DIVI “upbeat prospects” amidst low valuation UK stocks

Diverse Income Trust plc (LON:DIVI) has announced that its Factsheet for the month ended 28 February 2023 is now available:

After the stock market recovery at the end of 2022 and into January 2023, global equities (company shares) lost some upward momentum during February. Energy prices continued to fall slowly and container shipping costs returned to pre-pandemic levels. 

Most economists agree that the impact of interest rate rises can take over a year to become clear. In time, the current increases in global interest rates are expected to eventually supress demand for goods and services. When interest rate rises start to take effect, their total impact could lead to a slowing of the global economy, that could persist over several quarters. 

Whilst some believe that the forthcoming economic downturn will be relatively moderate, there are an increasing number of economic commentators that now anticipate a global recession. Such an economic environment would challenge all businesses. When this is positioned alongside the additional interest costs, there is room for some companies to get into financial difficulties, with quite a few risking insolvencies. A troubled company may become insolvent when it is unable to repay its creditors money owed on time. 

Fortunately, the Diverse Income Trust invests in companies listed on stock exchanges which are principally funded through ownership of their shares (share capital). Increases in interest rates have less effect on these companies compared with private businesses that are more reliant on bank borrowings. 

In summary, the UK stock market may have been overlooked by investors for decades during globalisation, and we believe it is now standing at a low valuation when compared with many overseas stock markets. As globalisation slows and actually reverses, the characteristics of the UK stock market may now be well-placed for the future in our view. In this context, we believe the prospects for the Trust are more upbeat and positive than they have been for quite some time, despite the current economic woes. 

Gervais Williams & Martin Turner 28.02.2023

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