Buxton sees 25% rise for UK stocks in 2011

Schroders’ Richard Buxton expects the UK stock market to climb by as much as 25% next year.

Buxton, the group's head of UK equities and manager of the £2.25bn Schroder UK Alpha Plus fund, says local stocks are one of the most attractive areas for investors today as the market continues to discount a highly uncertain outlook.

"Having shed jobs quickly at the beginning of the recession, companies are now leaner. Moreover, strong profits this year leave companies cash rich - cash which is currently on the sidelines," Buxton says.

"As companies realise that we are not headed for a double-dip, capital expenditure will rise. We expect the recent pick-up in M&A to become more prevalent; currently mothballed projects to be put into action; and hiring to resume.

"On a global basis, UK stocks remain relatively undervalued and offer strong recovery potential, dividend yields are growing, and although the UK may just be a small market, listed companies have a truly global reach."

Buxton says corporate profits, which are set to rise about 50% this year, have been the bright spot of the recovery.

"This is a remarkable achievement, given what has been a fairly anaemic recovery so far. The figures are testament to the hard fought restructuring which businesses engaged in during the early stages of the recession," he adds.

"The results are clear: many companies now enjoy improved balance sheets, streamlined costs and better cash generation. Businesses have done a sterling job of taking out costs and, as sales come back, there will be a leveraged improvement in profits.

"Companies are generating record cash flows, and enjoying record profitability, yet investment is at record low levels. Now we must see that cash put to work."