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.
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…).
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.
The contents of this document have not been reviewed by any regulatory authority in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the Securities and Futures Commission in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
此網站由Robeco Hong Kong Limited（「荷寶」）擬備及刊發，荷寶是獲香港證券及期貨事務監察委員會發牌從事第1類（證券交易）、第4類（就證券提供意見）及第9類（資產管理）受規管活動的企業。本網頁未經證券及期貨事務監察委員會或香港的任何監管當局審閱。
Robeco Capital Growth Funds以其特定的投資政策或其他特徵作識別，請小心閱讀有關Robeco Capital Growth Funds的風險：
荷寶保證將會根據現行的資料保障法例，以保密方式處理登入此網站的人士的數據。除非荷寶需按法律責任行事，否則在未經登入此網站的人士許可，不會向第三方提供該等數據。 請於我們的私隱及Cookie政策 中查找更多詳情。