Markets

Focus on long-term destination, not the bumpy ride

After another turbulent week in global markets, Rory Bateman and Nicholette MacDonald-Brown point out that the recent selloff could represent a buying opportunity for long-term investors. 

12/02/2016

Rory Bateman

Rory Bateman

Head of UK & European Equities

Nicholette MacDonald-Brown

Nicholette MacDonald-Brown

Fund Manager, European Equities and Co-Head of Pan European Equity Research

A market correction, not an economic deterioration

Higher levels of volatility have been a feature of stockmarkets for a number of weeks now. There are several reasons for this including disappointments over Chinese growth, currency moves, and oil price weakness. In our view, what we have seen is very much a market correction as opposed to a serious deterioration in the global economic environment.

These periods of sharp market moves understandably make headline news. However, it is important to remember firstly that equities can be a volatile asset class, and secondly that equity investing is a long-term business.

For active managers taking a long-term view, such as ourselves, volatility can give rise to opportunities. In times of fear, markets tend to sell off across the board. The result is that solid businesses with good prospects for growth trade at lower valuations than they did previously, offering an opportunity for investors.

From a European standpoint, the region’s economy is continuing its slow recovery and the services sector in particular looks encouraging. The recent market weakness means equity valuations are compelling in many areas of the market. As ever, we retain our focus on stock-specific opportunities, seeking out those companies that have been mispriced by the market.

Rory Bateman, Head of UK & European Equities

An attractive entry point for Italian equities

The Italian equity market with its high exposure to banks and energy, 50% of the index, has found itself at the epicentre of concerns around lower growth and lower oil prices at the beginning of 2016, dragging the market down 25% in just a few weeks. For long-term investors, we believe that the size and speed of this selloff provides an attractive entry point into Italian equities. The Italian equity market contains some of the best brands in the world, both industrial and consumer, and the scale of de-rating seen in recent weeks leaves the market trading at very attractive levels relative to its own history.

It would be naïve to say that we are not in for a volatile ride as investors decide whether or not European markets can decouple from fears of a US recession, but the brave investor with an eye on the long term will always find attractive opportunities when other investors are being ruled by emotion and running for the hills.

Nicholette MacDonald-Brown, Co-Head of Pan European Equity

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