IT IS a good time be a bear.
The correction that started across global asset markets in September has accelerated, and on Thursday we hit official "correction" territory, with the FTSE-100 down over 10 per cent from its September peak.
We do not believe that this latest correction marks a change in the medium-term direction of equity markets or the death of the bull market. However, there are elements of this latest sell-off that could mean that it is longer lasting and more destructive than previous episodes and from a "technical" perspective markets have fallen through short term support levels.
It would be naive not to recognise that the latest bout of (quite extreme) volatility could easily have a negative impact on short-to-medium term investor sentiment. From an economic perspective we have to acknowledge that there are worrying trends taking place, but we still feel that steady but unspectacular growth will be likely in 2015.
Clearly the uncertainty over forecasts is high at this time, with other geopolitical risks and the threat of ebola clouding the outlook.
Notably, however, when the perennially useless fellows at the IMF cut their growth expectations this week, they still expected the trend growth of (circa) 3.5 per cent that we have been forecasting. Certainly there are downside risks to growth, which is all the market cares about presently, but there are also upside risks. While we are not overly optimistic, we are not expecting the world to sink back in to recession.
Turning to markets, having complained that there was precious little value in many asset markets for the last year, we are now much more comfortable with the valuations we are paying for investments.
It is not our view that there will be no corporate earnings growth next year and we do not believe that markets such as the UK, Europe, Japan and many emerging markets have much farther to fall from a valuation standpoint. In fact, many equities now look good value to us.
We expect to follow up our recent US high yield credit purchases with a reversal of our decision to take developed world equities - underweight in July - by increasing UK equities. This week we will be both evaluating at what point we should take this decision and which manager from our list we should use.
Having expected this to be a large-cap call, the decimation we have seen in the former mid-cap darlings might encourage us to use a multi-cap fund. Certainly the correction we had been expecting in mid-cap names has removed a lot of the froth we had been worried about. We are also starting to research opportunities in emerging market equities and debt.
Ultimately we believe some of the concerns are overdone and the recent correction gives long-term investors an opportunity to selectively add to quality investments at fair prices. Much of the over-valuation and complacency that had concerned us in global asset markets has been washed out in the last few weeks.
n Tom Becket is the chief investment officer at PSigma Investment Management
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