chinazh
Market update: what now, what next?

Market update: what now, what next?

16-03-2020 | 市场观点
While it is never fun to be in the midst of a market meltdown, we have learned that this is a good time to be long-term, active investors.
  • Fabiana Fedeli
    Fabiana
    Fedeli
    Global Head of Fundamental Equities
  • James Stuttard
    James
    Stuttard
    Head of Global Macro team and Portfolio Manager, Robeco

Speed read

  • Equity and credit markets have declined with unusual velocity
  • It’s impossible to pick the bottom of the market, and indiscriminate buying is risky
  • For both credits and equities, now is the time to be patient

Picking the bottom of the market is next to impossible, as it depends on so many exogenous and difficult-to-predict factors – such as timing and content of policy decisions, and the progression of the outbreak.

This is why a gradual approach is, in our opinion, the best course of action. Importantly, this is not a market to buy indiscriminately.

关注官方微信
QR code Wechat

The decline has been severe – and policy flexibility is limited

In the last three-and-a-half weeks, equity and credit markets have fallen with unusual velocity, not seen since 1987, and sharper even than 1929. While equity drawdowns got the media attention, the US long bond yield moved as much intraweek as in the entire 2013 Taper Tantrum. Dysfunctional markets, wild swings, and a lack of executable bids and offers suggest a liquidity crunch and forced sellers. This is all happening in an environment of large debt overhangs and banks being hampered by regulations and unwillingness to run risk.

All eyes are currently on governments and central banks. They are the ultimate long-term investors, deciding how to support the best economic growth now and in the future. But although historically the toolkit to act has been large, policy flexibility is lower than at any time since the 1950s. You have to be over the age of 80 to know recessions at this starting level of rates (there are advantages in the age of corona to being old…).

So, how to invest in the current environment?

At this point, we do not know what the next steps in policy response will be and how deeply and for how long they will affect the global economy. We feel fairly confident that, at some point, markets will recover and recuperate their losses. As long-term equity investors, we have learnt that the best strategy is to slowly and gradually pick our entry points. Picking the bottom is next to impossible, as it depends on so many exogenous and difficult-to-predict factors (such as timing and content of policy decisions and the progression of the outbreak).

This is why a gradual approach is, in our opinion, the best course of action. Importantly, this is not a market to buy indiscriminately. We need to make sure that we are picking the right stocks. In a rebound, the tide will lift all boats, but once the earnings impact becomes clear, we will start being able to distinguish the winners from the losers. Some companies will have more difficulty with recovering; some might never recover.

Companies that face bigger difficulties include those in seasonal businesses such as the fashion industry, where there are short periods for goods to be sold before these become inventory. Another example is companies depending on complex and global supply chains that are facing disruptions. Demand will recover at some point but supply might take longer to fall back into place. Other industries might see a significant and sudden recovery in demand, but the extent of the declines might have made them unable to operate. A case in point is the travel industry. Companies with weak balance sheets and unable to finance their working capital needs might not survive. We are likely to see restructuring and consolidation ahead.

At this stage, we believe that there will be better opportunities to buy in these markets ahead. News of the coronavirus spreading and the related policy response, as well as further strains in the high yield space, could rattle markets further. Earnings estimates will also have to see another round of negative revisions. We are patient. While it is never fun to be in the midst of a market meltdown, we have learned that this is a good time to be long-term active investors.

免责声明:

本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。
Logo

Disclaimer

The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

Please confirm that you are a professional investor and/or institutional investor and that you have read, understood and accept the terms of use for this website.

I Disagree