UK stocks at "significant turning point"

By Raji Menon

LONDON (Reuters) - The current share market rally is the start of a "significant turning point" for UK equities with the bear phase of the market probably over, a leading fund manager said on Tuesday.

"I don't think we will revisit the lows that we have seen in the past. The current rally has a strong underpinning," said Richard Buxton, head of UK equities at Schroders, one of the UK's largest fund managers.

"There are many that are distrustful of the rally because the good stocks are not doing well and the rally is being led by the 'nasty banks'. But things are not as bad as they were and we're beginning to see the impact of various policy initiatives."

He takes the contrarian view that widespread suspicion of a bear rally is an indicator that the rally may continue.

Buxton, who was speaking at a Morningstar Investment Conference, said the rally was being driven by a pick-up in activity in China and a greater confidence returning to the banking sector.

"There is also a huge divergence in the market - the big stocks in the index continue to be consumer staples, the pharma and oil stocks. These stocks have underperformed so much that they are really pretty cheap," he said.

"These stocks have to go down a lot further to take the market back to its lows and that's highly unlikely. Even if they stay where they are and some of the cyclical stocks give back some of their gains, you wouldn't be back to the lows."

Buxton said there was still some upside potential in cyclical stocks such as Rio Tinto (RIO.L) (RIO.AX), DSG International (DSGI.L), Cookson (CKSN.L) and Enterprise Inns (ETI.L) and domestic banks.