Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Tom Walker, manager of the Martin Currie Global Portfolio Trust.
What with the European debt crisis, a moribund US economy and growing signs of problems in even the developing world, it would be glib to echo Franklin Roosevelt by suggesting that ‘we have nothing to fear but fear itself’. The risks are real. That’s why we’ve had the worst quarter in equity markets since the collapse of Lehman Brothers in 2008. But while we shouldn’t downplay the various issues besetting the global economy, we should acknowledge that ‘fear itself’ is a significant part of the problem.
Ultimately, the big question is whether this year will prove to be a rerun of 2008 (the doomsday scenario that causes equity markets to spiral downwards) or simply a repeat of 2010 (when stockmarkets recovered as economic sentiment improved). On balance, I think we’re looking at a 2010 scenario. The financial system is in much better shape than it was three years ago and the world’s policy-makers are alert to the dangers.
In particular, the US Federal Reserve has repeatedly demonstrated that it is willing to supply stimulus as required. Even in the worst-case scenario – a 2008 rather than a 2010 – we should remember that companies are in much better shape than they were in the credit-bloated run-up to the Lehman debacle.
But constructing a portfolio by betting on a particular macroeconomic outcome is a fool’s errand. The best approach in such an uncertain environment is to listen to the companies themselves. This isn’t infallible – very few companies saw the 2008 downturn coming. But it does provide us with a better basis for decision-making than succumbing to the waves of fear engulfing markets and filling headlines.
And what companies are telling us is much more reassuring than the macroeconomic newsflow. Corporate results have been good so far this year, and managements are generally confident; they repeatedly tell us that they haven’t experienced anything that would suggest a ‘double dip’. If that is confirmed in the forthcoming reporting season, some of that confidence may seep into the equity markets too.
So, in all, equity investors should remember that panic inevitably results in overreaction. That suggests the world’s strongest companies are due a substantial rebound in their share prices, and those who can hold their nerve should eventually be rewarded.
Thanks to an apparently insatiable appetite for its consumer products, Apple (Nasdaq: AAPL) continues to capture market share. Although it is now one of the largest-capitalised companies in the world, it still offers huge growth potential. Apple should also benefit from increased demand for iPods and iPads from the middle classes of Asia and Latin America.
PT Astra International ( US: PTAIY
) is a large Indonesian conglomerate with strong positions in automobile manufacturing and construction. Indonesia’s growing middle class and rapid economic development provide a strong growth environment for Astra’s earnings.
Some developed-world consumer stocks are benefiting from a tightening of belts in the Western world. Fast food giant McDonald’s (US: MCD), with its constant innovation, is perhaps the most obvious example. It certainly stands to profit as consumers ‘trade down’.