Prospects for stock market 20 years on from Black Wednesday

October has a reputation as a month where crashes happen with greater regularity than other months. Santander Asset Management UK’s research shows that in terms of arithmetic average returns, the quarter from October to December provides the weakest returns over 10 years.

Richard Moore, fund manager at Santander Asset Management and manager of the Abbey UK Growth Fund, gives his view of the prospects for October, and how he is positioning his fund to take advantage of potential market opportunities.

“We remain cautious on the market overall, with the continuing problems in the US and tighter lending criteria in the UK keeping the consumer under pressure.Despite this, we continue to build positions in stocks offering attractive valuations and the opportunity for capital growth.

Rocktober – Food, Telecoms, Oil and Mining

“As the global population increases and incomes rise, so will the demand for food. Food price inflation over the longer term will benefit supermarkets as well as food processing companies and we have recently increased exposure to Tesco. Food prices have seen further price rises so far in October with milk up 2p to 25p.

“We are also positive on telecoms and particularly Vodafone, which could benefit from moving into Eastern Europe and an increase in mobile data usage.

“We expect oil stocks to continue to perform favourably and remain overweight in the sector. Despite US slowdown we remain overweight in mining, as a global demand boom maintains high iron ore and copper prices. The Baltic Dry Freight Index, a leading indicator of basic materials/metal prices has also hit an all time high.

Crocktober – housebuilders, financials, retailers

“We are bearish on housebuilding, as prices and volumes move downwards. We favour mainstream banks over mortgage banks, which have discounted bad news, leaving valuations more attractive and with good yields. The liquidity crunch is starting to ease and there could be a rally in oversold banks in the final quarter.

“We remain wary of retailers - consumer confidence has suffered a blow as a result of the recent market volatility and we expect a subdued Christmas spending season.”