Cyclical stocks with improving fundamentals offer most value

After a positive start to 2010, risk aversion on the back of downbeat macroeconomic news has hit UK equities.

Fears over Greece’s ability to pay its sovereign debt and the impact on the rest of the eurozone started the negative trend. Disappointing economic data from the US, Japan and China added to investors’ fears and raised concerns over the possibility of a double-dip recession. However, market pessimism is overdone and we remain positive on the outlook for UK equities. A double-dip recession is unlikely and we expect confidence to return as the recovery continues, albeit at a relatively slow rate. UK companies are in good condition with robust balance sheets following cost-cutting and eq...