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Panicky overreaction presents long-term investors opportunities

22 March 2020

As financial markets continue to be spooked by the Coronavirus pandemic, investment experts say that investors must adopt a long-term view and invest into the opportunities, not give into the current panic.

Terence Moll, head of investment strategy, Seven Investment Management, says it is likely to be a temporary shock, as authorities around the world work together to contain the outbreak.

He says: “Thus far, the actions taken to preserve our physical health have been negative for financial assets like equities and commodities. We believe this is a panicky overreaction and will give long-term investors lots of opportunities over the next few months.

“We are fortunate. Our blend of strategic and tactical positioning has put us in a position to start looking out for some of these opportunities. We will do this in a measured way, since risk management is at the heart of our investment process.”

Mark Walker, managing partner, Tollymore Investment Partners, said investment decisions should be made based on data rather than emotions, with social media stoking the panic among investors.

He said: “The median market performance two years after a correction is 45%. This alone statistically suggests investing into corrections is how long-term investors perform better than macro traders and market speculators. It does not mean that if you invest today the market will not go down further and if the market declines further it does not mean investing today was the wrong thing to do. It just means you didn’t pick the bottom. Trying to pick the bottom is a tiny return on investment game to play.

“The only way to navigate these periods with sanity and resilience is to have a very long-term view. Those who understand compound interest earn it; those who don’t, pay it. Those who have the temperament, mindset and patience to invest countercyclically over the long term do the best.”

Tollymore said its focus this year has been upon purchasing more shares of smaller, less liquid companies where there may have been non-fundamental selling pressures exaggerating the decline in stock price.

“Capacity constraints are an important safeguard against permanent capital erosion; their paucity is a function of widespread greed, something we hope to exploit,” Walker said.

Meanwhile, Margaret Lawson, co-fund manager, SVM UK Growth, said crises do not set the world on a new course, but highlight and magnify existing problems and said the Coronavirus should not only drive changes in business models, but in portfolio strategy.

She said: “In terms of bank risks, deflation potential, and manufacturing export emphasis, it is not the UK but the major economies of the Eurozone that stand out. This heightens short term risks for those countries and may point to a poor fit with the evolving global political and social landscape. Premium ratings will be merited in future for economies that are more flexible, and for the agile businesses within them.”

According to Lawson, investors should recognise the value of disruptive strategies and dynamic economies with clear political leadership.

She said: “Global businesses should think more about resilience; shorter supply chains and lower energy use. Brexit will drive the UK towards further internalisation of some key sectors, leading to regeneration and rebalancing of the economy, with opportunities for domestic sectors. In a world where deflation is a real possibility, a degree of wage growth inflation in the UK may be stabilising. International investors who sold out on Brexit concerns, may begin to see the differences between the UK and Eurozone as a positive.

Lawson added: “Stockmarkets are often driven to extremes in both directions. How a portfolio emerges from this depends on its construction and the research that underpins that. Trading amidst heightened fear rarely helps.”

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