Zehrid Osmani, manager of the Martin Currie Global Portfolio Trust, gives his market outlook and suggests how investors should approach the current pandemic…The ever-deepening Coronavirus crisis is having a profound impact upon people’s lives the world over, and markets are experiencing their worst falls since the global financial crisis. While it may be hard to see a path out of the doom and gloom, taking a view of the current situation and having a balanced and pragmatic approach to market conditions, focusing on long-term themes, is more important than ever for investors.
Markets are likely to remain in fear mode for several weeks – maybe longer – and are likely to remain volatile given both the headwinds to growth and earnings, and the likely supportive monetary and fiscal measures. There will therefore certainly be plenty for the short-term pessimists to focus on.
Depending on risk appetite, the market may or may not be willing to look through the sizeable earnings downgrade risk and profit warnings coming up in Q1 and potentially Q2, leading to a reduction in 2020 estimates. The coming months will be a period spent hoping for economic activity to recover in the second half of the year.
We believe markets will bottom once an appropriate policy response comes through, once pandemic threat eases and the short-term negative impact on economic and corporate activity is accounted for.
Short-term investors will focus too much attention on the earnings downgrades to come at quarterly results, but for long-term investors such as ourselves, we see this period as a potential opportunity to buy more of the stocks that we like at more favourable entry points than previously. Indeed, those with an investment horizon of five to ten years should be sanguine and pragmatic during this type of event. A clear focus on quality businesses with strong balance sheets, pricing power, high returns and sustainable business models helps withstand short-term downward pressure. Those that are exposed to the economic benefits of longer-term growth trends may bounce back faster than others.
We have identified three megatrends which we believe are going to be driving market dynamics across a range of industries, long after the current share price slump has passed: Demographic Change; the Future of Technology; and Resource Scarcity. These mega-trends that will remain relevant on a multidecade perspective and we will therefore look to use this valuable time to invest in companies that are the long-term beneficiaries of these themes at attractive valuations.
