Cold start to 2009

Finweek English Edition - - Creating Wealth - MARC ASH­TON

DE­SPITE THE PRE­VAIL­ING gloom this year is in­creas­ingly un­likely to be a poor one for eq­uity mar­kets. That’s the view of In­vestec strate­gist Max King. “Among the in­vest­ment com­mu­nity the sense of cri­sis last au­tumn has given way to re­lent­less gloom,” King says. He points to the “Jan­uary barom­e­ter” as an in­di­ca­tor the bank uses to pre­dict eq­uity mar­kets.

In­vestec’s barom­e­ter shows what hap­pens in Jan­uary is in­dica­tive of what to ex­pect for the rest of the year. Says King: “If it’s valid this year in­vestors would ap­pear to be in for an­other poor year.”

Eq­uity mar­kets world­wide have swiftly un­rav­elled since Oc­to­ber 2008, which has seen enor­mous value de­stroyed and pun­ters are wor­ried about step­ping back into the mar­ket de­spite the con­fi­dence dis­played by in­vestors like War­ren Buf­fett who have been buy­ing as­sets de­spite mar­ket tur­moil.

King says a rapid suc­ces­sion of fis­cal, mon­e­tary and fi­nan­cial pack­ages is lead­ing to in­creas­ing cyn­i­cism. “They aren’t work­ing, they can’t work or they have po­lit­i­cal rather than eco­nomic ob­jec­tives. Those who ac­knowl­edge mar­ket up­side see it as only a bear mar­ket rally. The pre­vail­ing view on the out­look for economies and cor­po­rate earn­ings is cat­a­stroph­i­cally bear­ish, ex­pect­ing de­pres­sion rather than re­ces­sion and per­ma­nent rather than tem­po­rary falls in prof­its.”

Says King: “The risk of new lows will re­main un­til there’s ev­i­dence of eco­nomic green shoots in the US and of a re­duc­tion in the down­ward mo­men­tum of earn­ings. What we can say with in­creas­ing cer­tainty is that such a set­back should rep­re­sent a once-in-agen­er­a­tion buy­ing op­por­tu­nity.”

Sup­port­ing King’s view is re­search from the an­nual Bar­clays Eq­uity Gilt Study, writ­ten by the highly re­garded Tim Bond.

In­vestec strate­gist King says Bond’s re­search points out eq­uity re­turns over the past decade have been among the worst on record. In the US mar­ket it was the fourth­worst decade in the past 83 years – re­turn­ing only -0,3% an­nu­alised – and only the decades end­ing in 1937, 1938 and 1939 were worse.

By the late Nineties the Bar­clays model, based on long-term met­rics, was pro­ject­ing neg­a­tive re­turns for US eq­ui­ties over the next 10 years for the first time since the model’s in­cep­tion in 1935 – ex­actly as has hap­pened. Over the next 10 years the model projects a re­turn of 12%/year, enough to make a port­fo­lio more than tre­ble in value.

How­ever, in­vestors have heard sim­i­lar com­ments from a num­ber of as­set man­agers and will be tak­ing such up­beat com­ments with a pinch of salt as they con­tinue to watch their port­fo­lios de­cline.

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