ALEC STEWART

 

It was all looking rather rosy at the start of January.

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Indeed, with valuations across a number of markets improving, I felt positively buoyant and relatively sanguine as I faced a new year.

Sadly, the first few weeks of January have been pretty traumatising all round. Increasing concerns over slowing growth in China have led to global stock market falls and the Chinese stock market is now firmly in ‘bear’ territory.

In the face of all this doom and gloom, I can well understand why so many are already succumbing to depression and the naysayers are telling anyone who will listen that now is the time to sell.

It is a sad fact that in today’s digital world of bloggers and social media communication, many are pedalling their tales of woe to an invisible audience, uncertain and largely unconcerned as to whether anybody is, in fact, listening.

Knee-jerk selling on an approaching Armageddon, of which I see little evidence, ignores the opportunity to benefit from the value that has emerged in a number of areas.

Of course, I am well aware this may all sound like the soothing words of someone working in the financial services sector urging clients to hold their nerve and give us the mandate to continue to manage their money. While that may well be true, to a greater or lesser extent, opportunities have been created from which people can benefit if they look a little closer. An obvious example was presented last year.

Take the fall in the oil price, which has been widely documented as having halved during 2015. In contrast, the oil-dependent market of Russia enjoyed positive returns during 2015 (+ 10.25 per cent MSCI Russia). Admittedly, the Russian market had already suffered its own woes during 2014, down more than a third due to various issues, most particularly President Putin’s penchant for anything belonging to his neighbours.

Concerns over falling oil prices also led to significant selling in the Russian market, which in terms of capitalisation, is now smaller than that of tech company, Apple.

So the market now trades at surprisingly cheap levels, with a price/earnings ratio of 6.2, which compares with the FTSE100 at circa 16. In relative terms it still looks cheap.

Now that is not a call to buy up anything Russian. Indeed, it's worth remembering that any investment can remain cheap for longer than an investor can remain liquid. Nevertheless, it does suggest that there are opportunities to make money, just so long as the price is right. Some might choose to reflect on the fourth-quarter earnings for JP Morgan Chase, where revenues and profits reached all-time highs and exceeded expectations. Despite that, the share price has fallen more than 10 per cent in two weeks.

Across the board, cash accounts continue to offer a derisory return. Admittedly, you may not make any money on your savings but at least you know that it is safe. However, at current valuations, surely some asset classes trading at favourable values may be worth investigation, rather than a wholesale bout of selling and a flight to safety.

According to a rather dog-eared volume from my school days, the dictionary definition of a ‘horror story’ is a “genre of literature intended to or has the capacity to frighten, scare, disgust, or startle their readers or viewers by inducing feelings of horror and terror.”

We all love a horror story so it is not surprising that headlines of impending disaster and a rapid decent into the heart of darkness have a tendency to grab attention and spark the febrile imagination of the markets.

But please, let’s not talk ourselves into another global market meltdown. It’s really not big and it’s definitely not clever. Rather let us focus on the opportunities for growth and hope these fabled green shoots are not the stuff of that other popular literary genre, the fairy tale.

Alec Stewart is chief executive of Anderson Strathern Asset Management