Ted Scott: Stockpile equities if they fall a further 5%

F&C's Ted Scott said if UK equities dive a further 5% they will be worth stockpiling, despite the risk of a double-dip recession.

The director of global strategy said the market has been dramatically oversold and is set to bounce back in the event of eurozone policymakers coming up with a solution to the debt crisis.

He believes, unlike the last financial crisis, the valuation floor is not far below current levels due to bad news already being discounted by the market.

"Share prices are already implying a significant downgrade in earnings over 2011/12, and if equities fall a further 5%-10% they will be worth accumulating despite the risk of recession," said Scott.

"Markets are clearly oversold and overdue a technical bounce as, although the vast majority of economies have high debt burdens, they are still growing.

"Companies remain in strong financial shape and are delivering good profit along with dividend growth."

He warned for markets to have a sustainable rebound, authorities need to focus on solvency as opposed to pumping more money into peripheral nations.

He added until this is addressed, the threat of a double-dip recession will intensify and markets will remain in turmoil.

"For markets to have a sustained rally it is necessary for the eurozone to come up with a credible solution to its debt crisis," said Scott.

"It will have to demonstrate it can be durable and address the burning issue of solvency rather than the liquidity based approach the ECB is takign with the purchases of Spanish and Italian debt."

Scott added equity valuations are at levels rarely seen in recent decades, and are particularly attractive compared to government bonds.

"The UK market is on about 9x P/E for December 2012 that equates to an earnings yield of over 11% compared to a 10-year gilt yield of about 2.75% and a negative equivalent real gilt yield," he said.