The current continuation of volatile global equity markets is more of an opportunity than a threat – even if it currently feels uncomfortable to think this.
“The biggest struggle in times of strife and lurid financial media headlines is the acknowledgement that not everything is bad”. (Chris Bailey 2016)
We know it is not easy to live up to the market dictum of ‘being greedy when others are fearful’ (and fearful when others are greedy). The sheer creativity of the financial media in generating a thorough range of ‘worst stats since…’ statistics over recent days shows this. Of course then to make a splash, even more extreme commentary gets exposure and fears of bubbles in the bond market morph into bonds as a safe haven. Or as the Swedish banks complained about a few days ago that, despite negative interest rates they remain awash with cash. That’s current investor caution for you.
The backdrop has evolved despite the best efforts of central banks and economic policy makers around the world, and we do not believe the recent World Bank downgrading of global growth prospects is likely to be the last this year. It even changes the views of the prudent and longer-term focused. For example, the Swiss government decided to unlink the franc from the euro last January on fears that the latter’s depreciation scope was causing too much tension to sustain the link. Last weekend the Swiss National Bank Chairman, Thomas Jordan, was moved to say that the franc was overvalued against the euro, and that the Swiss currency was likely to go sideways or down against major global peers. In a word: caution.
European Strategist Chris Bailey perfectly summed up our current outlook for long-term investors when he wrote the following in a recent press article:
‘The current depressed sentiment combined with healthy job creation in the United States, ongoing stimulus activities by the European Central Bank, and still rapidly growing Chinese consumer spending, widens the scope for positive surprises during the year. View volatility in equity markets in 2016 as an opportunity and not a threat’. (Chris Bailey, 2016)
When caution abounds and macroeconomic fear casts a shadow the scope for stock selection increases. The most striking attribute of the choices was not just the nod towards shareholder remuneration opportunities, or the potential benefit from some improved sentiment from the current near rock-bottom levels towards commodities, or the emerging markets, but the opportunities for organic earnings per share growth in the market.
The biggest struggle in times of strife and lurid financial media headlines is the acknowledgement that not everything is bad. The generation of organic earnings per share growth is the ultimate company level pushback. The relatively modest corporate earnings per share growth anticipated on 1 January for 2016 as a whole is the greatest signal that any element of surprise growth is going to be rewarded.
Investment markets are seldom easy, but the scope for stock-picking adding value this year should not be ignored. We continue to select those investments with solid fundamentals which we feel can generate real return in the long term. Our advice is to keep calm and long term value investments will prevail.
Our latest Market Outlook video is now available to view, offering insight into our thoughts for what the market holds in 2016.