people place too much weight on a narrow range of information to draw black and white conclusions. At the moment, the main sectors of the UK market where we see irrational biases coming to the fore are in the utilities space and supermarkets. Firstly, the utilities space. After noting the first signs of the momentum correction coming out of the US earlier this year – where we saw a short and brutal sell-off in the tech sector in particular – we were...